If you have defaulted on your federal student loans, child support or alimony payments, owe back taxes, or have a court-ordered judgment against you, you may lose part of your paycheck. This is known as wage garnishment, and it is permitted under Federal and state law as a way for creditors to reclaim debts.
Under Federal law, the Consumer Credit Protection Act limits the amount of money that can be garnished from your disposable income (the amount of money left over after mandatory deductions like taxes and Social Security).
These limits are set by category of debt:
- Federal student loan debts are capped at 15% of your weekly income;
- Child support and alimony payments are limited to 50% if you are supporting another child or spouse and 60% of your income otherwise;
- Back taxes wage garnishment is calculated by the IRS, depending on the deductions you take. However, they generally amount to no more than 15% of your weekly pay.
Calculating Garnishments from Court-ordered Judgments
Court-ordered judgments are obtained after a credit card, personal loan, or medical debt company have filed a lawsuit against you and the judge has ordered that you are liable for the debt. Before the judge orders you to pay the debt, you will have an opportunity to contest it in court. If you don’t, or if you lose the case, your paycheck might be garnished.
How much money can be garnished will depend on your weekly income. Federal law caps this type of wage garnishment at 25% of your weekly disposable income, or the amount by which your weekly income exceeds 30 times the federal minimum wage (currently $7.25 an hour),
This means that if you are earning $290 or more, after taxes and withholdings, 25% of your income can be taken. If you are earning between $217.51 and $289.99 a week, anything you earn above $217.50 can be taken. However, if your weekly disposable income is $217.50 or less, your wages will not be garnished.
Example Wage Garnishment Calculation
How does this play out with real data? Keep in mind, these are estimates that may or may not reflect your personal situation.
In Georgia, the median annual 2016 salary was just over $51,000, which after Federal taxes will come out to $46,500 if you are single with no dependants and taking the standard deduction. Taking out FICA (Social Security), a flat 7.65% at this income level will take out another $3,900 and put your annual discretionary income at $42,581, or your weekly discretionary income at $819.
Put more simply,
$51,000 annual salary (before taxes and FICA)
-$4,519 (Federal Taxes)
= $42,581 discretionary annual income
$42,581 ÷ 52 weeks = $819 weekly discretionary income
From this, if you owe money for:
Defaulted federal student loans: you could pay $122.85 each week ($819 discretionary income x 15% garnishment).
Child support and alimony: you could pay $491 each week if you owe support to one child or spouse ($819 x 60%) or $409 if you are supporting another child or spouse ($819 x 50%).
Back taxes: you could pay $122.85 each week ($819 x 15%).
A court-ordered judgement: you could pay $205 a week ($819 x 25%).
Georgia follows Federal law, so the calculation will not change here. However, other states may follow a different pattern.
Protecting Yourself Against Wage Garnishment
First and foremost, do not ignore court papers. If you are served with a lawsuit, read the papers careful and seek legal advice. If your wages are currently being garnished, you may be able to protect some of your income that is exempt from garnishment, such as social security income or social security disability, retirement income or unemployment income.
Filing for bankruptcy is also an option, because it will freeze all collection actions until you have time to get back on your feet again.