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%.

Child Support

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.

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.

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:

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.