1 Tax Levies and Creditor Garnishments: Proper Handling and Compliance
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3 About the Speaker Vicki M. Lambert, CPP, is President and Academic Director of Vicki M. Lambert, LLC, a firm specializing in payroll education and training. Known as The Payroll Advisor, Ms. Lambert is Founder and Director of a website that provides unique and expert services to businesses, lawmakers and anyone dealing with the complexities and technicalities of the payroll process.
4 RCH Credit This is an APA approved program for 1 (one) RCH You must attend the entire 1-hour course. You will be sent a certificate with the program course code upon completion for your file folder by no later than 8/30/12.
5 Types of Deductions Voluntary (credit union deductions, etc.) Involuntary (taxes, garnishment etc.)
6 Garnishments 101 Many different types of garnishments can be received by one payroll department Can be both Federal and state Employees can have more than one type Employees could have more than one for each type!
7 Definition of Garnishment Legal procedure through which the earnings of an employee are required by court order to be withheld by an employer for the payment of a debt.
8 Usual Suspects... Child Support Tax Levies Federal and State Creditor Student Loans Bankruptcies Usual order of priority
9 Exceptions on Priority Federal tax levy is received prior to child support order Bankruptcy may include other levies and child support, and therefore goes first Student loans fall in with creditor State tax levy and creditor depend on state requirements
10 Consumer Credit Protection Act Limits the amount that can be deducted from disposable pay for child support and creditor garnishments Limits apply if more than one garnishment is in effect Does not apply to federal or state tax levies
11 A Garnishment is Received in Payroll Several steps payroll needs to do before processing on the payroll system Should set up written procedures so all in department follow the same methods The following steps should be included:
12 Is It Your Employee? Does the employee currently work for you? Does the name and Social Security number match your records? Doesn t mean you can t process, just need to clarify with issuing party
13 Is It Legal? Need to determine if the garnishment received is legal On the proper form? From the proper source? Completed correctly? Delivered properly? Allowed under law?
14 What Laws Do I Follow? State law is where the employee is located for most items Need source on rules and regulations for states you are located in Books, guides, internet are good sources
15 Answer Back... Form may have response included Time allowed is usually limited Examples: Federal Tax Levy send in with first payment Creditor Garnishment: Answer backs for Garnishee-sometimes 20 days
17 Go Tell It To The Employee Form may include employee notification Example: Federal Tax Levy May be time limit Should include form letter from payroll Should be done regardless if garnishment requires
18 Payroll Form Create templates for each type of garnishment department handles Inform the employee as to: What you have received Payroll it will begin on Amount of deduction if known or IRS chart for tax levies Contact information for deduction questions Disclaimer on responsibility of garnishment
19 Sample Letter Creditor Garnishment NOTE: This notice is not meant to be construed as legal advice but as a sample of the type of letter that a payroll department may send. It is recommended that payroll departments get legal advice before issuing notification letters.
20 Date: To: From: RE: Payroll Department Creditor Garnishment The attached creditor garnishment (or insert name of garnishment) has been receive by the payroll department. To comply with all federal and state regulations concern the withholding and remittance of creditor garnishments, payroll will begin withhold on (insert payroll date). The amount withheld will vary from pay day to pay day depending on the amount you have earned on that individual payroll check. The amount deducted is based on the Consumer Credit Protection A garnishment chart we have enclosed. If you have any questions regarding the processing of this garnishment within the payroll department please contact. However, please be aware that the payroll department has no control over the amount of the withholding to be deducted except to comply with legal federal and state limits under Title III of the Consumer Credit Protection Act. If you have any disputes as to the amount of the garnishment, the legality of the garnishment itself or any other legal matters please contact the issuing court listed on the attached copy of the garnishment. The payro department cannot delay, suspend or in any way alter the garnishment
21 Set It Up In Payroll Kept in separate files in payroll Each garnishment should have separate file even if multiple for one employee Tracking system separate from payroll system for reconciliations and questions
22 Setting It Up Always date stamp the garnishment Discuss security later Process on the same day as received do not let sit in your inbox Determine pecking order if employee has more than one garnishment Seek legal advice
23 Tracking System Basically an Excel spreadsheet One for each garnishment processed Use for life of garnishment Include amounts and dates of payments Current balance due if levy Of course, reconciliation spreadsheet for all garnishments processed matches payroll totals
24 Paying It Out Different types of garnishments have different due dates Best to do by pay date to make sure you comply with all garnishments and state requirements EFT may be required
25 Reconciling Make sure you reconcile the G/L account each month Spreadsheet you created for tracking comes in handy now Reconcile spreadsheet to payroll before releasing payments
26 Terminating Employees Garnishments and tax levies are a per payroll event Take normal deduction Do the required notifications Watch for the state tax levies may require entire amount taken
27 Security Confidentiality is a must Anything that may be a garnishment should come to payroll first Only payroll has access NO! Human Resources does not need to know Watch out for processing through A/P
28 Never discuss garnishments over the phone Payroll personnel need to be secure as well Security
29 Security for Payroll Personnel A must in this day and age Blind mail boxes for Voic for phone Fake name for payroll personnel handling garnishments/lawsuits Physical security of building or office Face to face by manager
30 Federal Tax Levies Form 668-W Notice of Levy on Wages, Salary and Other Income Amount of deduction based on Publication 1494 Chart lists amount exempt from levy Deduct from take home pay
31 Form 668-W Six part form (Part 6 retained by IRS) Part 1 Employer s copy Parts 2-5 Given to employee Part 2 Employee s copy to keep Parts 3-5 require employee to complete information Part 3 and 4 are returned to employer within 3 days
32 Employee keeps part 5 Form 668-W (cont.) Payroll gets back parts 3 and 4 Payroll keeps Part 4 and sends in Part 3 If not received use married filing separately plus one personal exemption Do not use Form W-4 Use same chart even if year changes unless employee submits new form
34 Take Home Pay Subtract the following in calculating takehome pay Taxes Voluntary and involuntary deductions in effect before the levy is received Increases in preexisting deductions beyond the employee s control Condition of employment deductions that come after the levy is received Direct deposit is not counted
35 Federal Tax Levy Calculations Charlie receives $1,300 every two weeks. A tax levy of $15,000 is received. Charlie claims married, filing jointly with 2 exemptions. He has the following deductions:
36 Deductions Fit $ SS $ Medicare $ SIT $ (k) plan 3% $ Health Insurance $ Total $302.45
37 Tax Levy Would Calculate Take Home Pay $ ($1,300 - $302.45) Exempt from Levy $ (From 2012 Chart) Amount subject to levy $ ($ $750.00)
39 Paying the Levy Pay on the same day that payments are made or are due to employee Complete back of Part 3 of form with first payment Make payable to United States Treasury Put information on check, not stub
40 Must receive Form 668-D IRS wants you to continue to withhold until release is received even if it exceeds amount on levy Call when you are getting close! Stopping the Levy
43 Voluntary Deduction Agreement Form 2159 Payroll Deduction Agreement Totally voluntary on both sides Still need release form to stop original levy Six-part Form
47 State Tax Levies CCPA limits do not apply to state tax levies under 15 USC 1673(b)(1)(c) COULD BE 25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage COULD BE anything they want it to be Example KY allows employee to keep $125/week Plus $60 for each dependent COULD come on a tax levy form or COULD be a letter
48 State Tax Levies Disposable income could match federal or may not even give a definition May have priority over other creditor garnishments or it may not Answer back may or may not be required May be able to collect a fee Read the garnishment carefully
49 Creditor Garnishments CCPA limits apply except where state is lower 25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage Some states have severe restrictions Chart furnished as of July 2009
50 MAXIMUM GARNISHMENT OF DISPOSABLE EARNINGS UNDER NORMAL CIRCUMSTANCES* FOR THE $7.25 MINIMUM WAGE Weekly Biweekly Semimonthly Monthly $ or less: NONE $ or less: NONE $ or less: NONE $ or less: NONE More than $ but less than $290.00: Amount ABOVE $ More than $ but less than $580.00: Amount ABOVE $ More than $ but less than $628.33: Amount ABOVE $ More than $ but less than $1,256.66: Amount ABOVE $ $ or more: MAXIMUM 25% $ or more: MAXIMUM 25% $ or more: MAXIMUM 25% $1, or more: MAXIMUM 25%
51 Disposable Income Disposable income is the amount of earnings remaining after subtracting certain mandatory deductions from an employee's gross pay Mandatory deductions include federal, state and local taxes; unemployment insurance; workers compensation insurance; state employee retirement deductions; other deductions determined by state law.
52 Disposable Income and Net Pay Disposable income is not necessarily the same as net pay. An employee may have a deduction taken from his pay that is not mandatory, such as union dues or a car loan payment Watch out for tips to be included Limit applies even to multiple garnishments Other garnishments are not subtracted before determining disposable pay
53 Let s Do An Example Tony's weekly disposable income is $700. Store A serves a garnishment against Tony for a $1,000 debt. Determine the lesser of: Disposable income minus 30 times minimum wage: $700 - $ = $ % of disposable income: 25% x $700 = $175 $175 is the lesser of these two amounts. Therefore: We can take the $175 to satisfy the garnishment
54 But What If There s A Child Support Order? Tony's child support withholding obligation is /week. Deduct $180 for child support from Tony's $700 pay Difference between allowed amount for garnishment and the child support deduction taken: $175 - $180 = -$5 The child support deduction of $180 has already exceeded the allowed amount for garnishment; therefore nothing may be withheld for Tony's creditor garnishment.
55 A different situation... Tony's child support withholding obligation is $140/week. His weekly disposable income is $1,000. A creditor serves a garnishment against Tony for a $1,000 debt. Deduct $140 for child support from Tony's $1,000 pay
56 Determine the lesser of: Then... Disposable income minus 30 times minimum wage: $ $ = $ % of disposable income: 25% x $1000 = $250 $250 is the lesser of these two amounts. Difference between allowed amount for garnishment and the child support deduction taken: $250 - $140 = $110 $110 can be withheld for Tony's creditor garnishment
57 Examples Illinois: The greater of 85% of weekly gross earnings or disposable earnings up to 45 times the federal minimum wage or 45 times the state minimum hourly wage, whichever is greater, is exempt from garnishment Nevada: The maximum that employers can withhold is the lesser of: 25 percent of disposable earnings or the amount by which weekly disposable earnings exceed 50 times the federal minimum wage. Disposable earnings are those remaining after deductions required by law
58 Hawaii: The maximum that employers can withhold is 5 percent of the first $100 of disposable wages per month, 10 percent of the next $100 per month, and 20 percent of all sums in excess of $200 per month. Disposable earnings are the amount of earnings remaining after the deduction of any amount required by law Maine: The maximum that employers can withhold is the lesser of 25 percent of disposable earnings, or the amount by which weekly disposable earnings exceed 40 times the federal minimum wage
59 However, In North Carolina The courts of North Carolina are not permitted to order an employer to withhold wages for other types of debts such as car loans, credit card debt, and other personal debt items. While the North Carolina courts are not permitted to garnish wages based on these debts, creditors in other states may be able to get an order of garnishment under their own states laws. It is not a violation of the North Carolina Wage and Hour Act for an employer to withhold an employee s wages if required to do so by law. If a court from another state issues a valid order under that state s laws requiring an employer to withhold a North Carolina employee s wages for payment of a debt, the employer does not violate the North Carolina Wage and Hour Act by obeying that order.
60 State Fees Collection of a fee for the employer is sometimes permitted For Example: Florida $5.00 for the first deduction processed; $2.00 for each deduction processed thereafter May also be a fee to collect for the state or court or plaintiff in the case Read the garnishment
61 Voluntary Wage Assignments Are not the same thing as a court-ordered garnishment Are voluntary, so not covered under CCPA limits Can be revoked at any time by employee so watch for this State sets the limit and the rules State can forbid employer to honor, especially for small loans
62 Bankruptcy Governed by the Federal Bankruptcy Act Chapter XIII bankruptcy orders take priority over any other claim against wages including child support and tax levies Should be included in bankruptcy Get releases when required child support Notify courts if child support is involved-no more automatic stays for child support
63 Student Loans Higher Education Act amended to allow for garnishment of wages to repay student loans 15% of disposable or 30 times federal minimum wage which ever is less Multiples can use the 25% garnishment limit
64 Disposable Pay The employee s compensation including salary, overtime, bonuses, commissions, sick leave and vacation pay minus any deductions for health insurance and deductions required by law Deductions required by law or proper deductions include federal, state and local taxes; state unemployment and disability taxes; social security taxes; Medicare taxes; and involuntary pension contributions
65 But They Do Not Include Voluntary pension deduction, retirement plan contributions, union dues A Wage Garnishment Worksheet is included with the Wage Garnishment Order to assist payroll in calculating disposable pay and the wage garnishment amount
66 Handling a Student Loan Garnishments ED first notifies the employer that debtor pay must be withheld by sending a Wage Garnishment Order (SF-329B) form Provides the debtor s name, address, and social security number as well as instructions for withholding. The employer then: completes and returns the Employer Certification (ED-329D) within 20 days of receipt Begins withholding the amount directed in the order
67 But what if the employee is gone? If the debtor is no longer employed by your organization when you receive the Order, simply indicate this on the form and return it to ED or call the Administrative Wage Garnishment Branch at
68 Each Quarter ED will send the employer an Employment Confirmation Report to obtain any information needed regarding any changes to the employment status of the debtor. The Report lists the debtor/employee's account balance. Keep in mind that the balance shown on the Report reflects interest that has accrued since the Order was issued. ED has used part of the amounts withheld and paid to ED to defray collection costs ED incurs in collecting the debt. Questions or account balance call (404)
70 RCH Credit This is an APA approved program for 1 (one) RCH You must attend the entire 1-hour course. You will be sent a certificate with the program course code upon completion for your file folder by no later than 8/30/12.
73 Ascentis Payroll Garnishments, levies and other 3rd party checks, and direct deposit capabilities are easy Reporting Wizards allow you to create and access standard or custom reports in real time. Our Service: All of our payroll customers deal with a single support U.S.-based representative that work at Ascentis, not a call center.
74 Our next payroll focused webinar EVerify: Getting Started (credits pending) Aug. 16, 10am PDT