You open the mail on a Tuesday morning and there it is: a thick envelope with a court seal, a state child support agency letter, or an IRS notice on yellow paper. Somewhere inside is an order telling you—the employer—to start pulling money out of an employee's paycheck and sending it to a stranger. You did not sign anything. You did not consent. You have seven business days, two weeks, or until the next pay period to act, depending on the order. And if you make a mistake, you may personally owe the entire underlying debt.
Welcome to wage garnishment. It is one of the most thankless jobs in payroll, and one of the most legally treacherous. Volumes are climbing fast—garnishments are up roughly 20 percent since 2022, federal student loan administrative wage garnishment resumed in 2026, and consumer debt collection activity is at multi-year highs. Whether you process payroll for ten employees or ten thousand, the odds that a withholding order lands on your desk this quarter are higher than they have been in a decade.
This guide walks through what you need to know to handle these orders without exposing your company to liability.
What Wage Garnishment Actually Is
A wage garnishment is a legal directive that requires an employer to withhold a portion of an employee's earnings and remit the funds to a third party—usually a creditor, court, or government agency. The employee does not get to say no. The employer does not get to say no either. Once you receive a valid order, you are essentially conscripted into the collection process.
The federal framework comes from Title III of the Consumer Credit Protection Act (CCPA), enforced by the U.S. Department of Labor's Wage and Hour Division. The CCPA does two things: it caps how much can be taken from a paycheck, and it protects employees from being fired because of a single garnishment. Everything else—procedures, deadlines, employer fees, penalties for non-compliance—is determined by the specific type of garnishment and the laws of the state where the employee works.
There are five common categories employers encounter:
- Creditor garnishments for credit card debt, medical bills, and personal loans, typically arriving as a court-issued writ
- Child support and alimony via the federal standardized Income Withholding Order (IWO), form OMB-0970-0154
- Federal tax levies from the IRS, usually on Form 668-W
- State tax levies from state revenue departments
- Federal non-tax debts, including defaulted student loans collected through Administrative Wage Garnishment (AWG)
Each category has its own ceiling, its own timeline, and its own remittance address. Treating them all the same is the fastest way to become personally liable.
Disposable Earnings: The Number Everything Else Depends On
Before you can apply a garnishment limit, you have to calculate "disposable earnings." This is not the same as gross pay, take-home pay, or net pay. It is a defined legal term, and getting it wrong distorts every calculation downstream.
Disposable earnings equal gross wages minus deductions required by law. That is it. The required deductions are:
- Federal income tax
- State and local income tax
- The employee's share of Social Security and Medicare (FICA)
- State unemployment and disability insurance, where mandatory
- Mandatory contributions to state employee retirement systems
What does not come out before you calculate disposable earnings:
- Health insurance premiums
- 401(k) and other voluntary retirement contributions
- Union dues
- Wage assignments the employee signed up for
- Charitable contributions
- Repayments of payroll advances or merchandise purchases
- Roth IRA contributions, HSA contributions, FSA contributions
This trips up payroll teams constantly. The employee's "net pay" on the stub is much smaller than disposable earnings because all the voluntary deductions reduce net pay but not disposable earnings. Withhold based on net pay and you have under-collected from the garnishment—putting the company on the hook for the difference.
A Quick Worked Example
An employee earns $1,200 per week in gross wages. From that paycheck you withhold:
- Federal income tax: $120
- State income tax: $48
- FICA (Social Security + Medicare): $91.80
- Health insurance premium (voluntary): $85
- 401(k) contribution (voluntary): $60
Net pay shown on the stub: $795.20. But disposable earnings for CCPA purposes are $1,200 minus only the mandatory items ($120 + $48 + $91.80) = $940.20. The 25 percent CCPA cap on an ordinary creditor garnishment is $235.05, not $198.80.
The Federal CCPA Limits, Garnishment by Garnishment
Ordinary Creditor Garnishments
For routine consumer-debt garnishments (credit cards, medical bills, judgments), the weekly amount that can be withheld is the lesser of:
- 25 percent of disposable earnings, or
- The amount by which disposable earnings exceed 30 times the federal minimum wage ($7.25), which is $217.50 per week
In practice that means:
- Disposable earnings of $217.50 or less per week: nothing can be garnished
- Disposable earnings between $217.50 and $290: only the amount above $217.50 is garnished
- Disposable earnings of $290 or more: a flat 25 percent is the cap
For bi-weekly, semi-monthly, and monthly pay periods, multiply $217.50 by the appropriate factor. Many state minimum wages are now well above $7.25, and a number of states use the state minimum wage in this calculation, which produces a higher floor and a smaller garnishment. California, Washington, and others have followed this path; California's 2024 update under AB 2837, for instance, applies the lesser of 25 percent or 50 times the state minimum wage and adds new notice requirements that took effect in 2026 under AB 774.
Child Support and Alimony
This is where the percentages get higher. Under the federal CCPA, support orders can pull a much larger slice of disposable earnings:
- 50 percent if the employee is supporting another spouse or dependent child and is current
- 55 percent if supporting another spouse or child and more than 12 weeks in arrears
- 60 percent if not supporting another family and is current
- 65 percent if not supporting another family and more than 12 weeks in arrears
The employee's IWO will tell you the dollar amount to withhold each pay period. Your job is to apply the dollar amount unless it exceeds the CCPA cap, in which case you withhold the cap and report the shortfall to the issuing agency. Roughly one-third of states cap support withholding at 50 percent regardless of arrearage—always check the state rules where the employee lives.
The IWO triggers a tight schedule: you must begin withholding no later than the first pay period that occurs 14 days after the IWO is mailed, and you must remit the funds within 7 business days of the pay date. Missing these windows is one of the most common—and most expensive—employer errors.
Federal Tax Levies (Form 668-W)
The IRS does not follow the CCPA. When a Form 668-W lands on your desk, the levy attaches to everything except a small exempt amount published annually in IRS Publication 1494. The exempt amount depends on the employee's filing status and number of dependents and is roughly tied to the standard deduction.
When you receive a 668-W, give the attached Statement of Dependents and Filing Status to the employee. They have three business days to complete and return it. If they do not, you must compute the exempt amount as if the employee were "married filing separately with zero dependents"—the smallest exemption available. Many employers default to the employee's W-4 here. That is wrong. Use only the levy statement.
Unlike most garnishments, an IRS levy continues until the IRS releases it in writing on Form 668-D, the debt is satisfied, or the statute of limitations expires. You cannot stop withholding on your own initiative—even if the employee swears they have paid.
Administrative Wage Garnishment for Federal Student Loans
The U.S. Department of Education resumed administrative wage garnishment for defaulted federal student loans in 2026 after a multi-year pause. Roughly 5.3 million borrowers may eventually be affected. AWG is capped at 15 percent of disposable earnings, and the employee must be left with at least 30 times the federal minimum wage per week ($217.50). If a borrower already has a higher-priority garnishment in place, the AWG is reduced accordingly.
AWG orders arrive directly from the Department of Education or its servicers—no court order is required. Employers have 30 days to begin withholding and must complete and return the employer certification confirming the employee's employment status.
State Tax Levies
State tax levies follow state-specific rules, and the limits and procedures vary widely. Some states piggyback on CCPA percentages, others use a fixed dollar approach, and many require employers to respond to the levy within a short window (often 10 to 30 days) even if there are no wages to attach.
Priority When Multiple Orders Hit the Same Paycheck
Two or three garnishments on one employee is no longer unusual. The general priority order under federal law is:
- Child support and alimony orders take first priority, regardless of when they were received
- Bankruptcy orders under Chapter 13 wage assignments
- Federal tax levies (with the caveat that a levy served before a child support order may retain priority over later child support)
- State tax levies
- Federal non-tax debts, including student loan AWG
- Other creditor garnishments, processed in the order received
Among support orders received from multiple jurisdictions, you generally allocate proportionally if the CCPA cap is hit and report the shortage. The IRS provides specific guidance on stacking when its levy collides with support; do not improvise.
The Employer Workflow: From Mail to Remittance
A clean, repeatable workflow is the single best defense against personal liability. The steps:
- Date-stamp every incoming order the moment it arrives. The clock for response and withholding starts on the receipt date, and you will need this date if you are ever audited or sued.
- Validate the order. Confirm the employee actually works for you, the order matches their legal name and Social Security number, and the order is from a jurisdiction with authority over your workplace.
- Send the required notice to the employee. Most states require you to give the employee a copy of the order and a notice of their right to claim exemptions. California's 2026 AB 774 requirement formalizes this for that state, but the practice should be universal.
- Calculate disposable earnings correctly every pay period—not once at the start.
- Apply the correct cap for the garnishment type and the state's protective limits.
- Withhold and remit on the deadline. For IWOs, that is within 7 business days of the pay date. For others, follow the order.
- Document everything: the order, the calculations, the remittance receipts, employee notifications, and any communications with the issuing party.
- Track the termination of the order. Most orders end when the debt is paid, the order is released in writing, or the employee leaves. Stop withholding as soon as you have written confirmation—and notify the issuing party of any employment changes promptly.
Where Employers Get Burned
A handful of mistakes account for the overwhelming majority of garnishment-related lawsuits and penalties:
- Calculating disposable earnings on net pay instead of gross-minus-mandatory-deductions. Under-withholds the garnishment and creates employer liability for the shortfall.
- Ignoring the order while you "look into it." The withholding clock does not pause while you investigate. Begin processing on time and resolve disputes in parallel.
- Stopping withholding because the employee says it is paid off. Only the issuing court, agency, or creditor can release the order. Verbal claims by the employee mean nothing.
- Treating an IRS Form 668-W like a normal garnishment. The 25 percent CCPA cap does not apply; Publication 1494's exempt amount table does.
- Firing the employee. Under the CCPA, you cannot discharge an employee because of a single garnishment, regardless of the underlying debt. Many states extend this protection further, prohibiting termination based on multiple garnishments. Retaliation triggers reinstatement, back pay, fines, and sometimes punitive damages.
- Charging an administrative fee without state authority. Many states allow a small per-pay-period fee (typically $1 to $5), but the rules vary, and unauthorized deductions can themselves become FLSA wage claims.
- Failing to notify the issuing party when the employee leaves. Most orders require prompt notice of termination—usually within 7 to 30 days—and continued silence after the employee has left can be construed as concealment.
- Sending the money to the wrong place. IWOs go to the state disbursement unit, not directly to the custodial parent. Tax levies go to the IRS, not to a court. Read every order's remittance instructions carefully.
The financial exposure is real. Under most state garnishment statutes, an employer that fails to withhold and remit can be held liable for the entire underlying debt—not just the amount that should have been withheld. A $40,000 credit card judgment becomes a $40,000 company liability if you missed the order. Add attorneys' fees, court costs, and contempt sanctions and the bill grows quickly.
Recordkeeping and the Bookkeeping Trail
Wage garnishments are not just a payroll problem—they are a bookkeeping problem. Every dollar that you withhold passes through your hands as a fiduciary, not as revenue or as a normal payroll cost. The withholding sits as a liability on the balance sheet from the moment it is deducted until the remittance clears. Clean, dated entries are what separate a defensible record from a guess.
A workable accounting pattern for each garnishment:
- A liability account per garnishment type (e.g., "Wage Garnishments Payable – Child Support," "Wage Garnishments Payable – IRS Levy"). Some teams use a sub-account per employee for high-volume operations.
- A dated journal entry for every withholding showing the gross wage, the mandatory deductions used to compute disposable earnings, the disposable earnings figure, the applicable cap, and the amount withheld.
- A separate entry for each remittance, with the check or ACH reference, the recipient, and the date the remittance left the bank.
- A monthly reconciliation between withheld amounts and remitted amounts. Anything outstanding at month end is a red flag.
Plain-text accounting tools shine here because every entry is human-readable, every change is version-controlled, and every account balance can be reconstructed from source. When a state child support agency asks for two years of disbursement detail, you should be able to produce it in minutes, not days.
State-Specific Quirks Worth Knowing
A few states deserve special attention because their rules diverge sharply from federal defaults:
- Texas, North Carolina, South Carolina, and Pennsylvania generally prohibit wage garnishment for ordinary consumer debts. Support, taxes, and federal non-tax debts still apply, but a private creditor cannot reach wages in these states.
- California uses 50 times the state minimum wage in its protective formula and requires direct employee notification under AB 774 (effective 2026).
- New York caps creditor garnishments at the lesser of 10 percent of gross income or 25 percent of disposable earnings—a more generous protection than federal law.
- Florida exempts the wages of "head of family" earners up to $750 per week from creditor garnishments unless waived in writing.
- Massachusetts uses 50 times the state minimum wage as its protective floor.
Always pull the current rules for the state where the employee physically works, not where your headquarters sits.
Keep Your Finances Organized From Day One
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