COVID-19 has led to many Americans struggling financially. While some are forced to work from home and take salary cuts, others have lost their jobs altogether. But while everyone understands that these are trying times, businesses and 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.
What 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. You can reach out to a Polston Tax attorney and we’ll handle the process for you.
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.
How Wage Garnishment Works
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.
How Much of My Income Can Be Garnished by the IRS?
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 banned debt collection altogether, and others 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. If you need assistance with gathering the right support for your case, Polston Tax can help.
What Income Is Exempt From Garnishment?
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)
- Supplemental Security Income (SSI) benefits
- Most pensions
- Compensation for unemployment, except for child support you owe
- Any child support payments you receive
- Federal student loans
Social Security Disability and retirement benefits can be garnished and used to contribute to alimony, child support and federal tax balances. Otherwise, they cannot be garnished. Even after reaching your bank account, income from exempted sources usually stays protected. 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.
Can Welfare Be Garnished?
Public assistance, or welfare, is protected by the law from wage garnishment. If welfare or another form of protected income is taken from you, you may need to take steps to get the money back, such as contacting your employer or the bank. In the event that this doesn’t work, you may need to go to court to request that the collection stops by filling out an order to show cause.
If you believe your protected money was taken in wage garnishment, reach out to us at Polston Tax. We can help you take the necessary steps to stop the collection or get your money back.
Can Your Wages Be Garnished if You Work Part-Time?
Even if you work part-time and make less money than you would with a full-time job, your wages can still be garnished if you owe unpaid taxes. When it comes to wage garnishments, the federal government doesn’t distinguish between full-time and part-time income.
Additionally, if you hold both a full-time job and a part-time job, wage garnishments could be taken from both of your paychecks. If your pay is below the minimum required amount, of course, then your wages cannot be garnished. Keep in mind that your pay from both jobs isn’t lumped together to calculate your garnishment. Instead, the percentage is imposed separately on the income from each of your jobs.
How Much of My Income Can Be Deducted by the IRS or a Creditor?
The amount of wages that can be garnished each week cannot exceed either 30 times the federal minimum wage or 25% of an employee’s disposable earnings, whichever amount is less. This limit is in place to make sure that you have enough income to financially 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 the minimum wage 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 unpaid taxes, familial support and bankruptcy, as these have different sets of rules that apply to garnishment.
Are Wage Garnishments Taxable?
Yes, your wage garnishments are still used to calculate your tax burden. In some situations, your garnishment may be tax-deductible, but this is only the case if the amount would’ve been deductible no matter how the money was paid. When your wages are garnished, you take home less from your paycheck, but you’ll still need to pay taxes on the amount that was garnished as if you were paid your typical wages.
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 are the pay period and when the garnishment starts. Typically, they’ll have a specified period 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 Wage Garnishment With Help From a Polston Tax Lawyer
Receiving a notice regarding a wage garnishment can be overwhelming, but you’re not alone. You may be able to take steps to reduce or avoid the wage garnishment altogether when you work with a tax strategist at Polston Tax. We know tax law so you don’t have to, and we can help you overcome the hurdle of owing back taxes.
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.