Docstoc

Garnishments

Document Sample
Garnishments Powered By Docstoc
					                                                     Garnishments
Tax Levies:
A federal tax levy is accomplished by ‘garnishing’ an employee’s wages to the extent that they are not exempt from the levy. For
example, there may be a tax levy that is for $25,000. The tax levy deduction will be taken from the employees ‘take-home pay’ until
it reaches the exempt amount.

The exempt amount is an amount that comes from the table (after looking at form 668-W that the employee fills out – (according to
the number of exemptions, the pay period, and the filing status)).

The ‘take-home pay’ will be calculated as Wages, minus all Taxes and Deductions (both voluntary and involuntary) that were in effect
at the time of receiving the tax levy. Once an employee’s take-home pay has been determined, all but the exempt amount is subject to
the levy.

Any new payroll deductions that are initiated by the employee after the levy has been received by the employer must be deducted from
the exempt amount when determining the employee’s net pay, unless they are required as a condition of employment. (This also
includes increases in elective deductions such as a 401k.)

It looks like Tax Levies are always an amount (by looking at the form 668-W).


Ex: Employee Arthur receives $1,211.54 every two weeks. On Aug 1, 2010, the employer receives form 668-W stating that a federal
tax levy was being issued against Arthur’s wages for $25,000. Arthur claimed married filing jointly with 3 personal exemptions on
Part 3 of the form. (The exempt amount taken from the table is $657.69.) As of Aug 1, Arthur had the following deductions:

   Federal income tax              $44.44
   Social security tax              50.88
   Medicare tax                     17.57
   State income taxes               30.00
   401(k) plan (3% of salary)       36.35
   Health insurance (after tax)     45.00
   Total:                         $224.24

Prior to the Tax Levy, Arthur’s take-home pay is $987.30 ($1,211.54 - $224.24). The exempt amount of Arthur’s take-home pay
(taken from the table) is $657.69. Therefore, the amount subject to the tax levy is $329.61 ($987.30 - $657.69). And the take home
pay after the Tax Levy is $657.69.

How would we set up this deduction?

     In Employee Deduction Maintenance
     Deduction Type:         Garnishment
     Original Amount         $25,000
     Method:                 Fixed Amount
     Garnishment Category:   Tax Levy
     Amount                  $25,000
     Percent                 N/A
     Earnings                N/A
     Maximum Deduction Codes
     Federal                 FEDLEVY (this is just an example)
     State                   N/A




                                                                                                        1
In Garnishment Maximum Setup
Code:                   FEDLEVY
State/Fed               FED
Method                  Percent of Earnings
Max Withholding Percent 100%
Max Exempt Amount       $657.69 (This is the amount taken from the table)
Min Wage Rule Amount    $0
Earnings Code           FEDLEVY




In Earnings Setup
Code:                      FEDLEVY
Include in Earnings
Pay Codes                  All
Deductions                 401(k) & Health Insurance (According to the info we have about Federal Tax
                           Levies, it should be all deductions that are being taken at the time the tax levy
                           was issued. New deductions after the tax levy is in place would not be included.)
Taxes                      All Checkboxes Marked
                                                                                                  2
Pay code




           3
Other Deductions




Calculate Checks report
Recap
Prior to the Tax Levy, Arthur’s take-home pay is $987.30 ($1,211.54 - $224.24). The exempt amount of Arthur’s take-home pay
(taken from the table) is $657.69. Therefore, the amount subject to the tax levy is $329.61 ($987.30 - $657.69). And the take home
pay after the Tax Levy is $657.69.




                                                                                                        4
Child Support Withholding Orders:
Maximum amount to withhold: Under the CCPA, the maximum amount that can be withheld from an employee’s wages for spousal
or child support is:
      50% of the employee’s ‘disposable earnings’ if the employee is supporting another spouse and/or children.
      60% if the employee is not supporting another spouse and/or children.
Note: These amount increase to 55% and 65%, respectively, if the employee is at least 12 weeks late in making support payments.
State laws may impose lower limits.

Disposable earnings are determined by subtracting all deductions required by law from an employee’s gross earnings (wages,
commissions, bonuses, sick pay, and periodic pension payments). Deductions required by law include withholding for federal, state,
or local income tax, social security or Medicare tax, state unemployment or disability tax, and mandated payments for state employee
retirement systems. Voluntary deductions, such as health and life insurance premiums, union dues, and retirement plan contributions,
are not subtracted from earnings to calculate disposable earnings. (State law needs to be checked, as some states require health
insurance premiums to be deducted when determining disposable earnings.) Wages already subject to withholding for tax levies,
bankruptcy orders, other child support withholding orders, or wage garnishments are not considered deductions required by law.
Therefore, they should not be subtracted from gross earnings when determining the maximum amount subject to child support
withholding. However, if the tax levy, bankruptcy order, etc. has priority over the current child support withholding order, the amount
required to be deducted under the order having priority must be taken into account when determining whether the CCPA maximum
has been reached. Tips may or may not be earnings (depends on whether they are given directly to employees vs being added to the
bill and paid to the employee later as earnings).

It looks like Child Support Withholding Orders are always an amount (according to the form that is filled out).

Ex: Gary’s employer receives a child support withholding order from his home state of Arkansas, demanding that $800 in current
support with no arrears, of Gary’s earnings be withheld each pay period if paid bi-weekly. The amounts of Gary’s income are
determined as follows:

   Net Pay                            Net Earnings         Federal         Arkansas        Take Home Pay
                                      (before child       Disposable      Disposable     (after child support
                                   support deduction)      Earnings        Earnings           deduction)
   Gross biweekly earnings                  $1,600.00       $1,600.00       $1,600.00               $1,600.00
   Federal income tax                          -201.37        -201.37         -201.37                 -201.37
   State income taxes                           - 48.00        - 48.00         - 48.00                 - 48.00
   Social security tax                           -63.84         -63.84          -63.84                  -63.84
   Medicare tax                                  -22.04         -22.04          -22.04                  -22.04
   Health insurance premium                     - 50.00                         -50.00                 - 50.00
   401(k) plan contribution                     - 80.00                                                - 80.00
   Child Support Garnishment                                                                          -728.85
                                             $1134.75        $1264.75        $1214.75                 $405.90


*Gary does not support another spouse or child that is not part of the garnishment so his maximum value is at 60%.

Calculations:
Federal Child Support Withholding Maximum:          $1,264.75 x 60% = $758.85
         (This is the Max Federal Amount to Garnish)

Arkansas Child Support Withholding Maximum:       $1214.75 x 60% = $728.85
        (This is the Max Arkansas Amount to Garnish)

Since the child support withholding maximum calculated is less than the $800 demanded in the withholding notice, the system
compares the numbers between state and federal. The lowest maximum available amount to garnish between the two is the amount
available for garnishment. Gary has $728.85 available for garnishment on his paycheck.

His final take home pay is $405.90 ($1134.75 - $728.85). The amount remaining of $71.15 ($800.00 - $728.85) is the responsibility
of the employee. We do not arrear child support.




                                                                                                           5
How would we set up this deduction?

     In Employee Deduction Maintenance
     Deduction Type:         Garnishment
     Original Amount:        $0
     Method:                 Fixed Amount
     Garnishment Category:   Child Support
     Amount                  $800.00
     Percent                 N/A
     Earnings                N/A
     Maximum Deduction Codes
     Federal                 FEDCS
     State                   AKCSWHLTH




     In Garnishment Maximum Setup
     Code:                   FEDCS                 STATCS
     State/Fed               FED                   AR
     Method                  Percent of Earnings   Percent of Earnings
     Max Withholding Percent 60%                   60%
     Max Exempt Amount       N/A                   N/A
     Min Wage Rule Amount    $0                    $0
     Earnings Code           FEDCS                 STATECS




                                                                         6
In Earnings Setup
Code:                 FEDCS                   STATECS
Include in Earnings
Pay Codes             All                     All
Deductions            None                    Health Insurance
Taxes                 All Checkboxes Marked   All Checkboxes Marked




                                                                      7
Creditor Garnishments:
There is a limit on the amount that can be garnished. The CCPA states that the maximum amount of an employee’s ‘disposable
earnings’ that can be garnished to repay a debt is the lesser of:
     25% of the employee’s disposable earnings for the week; or
     The amount by which the employee’s disposable earnings for the week exceed 30 times the federal minimum hourly wage
         then in effect.

Note: There is a table in the book for this depending on if the employee is paid weekly, biweekly, semimonthly or monthly.
Note: State Laws may still apply.

Disposable earnings are determined by subtracting all deductions required by law from an employee’s gross earnings (wages,
commissions, bonuses, sick pay, and periodic pension payments). Deductions required by law include withholding for federal, state,
or local income tax, social security or Medicare tax, state unemployment or disability tax, and mandated payments for state employee
retirement systems (but not amounts designated for direct deposit into an employee’s bank account). Voluntary deductions, such as
health and life insurance premiums, union dues, and retirement plan contributions, are generally not subtracted from earnings to
calculate disposable earnings. In some states, health insurance contributions may be included in the calculation of disposable pay,
especially if the contributions are mandated under a child support order. Tips may or may not be earnings (depends on whether they
are given directly to employees vs being added to the bill and paid to the employee later as earnings).

In determining an employee’s disposable earnings, wages already subject to withholding for child support, tax levies, or bankruptcy
orders are not considered deductions required by law. Therefore, they should not be subtracted from gross earnings when determining
the maximum amount subject to garnishment. However, if the child support withholding order, tax levy, or bankruptcy order has
priority over the creditor garnishment and constitutes at least 25% of the employee’s disposable wages, no amount can be withheld for
the creditor garnishment.

When looking at information, it looks like Creditor Garnishments will be an amount.

Ex: Employee Michelle’s Disposable Earnings bi-weekly is $769.23. Her employer in Illinois receives a garnishment order on March
10, 2010 requiring that $1000 total be withheld at 15% per pay period.

The maximum amount of Michelle’s disposable earnings that can be garnished is determined as follows:

Creditor Deduction Calculation:
     $769.23 x 15% = $115.38 (this is the amount calculated for the Creditor Garnishment Deduction prior to looking at the
         Maximum rules)

Federal Creditor Garnishment Withholding Maximum: Use the lesser of:
     (25% of Disposable Earnings) $769.23 x 25% = $192.31
     (The amount by which earnings are greater than 30 times the Federal Minimum Wage) (for bi-weekly 60 times the Federal
         Minimum Wage) 60 x $7.25= $435.00                $769.23-$435.00 = $334.23

IL Creditor Garnishment Withholding Maximum: Use the lesser of:
     (25% of Disposable Earnings) $769.23 x 25% = $192.31
     (The amount by which earnings are greater than 30 times the State Minimum Wage)(for bi-weekly 60 times the State
         Minimum Wage) 60 x 8.25 = $495.00                $769.23-$495.00 = $274.23

The computer calculates the Withholding Maximums and compares the numbers between state and federal. The lowest maximum
available amount to garnish is the amount available for garnishment.




                                                                                                         8
How would we set up this deduction?

     In Employee Deduction Maintenance
     Deduction Type:         Garnishment
     Original Amount         $1000
     Method:                 Percent of Earnings
     Garnishment Category:   Garnishment
     Amount                  N/A
     Percent                 15%
     Earnings                FEDCREDIT
     Maximum Deduction Codes
     Federal                 FEDCEDIT
     State                   STATECRED




     In Garnishment Maximum Setup
     Code:                   FEDCEDIT              STATECRED
     State/Fed               FED                   IL
     Method                  Percent of Earnings   Percent of Earnings
     Max Withholding Percent 25%                   25%
     Max Exempt Amount       $0                    $0
     Min Wage Rule Amount    435.00 (60 * 7.25)    495.00 (60 * 8.25)
     Earnings Code           FEDGARN               STATEMAXCR




                                                                         9
In Earnings Setup
Code:                 FEDCREDIT               STATEMAXCR
Include in Earnings
Pay Codes             All                     All
Deductions            None                    None
Taxes                 All Checkboxes Marked   All Checkboxes Marked




                                                                      10
Garnishment taken before child support
(Maximum, Excempt, Sequence, pro-rata)

Need to have Garnishment deduction always take first before CHILD1 and CHILD2 which needs to be 25% of earnings.
Then the rest needs to be split to be 50% of Disposable like below:
Gross is $535.08:
535.08- 55.11(taxes)=479.97 x 25%= $119.99 (GARN- creditor garnishment)
535.08(gross)-55.11(taxes)-119.99(GARN-Creditor garnish)= $359.98 (Disposable Net)
359.98 (Disposable Net) x 50%=$179.99 (Child Support 1 and 2)
About 44% for Child Support 1 and 56% for Child support 2

                                                                                                 11
12
Multiple garnishment with previous marked
Employee is Single 1 in Virginia.
   -   Gross Pay is Monthly ($4,000.00)
   -   Taxes were calculated as ($782.25)
   -   First Garnishment is Child Support.
            o $100 not to exceed 50% Disposable Income.
            o Disposable Income = gross – taxes – prior child support garnishments = $3217.75
            o 50% of Disposable Income = $1,608.88
            o Deduction = $100.00
   -   Send Garnishment is Child Support.
            o $2,000 not to exceed 55% Disposable Income.
            o Disposable Income is gross – taxes – prior child support garnishments = $31175.75
            o 55% of Disposable Income
            o Deduction = $1669.76

In this example, the total amount I can take is 1769.76
55% disposable income (4000.00-782.25=3217.75) – first deduction 100.00 = 1769.76



                                                                                                  13
14
15

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:4
posted:11/21/2011
language:English
pages:15