What Is Wage Garnishment and How Does it Work?

Wage garnishment is a legal procedure in which a portion of a person’s paycheck is withheld from them and sent directly to creditors to whom the person owes money. Typically an employer is instructed by court order to deduct payment from an employee’s paycheck in order to repay a debt. Wages can also be deducted straight from a person’s bank account.  

Your wages can be garnished for a number of reasons. Unpaid child support, back taxes, delinquent federal student loans, or consumer debt, like credit card balances and medical bills, are all common sources of wage garnishment. Your earnings will be garnished until the debt is paid off or otherwise resolved.

Garnishment is a fairly severe consequence and is usually done as a last resort, used only when someone is seriously behind on their debts. For a debtor’s wage to be garnished, a creditor must typically obtain a court order proving that the debtor owes money and has defaulted on payment. But not all types of wage garnishments require a court order. For example, if the debt is an Internal Revenue Service (IRS) levy, a court order isn’t required. 

Once a wage garnishment has been approved by the court, an order will be issued requiring the debtor’s employer to withhold a certain amount of their paycheck, along with a letter and specific instructions for the employer. The employer usually has to notify its employee that wage garnishment is about to start before remitting payments. The wage garnishment will typically continue until the debts are paid off.

According to the U.S. Department of Labor, earnings subject to wage garnishment can include:

• Wages
• Salaries
• Commissions
• Bonuses
• Periodic payments from a pension, retirement program, or an employment-based disability plan
• Payments received in lump sums, such as severance pay, workers’ compensation, or insurance settlements

For most types of debt, like credit cards and medical bills, the creditor can’t immediately garnish your wages if you default on your payments. The creditor must first sue you for nonpayment of a debt, obtain a money judgment, and get a court order. But again, depending on the type of debt, not all creditors need a court order. 

The type of debt determines who can garnish your wages and what that creditor must do before starting a wage garnishment. Here are some examples:

• Student Loans: If you’re behind on your federal student loan payments, the U.S. Department of Education (or any entity collecting on its behalf) can garnish your wages without a court order. It can take up to 15% of your disposable income without taking you to court.
• Taxes: If you owe back taxes to the IRS, the federal government can garnish your wages without having to get a court order against you. How much the IRS can garnish depends on the number of dependents you have and your deduction amounts.
• Consumer Debt: A court order is needed to collect on consumer debt, such as credit cards, medical bills, and personal loans. Federal law places limits on how much judgment creditors can take from your paycheck. The garnishment amount is limited to 25% of your disposable earnings per week or the amount by which your disposable earnings for a week exceed 30 times the federal minimum hourly wage, whichever is less. 
• Child Support and Alimony: When it comes to child support and alimony, the government doesn’t have to go through the court system to get a wage garnishment. For child support obligations, federal law allows a garnishment of up to 50% of your disposable earnings if you are supporting an additional spouse or child who isn’t the subject of the wage garnishment order themselves. If you don’t have an additional spouse or child to support, this amount can be 60%. Further, the garnishment may be increased by an extra 5% if you’re behind 12 weeks or more on your obligations.

If you receive a wage garnishment judgment, the first thing you should do is carefully read the order to make sure all the information is correct. Check to verify that the order is, in fact, for your debt and that the amounts are accurate. If all the information is correct, then you can either challenge the judgment, accept the garnishment, or work out a payment plan with the creditor. Don’t underestimate the latter. Sometimes, simply picking up the phone and explaining your situation to a creditor can help alleviate some of the burden. Consider asking about a no-interest repayment plan or installment plan to help pay off the debt.

The important thing to acknowledge is that you have legal rights when it comes to wage garnishment, but in most states, it’s your responsibility to be aware of and exercise these rights. Some rights you have include:

• You have to be legally notified of the garnishment.
• You can challenge the garnishment if you believe it was made in error, has inaccurate information, or because it’s causing serious harm to your financial wellbeing.
• There are caps on how much can be taken at once from your wages. The Consumer Credit Protection Act (CCPA) limits the amount of wages that can be garnished in any given week for consumer debts and for child support and alimony. Other federal laws limit how much can be garnished for delinquent payments on federal taxes and student loans.
• Some forms of income, such as Social Security and veterans benefits, are exempt from garnishment as income. However, they could be subject to seizure once in your bank account.
• You can’t be fired because your wages are being garnished for a single debt. However, if your wages are being garnished for 2 or more debts, your employer may be able to terminate you.

Wage garnishment can be avoided entirely as long as you stay on top of your debts and maintain a consistent payment schedule. Of course, sometimes life and other obligations get in the way and can hinder your ability to pay creditors on time.

If you are struggling to meet your payment obligations each month, creating a solid financial plan might help. To get you started, check out some of the following money management tips that could help you steer clear of a wage garnishment.  

• Open a savings account: Having a savings account will help you build long-term savings by stashing money in a safe place separate from your checking account. (Pro tip: A high-yield savings account will allow you to grow your money faster over time.)
• Make a budget: Budgeting gives you a better sense of where you are splurging your money and helps you make a plan for achieving your financial goals. By keeping tabs on all your monthly expenses, monthly income, and debts, you can better manage your money. (Pro tip: The 50/30/20 budget rule is a simple solution for those struggling to stay within their means.)
• Utilize debit over credit: If credit card usage is putting you further and further into debt, try utilizing your debit card more than your credit card. Since you can’t spend money you don’t have with a debit card, it might be worth choosing the more affordable option when it comes to buying and spending. (Pro tip: If you are looking for a way to build your credit while minimizing debt, get a secured credit card. Secured cards usually have a lower credit limit than traditional credit cards, which can help prevent taking on more debt.) 

Receiving a wage garnishment notice can be very stressful and place a heavy burden on your finances. Depending on you and your situation, you may want to contact an attorney or seek legal help to figure out your best path forward.