September 20, 2021 | Payroll Software | Posted by Vicki Lambert, CPP
State Versus Federal: Which One Rules When it Comes to Garnishments
The proper handling of garnishments under federal law is one of the most difficult issues affecting your payroll department. When you add in the state laws this can become even more difficult to determine compliance. Except for federal tax levies and federal agency debt collections (see previous blog for definitions) all federal garnishments and state garnishments could be covered under both the state law and the federal regulations. Any exceptions to this? Yes, both State tax levies and voluntary wage assignments are governed exclusively by state law. So, when does federal law supersede state law or vice versa? That is what we will determine in this blog. We will be covering the difference between federal and state laws for child support, creditor garnishments, voluntary wage assignments and state tax levies. One facet of withholding that helps determine which law to follow is that the federal law (if it exists) will not permit the state law to be higher.
Example, if federal law permits an employer to deduct 25% from the employee’s pay, the state could not require 30%.
Let’s begin with child support. This one is probably the easiest one to reconcile federal and state laws. Covered under the Consumer Credit Protection Act (CCPA), child support has set limits on what can be deducted under federal law. Basically, the employer can take 50% of the employees’ disposable income if the employee has a second family, or 60% of that same income if the employee is not supporting a second family. If the employee is in arrears (12 weeks or more behind in payments) an additional 5% can be added to those amounts. 21 states do not adhere to the federal law. In most of those states the withholding is limited to 50% of disposable income or net disposable earnings. Only Alaska, Connecticut, North Carolina, and West Virginia are lower than the 50% limit. See accompanying chart.
|ALASKA||40% of disposable income; may go up to 65% when good cause is determined by agency|
|ARIZONA||50% of disposable income|
|CALIFORNIA||50% of the net disposable earnings|
|CONNECTICUT||If weekly disposable income is:
|IDAHO||50% of disposable income|
|IOWA||50% of net disposable income|
|KANSAS||Limits withholdings to 50% of disposable income as that term is defined in the CCPA for all withholdings|
|LOUISIANA||50% of disposable income|
|MICHIGAN||50% of disposable earnings as defined in the consumer credit protection act|
|MONTANA||50% of disposable income|
|NEW MEXICO||50% of disposable income|
|NEW YORK||50% if no arrears/55% is greater than 12 weeks late|
|NORTH CAROLINA||40% of disposable income if one order, may go up to 50% if multiple orders|
|NORTH DAKOTA||Not to exceed 50% of disposable income|
|OREGON||50% of net disposable income|
|SOUTH DAKOTA||50% of disposable income|
|TENNESSEE||50% of disposable income|
|TEXAS||50% of disposable earnings|
|UTAH||50% of disposable earnings|
|WASHINGTON||50% of disposable earnings|
|WEST VIRGINIA||Reduces the CCPA limits by 10% each. Also, in a case with current support, the arrearage collection cannot be more than 25% of the current support amount. The 25% limit can be increased by up to $200 per month if the obligor owes a substantial arrearage.|
Creditor Garnishments and the State Laws
Next let’s examine creditor garnishments and the state laws. This is an area of garnishments that has a vast difference between the what the federal law allows under the Consumer Credit Protection Act and what the state law permits under their own requirements. To review, the CCPA limits deductions for creditor garnishments weekly to the lesser of 25% of disposable or the amount that exceeds 30 times the federal minimum wage. The following states do not adhere to these guidelines and have placed their own weekly limits on creditor garnishments: California, Colorado, Connecticut, District of Columbia, Delaware, Illinois, Massachusetts, Maine, Minnesota, North Dakota, New Mexico, Nevada, New York, Oregon, South Carolina, South Dakota, Texas, Virginia, Washington, Wisconsin, and West Virginia. See accompanying chart for the rules for these individual states.
|CALIFORNIA||The lesser of 25% of disposable income or 50% of the amount by which the disposable earnings for the week exceed 40 times the greater of either the state or local minimum wage rate in effect.|
|COLORADO||Lesser of 20% of disposable income, or the amount of disposable income in excess of 40 times the state minimum wage rate.|
|CONNECTICUT||Lesser of 25% of disposable income, or the amount of disposable income over 40 times the state minimum wage.|
|DISTRICT OF COLUMBIA||25% of disposable or 40 times the District’s minimum wage.|
|DELAWARE||15% of total wages|
|ILLINOIS||Lesser of 15% of gross wages or the amount over 45 times the state minimum wage.|
|MASSACHUSETTS||15% of gross wages or 50 times the Massachusetts minimum wage whichever is less.|
|MAINE||The lesser of 25% of disposable income or the amount disposable income over 40 times the state minimum wage.|
|MINNESOTA||25% disposable or the amount over 40 times the federal minimum wage.|
|NORTH DAKOTA||The lesser of 25% of disposable income or the amount that exceeds 40 times the federal minimum wage.|
|NEW MEXICO||Lesser of 25% of disposable or the amount that exceeds 40 times the federal minimum wage.|
|NEVADA||The lesser of 18% of disposable earnings if the employee earns $770 per week or less, 25% of disposable earnings if the employee earns over $770 per week or the amount over 50 times the federal minimum wage.|
|NEW YORK||The lesser 25% disposable or the amount that exceeds 30 times the state or federal minimum wage in effect.|
|OREGON||The lesser of 25% of disposable earnings are the amount that exceeds $254 per week.|
|SOUTH CAROLINA||Garnishments are not allowed for debts arising from consumer credit sale.|
|SOUTH DAKOTA||The lesser of 20% of the weekly disposable earnings or the amount of disposable earnings over $378|
|TEXAS||All current wages for personal service are exempt from garnishment.|
|VIRGINIA||Lesser of 25% of disposable earnings or the amount that exceeds $290 per week.|
|WASHINGTON||The lesser 20% of disposable earnings or 30 times the state minimum wage.|
|WISCONSIN||20% of disposable earnings|
|WEST VIRGINIA||The lesser 20% of weekly disposable earnings for the amount that exceeds $362.50 per week.|
Voluntary Wage Assignments
Voluntary wage assignments are an easy area for payroll when it comes to compliance. Since these types of wage assignments are not mandated by a court or served on the employer they are not covered under any federal law. The CCPA limits do not apply since voluntary wage assignments are not, in reality, a garnishment. They are, in essence, a request by the employee to pay a bill on their behalf. With the exception of Illinois, employers are not required by any state law to honor these types of voluntary wage assignments. In Illinois the employee may request you not to honor the voluntary wage assignment by completing the proper paperwork.
State Tax Levies
The final type of garnishment that we are going to cover is the state tax levy. As a reminder state tax levies are not covered by the CCPA limits. The state could follow the CCPA limits if it chooses to, or it could establish its own limitations. States that follow the CCPA limits for their state tax levies include: Alabama, Arizona, Arkansas, California, Hawaii, Indiana, Iowa, Louisiana, Maryland, Minnesota, New Jersey, Utah, and Vermont.
States that have their own rules include the following:
|ALASKA||Permitted for other state and local taxes but does not specify the limits|
|COLORADO||No limits apply as to the percentage of disposable income that reached|
|DISTRICT OF COLUMBIA||No limits|
|FLORIDA||Permitted but pension and other retirement plans are exempt|
|IDAHO||Up to 100% of employee’s disposable earnings may be collected|
|ILLINOIS||Lesser of 15% of gross income per week or the amount by which disposable earnings for the week exceed 45 times the federal minimum hourly wage in effect.|
|KANSAS||Up to 100% of employee’s disposable earnings|
|MASSACHUSETTS||$75 plus $25 for each individual specified in a written statement are exempt from weekly wages|
|MONTANA||No provision provided|
|NEVADA||Permitted no limits specified|
|NEW HAMPSHIRE||Permitted but not against pensions|
|NEW MEXICO||No provision provided|
|NEW YORK||No provision provided|
|NORTH CAROLINA||10% of wages paid in a month|
|NORTH DAKOTA||No limits|
|OKLAHOMA||Effective November 1, 2021 25% of earnings per pay period|
|PENNSYLVANIA||10% of wages|
|RHODE ISLAND||$75 plus $25 for each dependent each week is exempt from levy|
|SOUTH CAROLINA||25% of wages do|
|SOUTH DAKOTA||20% of disposable earnings or the amount that exceeds 40 times the federal minimum wage whichever is less|
|VIRGINIA||Up to 100% of the employee’s net pay|
|WASHINGTON||Not permitted on pension or other retirement plan payments|
|WEST VIRGINIA||30 times the state minimum wage is exempt with an additional $25 exemption for each dependent|
|WYOMING||Not permitted on pension or retirement plans|
As a reminder, even though a state does not have a state income tax, the resident of the state could be subject to a garnishment from a previous state that did have state income tax. For example, I may have been a resident of California, failed to pay my income tax, and then moved to Nevada.
In conclusion, what is the answer to our original question as to whether or not federal or state law apply when it comes to these types of garnishments? The answer is simple: Whichever favors the employee or in other words takes the least amount of money from his or her pay, that would be the law that you follow.
To learn more about the fundamentals of wage garnishments, check out our payroll webinar, “Tax Levies and Creditor Garnishments: What Payroll Must Know to Stay in Compliance”. Additionally, founder of The Payroll Advisor, Vicki Lambert's blog (Payroll 24/7) is a great resource for all things payroll and garnishments.
Need an extra hand when it comes to payroll wage garnishments? Check out Ascentis' powerful payroll software.
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.com offers a payroll news service which keeps payroll professionals up-to-date on the latest rules and regulations. With 40 years of hands-on experience in all facets of payroll functions as well as over three decades as a trainer and author, Ms. Lambert has become the most sought-after and respected voice in the practice and management of payroll issues. She has conducted open market training seminars on payroll issues across the United States that have been attended by executives and professionals from some of the most prestigious firms in business today. A pioneer in electronic and online education, Ms. Lambert produces and presents payroll related audio seminars, webinars and webcasts for clients, APA chapters and business groups throughout the country. Ms. Lambert is also an adjunct faculty member at Brandman University in Southern California where she is the instructor for American Payroll Association’s “PayTrain” online program.