a to z of garnishments: part 2: tax levies and creditor ......creditor garnishment limits by state...

Presented on Tuesday, May 2, 2017

A to Z of Garnishments: Part 2: Tax Levies and

Creditor Garnishments

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Terms, Definitions and Priorities Laws and Regulations Federal Tax Levies Federal Agency Debt Collections State Tax Levies Creditor Garnishments Voluntary Wage Assignments Bankruptcies Student Loans

What Is Our Focus For Today?

©2017 The Payroll Advisor

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Vicki M. Lambert, CPP, is President and Academic Director of The Payroll Advisor™, a firm specializing in payroll education and training. The company’s website www.thepayrolladvisor.comoffers a subscription payroll news service which keeps payroll professionals up-to-date on the latest rules and regulations.

Today’s Presenter

Vicki M. Lambert CPP

http://www.thepayrolladvisor.com/

Usual Suspects


Child Support

Federal Tax Levy

Federal Agency Debt Collection

State Tax Levy*

Creditor*

Student Loans*

Bankruptcies*

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*Not really sure where they fit in until received due to state laws

Exceptions on Priority


Federal tax levy is received prior to child support order

Federal Agency Debt received prior to tax levy

Bankruptcy may include other levies and child support and therefore goes first

Student loans fall in with creditor

State tax levy and creditor depend on state requirements

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Consumer Credit Protection Act


Limits the amount that can be deducted from “disposable pay” for child support and creditor garnishments

Limits apply if more than one garnishment is in effect

Does not apply to federal or state tax levies

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Terminating Employees


Garnishments and tax levies are a per payroll event

Take normal deduction

Do the required notifications

Watch for the state tax levies—may require entire amount taken

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Federal Tax Levies


Form 668-W Notice of Levy on Wages, Salary and Other Income

Amount of deduction based on Publication 1494

Chart lists amount exempt from levy

Deduct from “take home pay”

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Form 668-W


Six part form (Part 6 retained by IRS)

Part 1—Employer’s copy

Parts 2-5 Given to employee

Part 2 – Employee’s copy to keep

Parts 3-5 require employee to complete information

Part 3 and 4 are returned to employer within 3 days

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Form 668-W


Employee keeps part 5

Payroll gets back parts 3 and 4

Payroll keeps Part 4 and sends in Part 3

If not received use married filing separately plus one personal exemption

Do not use Form W-4

Use same chart even if year changes unless employee submits new form

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Allowances On Part 3


Employee completes this part

Employee counts as one exemption as well

You may add the employee if they fail to do so since you have the social security number

SSN must be there for all exemptions or they don’t count

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Answering Back


Form 668-W has a required response back from the employer

Send in with the first payment

Make copies for yourself for when employee terminates

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What is Meant by Take Home Pay


Subtract the following in calculating take home pay:Taxes

Voluntary and involuntary deductions in effect before the levy is received

Increases in preexisting deductions beyond the employee’s control

Condition of employment deductions that come after the levy is received

Direct deposit is not counted

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Determining Amount Exempt from Levy


Publication 1494 is used to determine the amount exempt from levy

Changes each year

Use the exemptions and filing status the employee submitted on the Form 668-W

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Paying the Levy


Pay on the same day that payments are made or are due to employee or follow the levy instructions

Complete back of Part 3 of form with first payment

Make payable to “United States Treasury”

Put information on check not stub

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Stopping the Levy


Must receive Form 668-D

IRS wants you to continue to withhold until release is received even if it exceeds amount on levy

Call when you are getting close!

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Between Employees and the IRS


New at the IRS—online payments

Employee fills out application online

Makes payments online

Must still get Form 668-D to the employer

Can encourage employees to use

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Voluntary Deduction Agreement


Form 2159 “Payroll Deduction Agreement”

Totally voluntary on both sides

Still need release form to stop original levy

Three-Part Form

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Terminating Employees


Must take out of final paycheck

Must notify IRS of termination

Use copy of answer back section

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X 1-22-15


Federal Agency Debt Collections


Student loans not the only kind of federal debt subject to garnishment

Fail to pay nontax debt

Subject to CCPA as well as Debt Collection Improvement Act of 1996

Includes vendor, federal retirement, federal salary, and social security benefits

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Disposable pay includes all wages and salary including vacation pay

Deductions include all mandated deductions plus health insurance premiums

Lesser of: 15% of disposable pay or amount that exceeds 30 times the current minimum wage

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Has priority if served first

But not over child support even if it comes later

An amount equal to 25% of disposable pay less the amount(s) withheld under the withholding order(s) with priority

Begin when the order says to

End when release is received

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State Tax Levies


CCPA limits do not apply to state tax levies under 15 USC 1673(b)(1)(c)

COULD BE 25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage

COULD BE anything they want it to be—Example KY allows employee to keep $125/week Plus $60 for each dependent

COULD come on a tax levy form or COULD be a letter

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State Tax Levies


Disposable income could match federal or may not even give a definition

May have priority over other creditor garnishments or it may not

Answer back may or may not be required

May be able to collect a fee

Read the garnishment carefully

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Creditor Garnishments


CCPA limits apply except where state is lower

25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage

Some states have severe restrictions

Federal chart furnished-as of July 2009

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More


Disposable Income


Disposable Income = gross pay - mandatory deductions.

Disposable income is the amount of earnings remaining after subtracting certain mandatory deductions from an employee's gross pay.

Mandatory deductions include federal, state and local taxes; unemployment insurance; workers' compensation insurance; state employee retirement deductions; other deductions determined by state law.

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Disposable Income and Net Pay


Note that disposable income is not necessarily the same as net pay. An employee may have a deduction taken from his pay that is not mandatory, such as union dues or a car loan payment.

Watch out for tips to be included

Limit applies even to multiple garnishments

Other garnishments are not subtracted before determining disposable pay

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MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VAWV

OH

MI

NY

PA

MD

DE

NJ

CTRI

MA

ME

VT

NH

AK

HI

States following federal rules

State rules mirror federal

Creditor Garnishment Limits by State

25% disposable or amounts exceeding 50 times state/fed min wage

25% of disposable or amounts in excess of 40 times state/fed min wage


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25% disposable or amounts exceeding 35 times state/fed min wage

Unique state rules

Follows federal rules with limits for head of household

States With Unique State Rules

AL: 25% of resident’s wages

CA: 25% of disposable of 50% amount exceed 40 times state or local minimum wage

DE: 15% of total wages

IL: 15% of gross wages or amount over 45 times state min wage

MA: 85% or amount of 50 times fed/state min wage

NC: Follows federal except orders from public hospitals and public assistance are limited

PA: 10% for debts to landlords, taxes to municipalities or HEAAA debt

SC: Garnishments not allowed for consumer debts

SD: lessor of 20% of weekly disposable or amount over $346 less $25 for each depending living with employee

TX: Current wages exempt from garnishment

WI: 20% of disposable unless household income below fed poverty level then exempt

WV: 20% of disposable or amount over 50 times fed min wage

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MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VAWV

OH

MI

NY

PA

MD

DE

NJ

CTRI

MA

ME

VT

NH

AK

HI

No provisions for fees

Permit fees

Creditor Garnishment Fees by State

Have unique fees for certain items


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State Fees


Collection of a fee for the employer is sometimes permitted—states with no provisions to collect fees include:

AL, CO, CT, DE, HI, ID, KY, MD, MA, MS, MT, NE, SC, WV, WY

Some states have special provisions for fees such as:

AK: $5 for student loans only

IA only permits witness fees

NH only permits for collection of overpayment of SUI benefits

NM: Employer answering summons entitled to actual costs/attorney’s fees

NY: Employer entitled to advanced travel pay and 1 day’s witness fees

NC permits only for debts to public hospitals or public assistance payments

PA for collection of taxes only or creditor landlords

TN permits for public employers only

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CREDIT QUESTIONS TOPICCREDIT QUESTIONS TOPIC

State Fees


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State Fees PermittedArizona $5 each pay period from nonexempt earnings

Arkansas $2.50 per pay period

California $1.00 for each payment

District of Columbia $2.00 for withholding order

Florida $5.00 for 1st deduction, $2.00 each deduction thereafter

Georgia $50 or 10% of amount paid into court (whichever is greater) but not to exceed $100 as reasonable attorney’s fees or expenses

Illinois 2% of amount to be deducted

Indiana Larger of $12 or 3% of total amount to be deducted ½ of fee from employee, ½ of fee from amount due creditor

Kansas $10 per pay period up to $20 per month, payable by creditor if can’t be taken from employee

Louisiana $3 from nonexempt income each payment garnishment is in effect

Maine $1 per check to be taken from amount withheld

Michigan $6 fee paid by plaintiff at the time a writ of garnishment is served. Amount is $35 for writs issued after 9-30-15

Minnesota $15 paid by creditor to employer at time of service of garnishment

Missouri One time fee not to exceed $20 withheld from wages in addition to garnishment

Nevada $5 paid by creditor to employer at time a writ of garnishment is served. Employer entitled to$3 per pay period not to exceed $12 per month

New Jersey 5% for compensation towards expenses and services in processing each payment

North Dakota $10 paid by creditor when employer is served with garnishment summons

Oklahoma $10 from employee’s funds for answering a garnishment summons

Ohio $3 per pay period payable by employee $1 for property garnishment payable by creditor

Oregon $2 processing fee for each week a payment is made unless withholding reduces below minimums. Must collect after last payment is made

Rhode Island $5 paid by employee for each writ of garnishment

South Dakota $15 for garnishee summons being served

Texas Lessor of actual costs or $10 from disposable earnings

Utah $10 for a single garnishment or $25 for continuing garnishment paid by creditor directly to employer

Vermont $10 for district court cases, $50 for superior court cases payable by creditor

Virginia $10 for each garnishment summons served

Washington $10 processing fee for 1st disbursement and $1 for each subsequent disbursement. $20 for first payment; if continuing lien $10 at time of second payment

Wisconsin $15 garnishee fee from creditor for each garnishment or extension

State Duration


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Until Paid in Full 30

Days

60

Days

70

Days

90

Days

120

Days

179

Days

6 Mos 180 Days Until

Notified

AK; AL; AR; AZ; CA; CT;

DC; DE; FL; HI; IA; ID;

IL; IN; KY; LA; MA; MD;

ME; MI; MO; MS; MT;

NJ; NM; NV; NY; OH;

OR; PA; RI; TX; UT;

KS SD

WA

MN NE

OR

WI

WY

MT; NV GA CO CO

GA (179)

OK

MI (182)

TN

VA

MI

• California: the earlier of paid in full or date of termination as established by the court

• Iowa: or until annual limit is reached

• Michigan, Montana, Nevada, Oklahoma, Oregon, Tennessee: either paid in full or time limit whichever comes first

• North Carolina: public hospital remains for up to 60 months

• North Dakota: 270 days for continuing garnishments

• New Hampshire: 1 pay period

• South Carolina and Vermont: does not address issue

• West Virginia: one year

MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VAWV

OH

MI

NY

PA

MD

DE

NJ

CTRI

MA

ME

VT

NH

AK

HI

Immediately

Within 2 to 7 days

Creditor Garnishment Employer Response Time

Within 2 weeks (8-14 days)


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Within 15-21 days

30 days or more

Varies, per pay period or does not address issue

State Fees


May also be a fee to collect for the state or court or plaintiff in the case

Read the garnishment

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Voluntary Wage Assignment


Are not the same thing as a court-ordered garnishment

Are voluntary so not covered under CCPA limits

Can be revoked at any time by employee so watch for this

State sets the limit and the rules

State can forbid employer to honor, especially for “small loans”

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Bankruptcy


Governed by the federal Bankruptcy Act

Chapter XIII bankruptcy orders take priority over any other claim against wages including child support and tax levies

Should be included in bankruptcy—verify

Get releases when required—child support

Notify courts if child support is involved-No more automatic stays for child support

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Student Loans


Higher Education Act amended to allow for garnishment of wages to repay student loans

15% of disposable or 30 times federal minimum wage which ever is less

Multiples can use the 25% garnishment limit

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Student Loans


Under federal regulations, only those agencies having an agreement with the U.S. Department of Education are allowed to issue wage withholding orders for defaulted student loans made under the federal loan guaranty program. Agencies having such an agreement are referred to as state guaranty agencies or loan servicers.

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Disposable Pay Is Defined As…


The employee’s compensation including salary, overtime, bonuses, commissions, sick leave and vacation pay minus any deductions for health insurance and deductions required by law.

Deductions required by law or proper deductions include federal, state and local taxes; state unemployment and disability taxes; social security taxes; Medicare taxes; and involuntary pension contributions.

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But They Do Not Include…


Voluntary pension deduction or retirement plan contributions or union dues.

A Wage Garnishment Worksheet is included with the Wage Garnishment Order to assist payroll in calculating disposable pay and the wage garnishment amount.

Also website http://fmsq.treas.gov/debt/AWG_calc.html

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http://fmsq.treas.gov/debt/AWG_calc.html

Handling a Student Loan Garnishment


ED first notifies the employer that debtor pay must be withheld by sending a Wage Garnishment Order (SF-329B) form

Provides the debtor’s name, address, and social security number as well as instructions for withholding.

The employer then: completes and returns the Employer Certification (ED-329D) within 20 days of receipt

Begins withholding the amount directed in the order—usually within 10 days

Remit within 3 days after withholding

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But What if the Employee is Gone?


If the debtor is no longer employed by your organization when you receive the Order, simply indicate this on the form and return it to ED or call the Administrative Wage Garnishment Branch at 404-562-6013.

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X

Complete here

Then Each Quarter…


ED will send the employer an Employment Confirmation Report to obtain any information needed regarding any changes to the employment status of the debtor.

The Report lists the debtor/employee's account balance.

Keep in mind that the balance shown on the Report reflects interest that has accrued since the Order was issued. In addition,

ED has used part of the amounts withheld and paid to ED to defray collection costs ED incurs in collecting the debt.

Questions or account balance call (404) 562 -6013.

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Enter all questions into the “Questions” section of the GoToWebinar panel on your computer screen

Are There Any Questions?

Ascentis Payroll can help you manage many of the time consuming tasks related to garnishment processing.

Multi-tier creditor garnishments can be automatically calculated based on the employee’s pay per check.

Multiple state creditor garnishment calculation rules can be entered and maintained based on the garnishment types and states you most routinely encounter.

Customize the maximum withholding percentage for garnishments and child support orders per employee, and let the system calculate the maximum amount that can be taken in a multiple order scenario.

Choose the pro-ration method to use per employee and let the system calculate how to split funds between multiple creditors.

Finally, send the withheld amounts to each vendor or agency with a touch of a button, via check or via EFT. Control is always in your hands.

How Can Ascentis Help Me?




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