COVID-19 has pushed a lot of people to the edge financially. While many are forced to work from home and take salary cuts, others have lost their jobs completely.
But while everyone understands that these are trying times, businesses (in this case, creditors) have to make some tough and necessary measures to reclaim their money to remain afloat. One of the tactics creditors are using is wage garnishment.
Wage garnishment is when the government or the court orders your employer or financial institution to withhold a percentage of your funds from your earnings, assets or bank account to repay an existing debt.
It may sound scary, but luckily, it’s not entirely out of your control. Below we look into how wage garnishment works, how you can protect yourself from it, how much of your income can be deducted by the IRS or a creditor, and what is exempt from garnishment.
If you have consumer debt or owe back taxes to creditors or the IRS, wage garnishment is a costly process that can be used to recover the money. The creditor initiates the process by filing a lawsuit against you. But, before they can take money from your bank account, they need to win the case.
They can do this by pleading their case in front of a judge or through summary judgments. After the win, the creditor sends the court document to your employer, directing them to deduct money from your paycheck.
Conversely, the IRS is able to garnish your wages without a court order on federal taxes owed, but will first send you a written notice outlining the proposed garnishment of your wages.
Now, according to federal law a creditor can garnish up to 25% of your disposable income, after paying taxes and insurance premiums. This is a big chunk of money leaving your account. But even with the current COVID-19 pandemic, the federal government hasn’t put wage garnishments on hold. On the plus side, some states are laying down strict debt collection laws and limits to protect debtors during these trying times.
Moreover, many states like California have banned debt collection altogether, and others have passed laws to protect stimulus checks from garnishment.
If the 25% deduction from your income means you cannot support your family, you can request the court that issued the garnishment reduce it or cancel it altogether. However, you should be prepared with documentation and necessary evidence to support your claims.
The good news is that some income sources cannot be garnished to pay creditors you owe money to or to the IRS. What income cannot be garnished? Here are some sources:
- Disability payments and Social Security benefits
- Veterans’ Federal Benefits
- State disability benefits (ABD)
- State welfare benefits (TANF)
- SSI benefits
- Most pensions can be garnished
- Coronavirus stimulus payments until September 1, 2020 at the earliest
- Compensation for unemployment (the exception would be if you owe child support)
- Any child support payments you receive
- Federal student loans
Retirement benefits and Social Security Disability Benefits can be garnished to contribute towards paying child support, federal tax debt, and alimony. Otherwise, they are exempt from wage garnishment.
Usually, income from the exempted sources remains protected even after it gets to your bank account. Even though you know what income cannot be garnished, it’s good practice to put exempt and non-exempt money in separate bank accounts. This is to make sure that exempt monies are not improperly garnished.
Wage Garnishment Laws
According to the Consumer Credit Protection Act (CCPA), the weekly amount that can be garnished cannot exceed either 25% of an employee’s disposable earnings or 30 times the federal minimum wage (whichever amount is less), to ensure that you have enough to support your family.
To put this in perspective, here are some quick calculations.
Suppose you earn $400 a week, 75% of this is $300. The minimum wage is $7.25/hour, and 30 times, which is $217.50. In this case, since $300 is greater, then that’s the amount of income that is exempt from wage garnishment.
This means that $82.50 can be deducted from your pay every week. However, if you earn less than $217.50, then your income cannot be garnished since it’s below the 30 times garnishment federal provision.
However, the provision doesn’t cover tax debt, familial support, and bankruptcy, as these have different sets of rules that apply to garnishment.
How to Protect Yourself from Garnishment
To protect your income from wage garnishments, you need to file an exemption claim with the court that issued the garnishment order.
To stand a better chance of keeping some or all your wages, you should describe your exemption in your claim and provide other pertinent information like proof of having dependents. The document is filed with the court clerk in the court where the garnishment was originally filed.
Depending on the state laws, a hearing will be scheduled. In the hearing, you’ll explain why the exemptions apply in your case, and if they agree, they’ll order the creditor to stop or reduce the garnishment. But if they disagree, the garnishment proceeds as is stated in the original garnishment order.
Notes About Employers
Given that garnishment provisions vary from state to state, it’s important that the employer carefully reads through the court orders. Some of the things to be on the lookout for is the pay period and when the garnishment starts. Typically, they’ll have up to 30 days from the date they receive the notice to start making deductions.
Also, it’s illegal to retaliate or punish an employee with termination. With that said, there are ways an employer can legally let go of employees who receive repeat garnishments.
Combat Debt With Help From a Polston Tax Lawyer
If you’d like to dispute a garnishment, you should consider having a Polston Tax Lawyer guide you through the process. We will negotiate with creditors and the IRS on your behalf, helping to stop wage garnishment and keep all or some of your income. Contact us today.