Since the end of the Depression of the 1930s, the right and responsibility of employers to withhold a portion of your pay has become a virtually undisputed part of American culture. The laws that created the income tax and Social Security programs, for which funds are withheld, typically authorize payroll with-holding to finance those programs.
But a growing number of additional deductions are now also authorized.
1. What Can Be Deducted or Withheld
In addition to Social Security and local, state, and federal taxes, an employer may also make several other deductions from minimum wages: costs of meals, housing and transportation, loans, debts owed the employer, child support and alimony, payroll savings plans, and insurance premiums. As in most other workplace laws, there are exceptions to these rules. There are often limitations on how much may be withheld or deducted from a paycheck.
a. Meals, Housing, and Transportation
Employers may legally deduct from an employee’s paycheck the “reasonable cost or fair value” of meals, housing, fuel, and transportation to and from work.
But to deduct any of these amounts from a paycheck, an employer must show that it customarily paid these expenses and that:
b. Loans
An employer that has loaned you money can withhold money from your pay to satisfy that loan. However, it is illegal to make any such deduction if it would reduce your pay to below the minimum wage.
c. Debts and Wage Garnishments
If you owe someone money and do not pay, that person might sue you and obtain a court judgment against you. If you do not pay the judgment, the creditor may try to collect by taking a portion of your paycheck until the judgment is paid in full. This is called a wage attachment or wage garnishment. Except in a few situations—student loans, child support, alimony, and taxes, which are all discussed below—a creditor must sue you and obtain a court judgment before he or she can garnish your wages.
A wage garnishment works simply. Once the creditor has a judgment, he or she delivers a copy of it to a sheriff or marshal, who in turn sends a copy to your employer. Your employer must immediately:
In most states, the employer can also charge you a modest fee to cover the costs of garnishing your wages.
Protesting is straightforward. You file a paper with the court and obtain a hearing date. At the hearing, you can present evidence showing that your expenses are very high and that you need all of your paycheck to live on. The judge has the discretion to terminate the wage garnishment or let it remain.
A federal law, the Consumer Credit Protection Act (15 U.S.C. §§ 1673 and following), prohibits judgment creditors from taking more than 25% of your net earnings through a wage garnishment to satisfy a debt. A few states offer greater protection, however. In Delaware, for example, judgment creditors cannot take more than 15% of your wages.
The Consumer Credit Protection Act also prohibits your employer from firing you because your wages are garnished to satisfy a single debt. If two judgment creditors garnish your wages or one judgment creditor garnishes your wages to pay two different judgments, however, you can be fired. Again, some state laws offer employees stronger job protection. In Washington, for example, an employer cannot fire you unless your wages are garnished by three different creditors or to satisfy three different judgments within a year.
There are several types of statutes that prohibit employers from retaliating against an employee for being subject to a wage garnishment. (See the chart below.) They differ in how many garnishments an employee is allowed each year without retaliation.
Most state laws have a general provision protecting employees who have their wages garnished. Some states prohibit retaliation if the employee has one garnishment per year; some laws apply to more than one garnishment. To heap on a little legal intrigue, many state statutes simply do not specify whether the protection extends to one garnishment per year or to multiple garnishments for one debt or to something else. If you run up against this confusion, contact your state’s consumer protection agency for help.
Another type of anti-retribution for wage garnishment statute is one that applies to cases in which income is withheld to satisfy child support obligations. (See also Section F1e, below.) Employers may not fire employees merely because they are subject to this type of order, regardless of the quantity of garnishments.
Of course, none of these statutes prohibit firing for just cause. They only prohibit firing an employee solely because of the wage garnishment.
d. Student Loans
The federal Emergency Unemployment Compensation Act of 1991 extended unemployment insurance for Americans who are out of work. (20 U.S.C. § 1095a.) A rider to that bill authorizes the U.S. Department of Education or any agency trying to collect a student loan on behalf of the Department of Education to garnish up to 10% of a former student’s net pay if he or she is in default on a student loan.
The Department of Education does not have to sue you before garnishing your wages. But at least 30 days before the garnishment is set to begin, you must be notified in writing of:
The law includes only one specific ground upon which you can object to the garnishment: that you returned to work within the past 12 months after having been fired or laid off.
e. Child Support, Medical Support, and Alimony
The federal Family Support Act of 1988 (102 Stat. § 2343) requires that all new or modified child support orders include an automatic wage withholding order. If child support is combined with alimony and paid as family support, the wage withholding applies to the payment. It is not required for orders of alimony only.
In an automatic wage withholding order, a court orders you to pay child support; then the court or your child’s other parent sends a copy of the order to your employer. At each pay period, your employer withholds a portion of your pay and sends it on to the parent who has custody. Currently, nearly 66% of the $21.2 billion a year in child support payments are collected through income with-holding by employers. In addition, medical support orders, which require noncustodial parents to include their children under their health insurance coverage, are established and enforced by state child support enforcement agencies, if necessary. A National Medical Support Notice, modeled on the standard income withholding form, works the same way as child support orders to facilitate making the health insurance deductions from paychecks.
In most states, where there is not an automatic wage attachment, employers must with-hold wages if you are one month delinquent in paying support. But an employer cannot discipline, fire, or refuse to hire you because your pay is subject to a child support wage withholding order. If an employer does discriminate against you, the employer can be fined by the state. (See the chart above for specific state law provisions.) Federal law also prohibits employers from firing, disciplining, or refusing to hire someone because he or she is subject to wage withholding to pay child support.
f. Back Taxes
If you owe the IRS and do not pay, the agency can grab most—but not all—of your wages. The amount that you get to keep is determined by the number of your dependents and the standard tax deduction to which you are entitled.
If the IRS wants your wages, it sends a wage levy notice to your employer, who must immediately give you a copy. On the back of the notice is an exemption claim form. You should fill out, sign, and return this simple form to the IRS office that issued it within three days after you receive it. Your employer should not pay anything to the IRS until you have your chance to file your exemption claim.
If you do not file the claim form, your employer must pay you only $116 per week and give the rest to the IRS. An employer who ignores the IRS wage levy notice and pays you anyway is liable to the IRS for whatever amounts were wrongly paid. Once the wage levy takes effect, it continues until either the taxes are paid in full or the collection period expires—ten years from when the taxes are assessed.
Most state and some municipal taxing authorities also have the power to seize a portion of your wages—and some act even more quickly than the IRS does when you owe back taxes. State laws vary, however, as to the maximum amount of wages that the state can take. In California, for example, the state taxing authority cannot take more than 25% of your net pay.
