Payroll garnishment: How to stay compliant as an employer

If one of your employee’s wages are garnished, you must ensure you comply with the garnishment while maintaining accurate payroll records. Mishandling wage garnishments can lead to legal penalties, employee dissatisfaction, and administrative headaches.

But what exactly is a wage garnishment, and what do you need to do as the employer?

In this guide, we’ll walk you through the payroll garnishment process, explain how to garnish someone's wages properly, and show you how you can simplify the entire process. So let’s jump straight in.

What is a garnishment order?

A garnishment order is a legal directive requiring an employer to withhold a portion of an employee’s wages to repay a debt. These orders typically come from courts or government agencies and are legally binding.

Common reasons for wage garnishment include:

• Unpaid taxes. Federal, state, or local tax authorities may garnish your employee’s wages for overdue taxes.
• Child support and alimony. Courts may order you to garnish payments for family obligations.
• Student loans. Defaulted federal student loans may lead to wage garnishment.
• Consumer debts and loans. Creditors can request a court-ordered garnishment if they obtain a judgment.

For example:

• A parent behind on child support may receive a notice of garnishment, requiring you to withhold 25% of their wages.
• An employee with unpaid student loans may have up to 15% of disposable income garnished by the Department of Education.

It’s crucial to understand the type of garnishment, because different rules may apply to different debts.

Learn more: What is a wage garnishment?

Types of garnishments and their impact on payroll

Different garnishments have varying withholding limits and requirements, as follows:

Child support and alimony

Withholding limit: 50% to 65% of disposable earnings

The maximum withholding for child support and alimony depends on several factors:

• If the employee supports another child or spouse, the maximum withholding is 50%.
• If the employee does not support another child or spouse, the limit increases to 60%.
• If the employee is more than 12 weeks behind on payments, an additional 5% may be garnished.

Child support garnishments are deemed top priority, meaning they must be processed before other garnishments.

Most child support orders come directly from state agencies and include payment instructions. Note that you may be required to report new hires to state child support agencies to track wage garnishments.

Federal student loans

Withholding limit: 15% of disposable income

No court order is required for federal student loan garnishments. The US Department of Education (or the recognized loan servicer) issues the garnishment order directly.

Unlike other garnishments, student loan garnishments are subject to a 30-day notice period before deductions begin. If the employee enters a repayment agreement with the loan servicer, the garnishment can be paused or modified.

Unpaid tax (IRS and state tax authorities)

Withholding limit: Varies based on tax exemption tables

The Internal Revenue Service (IRS) and state tax agencies can garnish wages without a court order. The amount deducted depends on the employee’s tax filing status, number of dependents, and standard deduction amounts.

For unpaid tax garnishments, the IRS will provide you with Form 668-W, which details the process and how to calculate withholdings. Your employee must complete Part 2 of the form to claim exemptions; otherwise, the IRS assumes zero exemptions and will instruct you to withhold the maximum amount.

Unlike other garnishments, tax garnishments do not have a fixed percentage cap; the IRS determines the amount based on income.

Consumer debt (e.g., credit cards, medical bills, personal loans)

Withholding limit: Up to 25% of disposable earnings

Creditors must first sue the employee and obtain a court-ordered garnishment before wages can be withheld.

Under the Consumer Credit Protection Act (CCPA), garnishments are limited to:

• A maximum of 25% of disposable earnings, OR;
• the amount exceeding 30 times the federal minimum wage (whichever is lower).

These garnishments are lower in priority than child support and unpaid taxes. In some cases, you may receive a wage garnishment letter from creditors outlining the payment instructions.

It’s important to note that some states have lower withholding limits than the federal cap of 25%. In such cases, you must comply with the stricter law.

Some states, like Texas, Pennsylvania, and South Carolina, generally prohibit wage garnishments for consumer debts.

Bankruptcy

Withholding Limit: Varies based on employee’s bankruptcy plan

When an employee files for bankruptcy, wage garnishments may be restructured or halted based on the court’s ruling. Chapter 13 bankruptcy cases involve a court-approved repayment plan that requires you to withhold a portion of the employee’s wages for debt repayment.

It’s important to note that bankruptcy garnishments override other creditor garnishments, but they do not cancel out child support, tax, or student loan garnishments. As the employer, it’s also your responsibility to ensure payments go directly to the bankruptcy trustee.

How does wage garnishment work?

When you, as the employer, receives a notice of garnishment letter, you must:

1. Review the garnishment letter. Verify the details, including the employee’s name, case number, and required deductions. Once verified, you may need to send a formal letter of reply to the requester to confirm receipt (see our template further down in the article).
2. Calculate the withholding amounts. Use federal and state guidelines to determine what percentage of wages can be garnished.
3. Withhold the wages. Deduct the specified amount from the employee’s paycheck.
4. Send payments to the appropriate agency. Forward the deducted wages to the requesting agency as instructed.
   
   

What happens when a garnishment is paid?

Once the debt is satisfied, you should receive a release garnishment letter from the creditor or court. Once you have confirmed receipt of this letter, remove the garnishment deduction from your payroll, and notify the employee about the final payment.

Employer responsibilities in payroll garnishment

As the employer, you must comply with legal requirements when handling wage garnishments. Your key responsibilities include:

• Processing the garnishment orders promptly. If you fail to comply with the order, you can incur penalties.
• Notifying the employee. You must inform the employee about the garnishment details.
• Ensuring correct withholding calculations. Errors can result in underpayment or overpayment, potentially affecting your ability to comply as well as your employee’s personal financial situation.
• Handling multiple garnishments. If an employee has multiple debts, you must follow prioritization rules (see below).
  
  

How do multiple wage garnishments work?

If your employee has multiple garnishments, you must adhere to the following prioritization rules:

1. Child support and alimony (highest priority)
2. Federal tax debts and IRS garnishments
3. State tax debts
4. Federal student loans
5. Consumer debt and court-ordered garnishments

For example, say an employee has child support and credit card debt garnishment orders.

As the employer, you must process the child support garnishment first. If the remaining disposable income is below the 25% garnishment cap, the credit card garnishment is either reduced or delayed.

Remember: It is your responsibility to ensure compliance by applying federal, state, and local garnishment rules correctly.

Wage garnishment letter template

As mentioned, you may be required to respond to a garnishment request with a formal wage garnishment letter. This confirms that you have received the garnishment order, and that you are complying with it.

This letter can be structured as follows:

[Employer name]
[Company address]
[City, state, ZIP code]
[Date]

To: [Garnishing agency/creditor]
[Agency address]

Subject: Response to wage garnishment order for [employee name]

Dear [agency/creditor],

We acknowledge receipt of the wage garnishment order for [employee name], employee ID [#]. Per the order, we will begin withholding [specific percentage] from their wages starting [pay period start date].

If additional documentation is required, please contact [payroll/HR contact information].

Sincerely,
[HR representative name]
[Company name]

How can Remote help?

As you can see, handling payroll garnishment correctly is essential for legal compliance and employee trust. But managing wage garnishments can be time-consuming and risky.

With Remote, Payroll customers benefit from hands-on support and reliable safeguards that simplify compliance, including:

• Clear, compliant communication. We help you draft correspondence to authorities or creditors, minimizing legal jargon and ensuring timely and accurate communication.
• Support with third-party declarations. If you're required to provide third-party debtor declarations, we can prepare these on your behalf, saving you the time and effort of dealing with bureaucratic processes.
• Accurate, controlled processing. Garnishments are handled manually by Remote’s payroll experts, with built-in checks to ensure precision and accountability.

In short, Remote combines expert support and protective controls to take the stress out of garnishment handling, so you can focus on running your business — not navigating payroll complexities.

To learn more, speak to one of our friendly payroll experts today.