What is wage garnishment and what does it mean for your paycheck?

If you’ve gotten behind on your debts, you should be aware of the possibility of wage garnishment. And it’s true, certain events like those mentioned above can cause a court to order your employer to withhold a portion of your earnings.

In this post, we’ll cover the meaning of wage garnishment, how it works, why it happens, how to avoid it, and its tax consequences.

What is wage garnishment? Understanding wage garnishment meaning

The wage garnishment definition is when a court orders your employer to withhold part of your paycheck and send the funds to pay debts you owe. Employers garnish wages under a court order until the outstanding debt is paid off or otherwise resolved. If you’ve fallen behind on payments for debt, wage garnishment is an important concept to understand.

A wage garnishment for unpaid taxes, also referred to as a levy, is an enforced collection procedure the IRS uses to collect unpaid taxes. A levy can include property or asset seizures and is a legal claim against a property based on an unpaid debt.

Who can garnish wages?

Specific parties can garnish wages, including:

• Creditors: A creditor can petition courts to order a wage garnishment for debt collection. For example, say you have an unpaid credit card debt. After you have not made payments, the creditor then attempts to collect the payments and eventually sues you in court. Then, the creditor wins a judgment against you to garnish your wages to repay the debt. The court order instructs your employer to withhold a portion of your paycheck to be sent to the creditor until the debt is paid off.
• Government agencies: Government agencies can order wage garnishments. For example, the Treasury Offset Program (TOP) can withhold certain federal payments to cover delinquent debts. This primarily applies to withholding and transferring of tax refunds, Social Security benefits, and other federal payments rather than direct wage garnishment. However, federal government agencies can use administrative wage garnishment to collect debts without a court order.
• IRS levy: An IRS levy is a legal claim to property allowing the legal seizure of your property to satisfy a tax debt. This can also mean garnishing wages, taking money in your bank or other financial account, seizing and selling your vehicle(s), real estate and other personal property.

Garnishment of wages: Which debts count?

There are different kinds of garnishments, each with their own implications and processes. Courts may order wage garnishments for failing to pay:

• Tax debts
• Child support payments
• Consumer or medical debts
• Defaulted credit card payments
• Payday or student loans default

Which wages can be garnished?

The most commonly garnished employee wages are regular salaries and W-2 wages. Other income that can be withheld in the wage garnishment process includes:

• Commissions
• Bonuses
• Profit sharing
• Referral and sign-on bonuses
• Moving or relocation incentive payments
• Attendance, safety, and cash service awards
• Retroactive merit increases
• Payment for working during a holiday
• Termination pay (like payment of last wages, and outstanding accrued benefits)
• Severance pay
• Back and front pay payments from insurance settlements
• Tip income
• Workers’ compensation payment for wage replacement, whether paid periodically or lump sum

Typically, Social Security Benefits, State Public Assistance Plans, Worker’s Compensation, and Life Insurance Payouts are exempt from garnishments.

Note: Only your disposable earnings, or remaining earnings left after required deductions (like federal, state, and local taxes as well as FICA tax) can be garnished.

How does wage garnishment work?

When an employer gets a garnishment order, they withhold a percentage of an employee’s compensation or a fixed dollar amount—whichever is specified in the court order.

Wage garnishments are not a one-size fits all process. Each garnishment case has its own set of rules for implementation and reporting. Your employer must legally obey the garnishment and must garnish your wages as soon as they get the order. So, even if you contest the garnishment, employers must still follow the court order until they receive different instructions.

The employer will get notice from the issuing party to stop garnishing wages. Generally, they will stop wage garnishment if:

1. The debt is paid
2. The garnishment order is revoked
3. The garnishment period ends

Your employer will use a table provided by the garnish issuer to determine the amount of wages to be withheld based on certain factors.

If the garnishment is against your business related to business debts, certain deductions may apply. Head to Block Advisors to learn more about small business topics.

Who can garnish wages without notice?

Most creditors, like credit card companies or medical debt collectors, must obtain a court order before they garnish wages. But certain government entities can garnish wages without prior notice or legal proceedings. Examples include:

• Internal Revenue Service (IRS)
• Department of Education (DOE)
• State Offices of Child Support and Services and Enforcement

How much of your wages can be garnished?

Here’s a general overview of federal wage garnishment limits, though state laws can vary:

¹: Fact Sheet #30: Wage Garnishment Protections of the Consumer Credit Protection Act (CCPA) | U.S. Department of Labor

Note: If the wage garnishment for federal income tax debt prevents you from being able to pay basic expenses such as food and housing, contact the number on the IRS notice you received.

What to do if you receive a garnishment judgment

If you receive a wage garnishment notice, don’t ignore it. The collection agency will proceed with garnishment until you reach a payment resolution or fully pay off the debt.

Follow this process if you get a garnishment notice, based on the type of garnishment.

Child support or spousal support garnishment

1. Review the notice: Understand the amount and source of the garnishment.
2. Pay or dispute the garnishment: Verify the garnishment is legal and legitimate. Use the information found on the notice to contact the agency that set the garnishment. If the garnishment is legitimate, you may be able to pay it in full to end the garnishment, plus penalties and interest if it applies. You may be able to ask the court to lower the amount if your income has changed, or if you fall under income thresholds.
3. Get help: If you weren’t properly notified or disagree with the amount, you can seek professional help to challenge it.

State tax or unemployment debt garnishment

1. Review the notice: Understand why your wages have been garnished, and how much. Verify the garnishment is legal and legitimate
2. Pay or dispute the garnishment: Pay in full or set up a payment plan, apply for hardship relief if you can’t afford payments, or dispute the garnishment if you believe it’s incorrect. Use the information found on the notice to contact the agency that requested the garnishment.
3. Get help: Consult a legal professional if you believe the garnishment is not legal, or if you fall under hardship relief.

(Related: What to do if you can’t pay your taxes.)

Private / credit debts

1. Review the notice: Confirm what debt caused the garnishment. Verify the debt by checking for errors and overpayments.
2. Pay or dispute the garnishment: You can choose to request a hardship exemption, pay in full, or create a payment plan with the creditor, which may result in the removal of the garnishment. You can dispute the garnishment if it isn’t legal or accurate.
3. Get help: Consult a legal professional for exemption or dispute options.

IRS debts

1. Review the notice: The notice will explain the reason for the garnishment, the amount owed (including penalties and interest), and your options. Then, verify the debt. Make sure that the collection agency is not collecting debts you’ve already paid.
2. If the wage garnishment is accurate, consider how it will affect your paycheck and how it will impact your finances: You can collaborate with a lawyer to appeal or change your wage garnishment. For example, if you have an unexpected garnishment order, you can consult a legal professional to understand your rights. Get an attorney referral from the American Bar Association or the bar association in your state.
3. Pay or dispute the garnishment: The next step is to resolve the outstanding debt. The options include:
4. Paying the debt in full: This is the fastest way to stop the garnishment. Some individuals take out loans from banks or family members to pay off the debt.
5. Setting up an installment agreement: Pay your debt in monthly installments, on time.
6. Submitting an Offer in Compromise (OIC): Certain taxpayers may be able to settle in court for a reduced wage garnishment amount.
7. Apply for non-collection status: If you’re facing economic hardship and can’t make payments, the collection agency may temporarily delay garnishing your wages until your financial situation improves.
8. File an appeal: If your employer garnished your wages, but you believe they should not have, challenge the judgement. For example, you can challenge the garnishing if you weren’t properly noticed.
9. Get help: For support with tax garnishments, get help from a tax professional. They can help you understand your rights, contact and negotiate with the IRS, and find the best solution for your situation.

Note: H&R Block can only help you with IRS garnishments for federal tax debts. For all other scenarios, contact a legal professional.

What does garnishment look like on your pay stub?

If your wages are garnished, you may see a line item on your paycheck labeled “Garnishment.” It may specify the reason, such as “Garnishment—Tax Payment,” and will show the amount of garnished wages deducted for that pay period.

How does a wage garnishment affect your taxes?

Your tax refund is money the government gives back to you if you paid too much in taxes through withholding or otherwise during the year. Wage garnishment does not take your tax refund directly. If you owe money to the government for a debt and the court rules in favor of a garnishment, the court can also order a garnishment of your tax refund, too. This is referred to as a tax refund offset. So, if you have both wage garnishment and a tax refund garnishment, you might lose both—your paycheck will be smaller, and your refund may also be taken when you file a return. Also remember, certain government agencies may not need a court order to garnish your tax refund. The Treasury Offset Program (TOP) can withhold certain federal payments such as a tax refund to cover delinquent debts.

Wage garnishment also affects your taxes by reducing your take-home pay, but it doesn’t lower your taxable income. The IRS still considers garnished wages as taxable earnings. So, they are reported on Form W-2. If the garnishment is for unpaid taxes, the IRS could seize your wages to cover the debt.

Get help navigating IRS wage garnishment

Now that you know what it means to garnish wages, you know that it can mean serious business. If you’re facing a wage garnishment, act quickly.

Get help from a trusted IRS expert to determine the best way to resolve your tax bill with the IRS. Learn more about H&R Block’s Tax Audit & Notice Services.

Just need help filing your taxes? We’re here for you. Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.