Wage Garnishments: New Laws, New Procedures for 2017 & Alice Gilman, Esq.

Transcription

1 Wage Garnishments: New Laws, New Procedures for 2017 & 2018 Alice Gilman, Esq.

2 AGENDA Federal Tax Levies Creditor Garnishments Child Support Garnishments Bankruptcy Orders Administrative Garnishments Student Loan Garnishments

3 Tax Levies Levy Process Levies come at the end of the collection process, so employee should not be surprised Employers are immune from suit by employee, even if levy turns out to be wrong The IRS and an employer don t conspire when the employer honors a levy Federal wage levies aren t limited to federal employees Wages aren t an even trade for labor Employers don t breach any fiduciary duty by honoring levies Employers don t compromise at-will status by honoring levies Couples may be jointly liable for a tax debt

4 Tax Levies Form 668-W, Notice of Levy on Wages Give the employee Parts 2-5; keep Part1; the IRS keeps Part 6 Employee completes Parts 3 and 4 and returns them to you within three days Applies to wages earned but not yet paid when the levy is served Applies to payments similar to wages: periodic distributions to S corp shareholders or partners draws Key: Periodic nature of the payment Firing employee is a federal offense, punishable by a $1,000 fine and/or imprisonment for up to a year

5 Tax Levies Determining the Amount Exempt From Levy Use Parts 3 and 4 and IRS Pub Send check to the IRS on payday, along with Part 3; photocopy Part 3 to send with each payment Write on the check, not on the detachable stub, the employee s name, Social Security or other identifying number, kind of tax, tax periods (shown on Part 1 of the form), and the words LEVY PROCEEDS Employees may update Parts 3 and 4 for the next calendar year If Parts 3 and 4 are updated, use Pub in effect for that next year Levies continue until IRS releases them

6 Tax Levies

7 Tax Levies Determining the Amount Exempt From Levy Sally is single and claims one withholding allowance on her W-4, she s paid $4,000 biweekly, has $60 withheld for health benefits and $100 withheld for her 401(k) plan. Sally owes $15,000 in back taxes: Figure Sally s take-home pay: Total tax withholding: $1, health deduction: (k) deduction: 100 Take-home pay: $2, Figure amount exempt from levy: Take-home pay: $ Levy amount: $2,040.69

8 Tax Levies Tax Levy Pitfalls Employers that fail to honor tax levies are liable for the amount that should have been withheld, plus a 50% penalty No reasonable cause defense based on the conduct of a rogue employee, even a properly supervised employee IRS notice sent to a corporate officer who is the subject of the levy Person who routinely opens the mail sees a levy notice about themselves Establish internal controls: Send all legal/tax notices to the company s outside counsel

9 Tax Levies Voluntary Withholding Agreements Voluntary Payroll Deduction Agreements: Form 2159 Allows the employee and the IRS to agree on amount to withhold, in lieu of a levy Employer must also agree

10 Tax Levies

11 Creditor Garnishments Title III of Consumer Credit Protection Act Combination of federal and state law Creditors have their choice of forum CCPA restricts garnishment: lesser of 25% of the employee s disposable earnings or 30 times the minimum wage Earnings: Wages; commissions; bonuses; sick pay; vacation pay; draws against commissions; and other compensation periodic payments from a pension or retirement program, or payments from an employment-based disability payment program. Earnings don t include tips, but do include service charges Disposable earnings: amount left after mandatory deductions; all other deductions come after the garnishment deduction

12 Creditor Garnishments

13 Creditor Garnishments Figuring the Amount Subject to Garnishment Two-step process: 1. From disposable earnings, subtract the amount that equals 30 times the minimum wage, multiplied by the number of weeks in the pay period 2. Multiply disposable earnings by 25% Amount subject to garnishment is the lesser of those two figures Example: Debra s disposable pay is $300 and she owes $400. She s paid weekly 1. $300 - $ (30 times the $7.25 minimum wage) = $ $300 x 25% = $75 $75 may be withheld under the garnishment order

14 Creditor Garnishments Employment Protections Employees can t be fired, disciplined, or transferred for one indebtedness: A single debt to one creditor for which a number of collection proceedings have been brought or a number of debts to several creditors who join in one garnishment action The garnishment order should specify the following: Priority rules for multiple creditor garnishments usually first-in-time-first-in-right The time for remitting the amount withheld How long a garnishment order may continue Whether employers may deduct a fee What to do when the garnishment order is satisfied Child support orders always have priority over creditor garnishments Notify issuing court if second garnishment order can t be satisfied

15 Creditor Garnishments Uniform Wage Garnishment Act Employers answers to judgement creditors interrogatories would be made directly to the creditor; amounts deducted from employees earnings would be remitted directly to the creditor Would require that garnishment actions be filed in the state where the employee works Would permit a garnishment to remain in effect until the entire amount owed on the judgment is paid Would provide that multiple judgment creditors could share the amount available for garnishment equally Would extend its protections to certain independent contractors

16 Creditor Garnishments Creditor Garnishment Pitfalls Voluntary wage assignments vs. garnishment orders Wage assignments are not subject to the CCPA Parties can agree to alter a garnishment order: Does the agreement convert the garnishment into a voluntary wage assignment, or vice versa Seek legal advice before honoring any altered agreement Partial pay periods CCPA s limits apply on pay period basis; if there are no disposable earnings in a partial pay period, there s no withholding

17 Child Support Garnishments Disposable Earnings Maximum disposable earnings that are subject to withholding: 50% of employee s disposable pay, if employee has second family; 60% if the employee doesn t have a second family 50%/60% are increased by 5% if the employee owes back child support for 12 weeks or more Federal Law Requirements Withholding begins no later than the first pay period that occurs after 14 days following the date the order is sent to the employer Amounts are remitted within 7 days after payday Employees can t be fired Notify state if employee terminates Employers must enroll dependent children in the group health plan and withhold the premiums from employee s pay

18 Child Support Garnishments Income Withholding Orders Employers that receive IWOs from another source must also receive a copy of the underlying order Honor IWOs that are regular on their face Any reasonable person thinks it s valid The underlying order contains the IWO Withhold a dollar amount, not a percentage Rejection of IWOs: IWOs that aren t issued on OMB-approved form must be returned to the sender, IWOs with truncated SSNs, and IWOs that require employers to vary pay periods IWO: Remittances are made to the state child support disbursement unit; return IWOs that direct payment elsewhere

19 Child Support Garnishments Income Withholding Orders Calculating withholding under IWOs Determine the amount to withhold: Annualize the monthly amount and divide by the pay period $ annual amount 26: Biweekly pay periods $ annual amount 24: Semimonthly pay periods $ annual amount 52: Weekly pay periods Imputed income isn t part of disposable earnings Withhold if paying annual leave, sick leave, or workers comp If employee is on leave without pay, must notify the child support agency immediately

20 Child Support Garnishments Income Withholding Orders Handling multiple child support orders Federal law requires that you pay some money for each order for current child support Two basic allocation methods: Allocate a percentage to each order or divide the total dollar amount of the orders equally

21 Child Support Garnishments Income Withholding Orders Proration method

22 Child Support Garnishments Income Withholding Orders Equal allocation method Divide the allowable disposable income by the total number of orders Disposable income: $180 Number of orders: 3 Amount to withhold: 60 Contact your state child support enforcement office if you re unsure what to do

23 Child Support Garnishments

24 Child Support Garnishments Income Withholding Orders Electronic IWOs (e-iwos) States are mandated to have an e-iwo process in place, but it is discretionary for employers to use the e-iwo process System-to-system interface: for medium or larger employers; requires some programming expertise and time from IT; IWOs are sent to you in your choice of a flat file format or.xml document; No-programming: for smaller employers or those that don t get many IWOs; configure your server and directories; receive image ready PDF copy of IWO;

25 Child Support Garnishments State Mandates Whether lump sum payments are subject to special rules Whether employers must notify the state before making lump sum payments Whether withholding is required from payments made to independent contractors The amount of any administrative fee

26 Child Support Garnishments Medical Support Withholding Qualified medical support notice Requires that dependent children be enrolled in the group plan and premiums be withheld from employees pay Part A + Employer Response: Completed within 20 business days if group health insurance is unavailable, employee has terminated, or there isn t enough income to withhold the premium Part B + Plan Administrator s Response: Forward to health care plan administrator within 20 business days; plan administrator returns to the child support agency within 40 days and notifies you of employee s payment once enrollment is complete Law of the employee s work state to determine priorities Notify state when employment terminates

27 Child Support Garnishments Child Support Withholding Pitfalls Employees don t have enough disposable earnings Withhold the maximum and notify state of the arrears Read the garnishment order for instructions Don t automatically withhold the difference from the next wage payment Enroll dependents without regard to open enrollment periods If dependent-only coverage isn t offered, employees can be forced to enroll in a family coverage plan Honor refiled W-4s that decrease withholding allowances Don t ignore child support withholding orders New or merged companies should honor existing withholding orders

28 Bankruptcy Orders Debt Consolidation Under Chapter 7 or Chapter 13 Automatic stay upon filing for bankruptcy Bankruptcy trustee may issue income withholding orders requiring that employee s wages be paid over to it Wage withholding under bankruptcy orders isn t subject to the CCPA Bankruptcy orders issued under Chapter 13 raise priority issues if employee has outstanding garnishments Once bankruptcy petition is filed, withholding under all prior garnishment orders, except child support withholding, must cease Employee can t be fired or discriminated against for filing bankruptcy petition Employer may not charge bankrupt employee a fee for administering bankruptcy withholding order

29 Administrative Garnishments General Administrative Garnishments Low priority Employees can t be discharged; state laws prohibiting garnishment are prohibited; disposable pay includes deductions for health insurance; priority is first-in-time-first-in-right Employers receive Form SF-329: Letter to Employer & Important Notice to Employer (Form SF-329A) United States Government Wage Garnishment Order (Form SF-329B) Wage Garnishment Worksheet (Form SF-329C) Employer Certification (Form SF-329D) Return the certification within 20 days

30 Administrative Garnishments General Administrative Garnishments Maximum subject to withholding: Lesser of 15% of disposable pay or 30 times the federal minimum wage Withholding begins: The first pay period that occurs after receipt of Form 329; if the first payday is within 10 days of receipt, withholding begins with the second pay period Amounts withheld: Remitted within 3 business days of withholding Order remains in effect until released by the federal agency Employers are liable for the amounts that should have been withheld

31 Administrative Garnishments General Administrative Garnishments Multiple garnishment orders: Maximum subject to withholding is the lesser of: Lesser of 15% of disposable pay or the amount by which disposable pay exceeds 30 times the minimum wage or Amount that equals 25% of disposable pay, less amounts withheld under prior orders Example: Dan has $40 withheld under a prior order. His disposable pay is $250 a week. The most that could be withheld under a second order is $22.50: 1. The lesser of $37.50 (15% of $250) or $32.50 ($ ) or 2. $250 x 25% = $ $40 = $22.50

32 Administrative Garnishments General Administrative Garnishment Pitfalls Watch out for orders that look similar to administrative garnishments, but that are from commercial creditors Go to to check if the issuer is a federal agency Talk to company s legal counsel, if the order is not from a federal agency Talk to employees about their understanding of any agreements made with creditors

33 Student Loan Garnishments Types of Student Loans Direct loans: Funded by the Department of Education PLUS loans: Funded by the Department of Education Perkins loans: Funded by individual educational institutions Private loans: These loans are nonfederal loans, made by a lender such as a bank, credit union, state agency, or school

34 Student Loan Garnishments Mechanics of Implementing the Garnishment Order Low priority Verify authenticity of order Respond within 10 days of receiving garnishment order Withholding begins upon receipt of the garnishment order If U.S. Department of Education issued the withholding order, the amounts withheld are remitted monthly Employers don t have to vary their pay periods State laws apply to whether the employer may deduct fee for servicing the garnishment Garnishment order continues until the employer receives a release Employee can t be terminated

35 Student Loan Garnishments Mechanics of Implementing the Garnishment Order CCPA limits: Maximum subject to withholding: Lesser of 15% of disposable pay or 30 times the federal minimum wage Multiple student loan garnishment orders: Maximum subject to withholding is 25% of disposable pay Employee termination: Notify issuing agency within 10 days of employee s termination; supply employee s last known address and the name and address of new employer, if known Employee s bankruptcy: Withholding order may be temporarily suspended

36 Wage Garnishments: New Laws, New Procedures for 2017 & 2018 Alice Gilman, Esq.