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Section 9: Other Deductions From Pay. Presented By: Cathryn Engelage, CPP March 8, 2014. Two Types of Deductions. Involuntary – EE & ER –No control (Child Support, Tax Levy, Bankruptcy, Student Loans, Creditor Garnishments)

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section 9 other deductions from pay

Section 9:Other Deductions From Pay

Presented By:

Cathryn Engelage, CPP

March 8, 2014

two types of deductions
Two Types of Deductions

Involuntary – EE & ER –No control (Child Support, Tax Levy, Bankruptcy, Student Loans, Creditor Garnishments)

Voluntary - EE Voluntarily Agrees (Wage Assignments, Union Dues, Savings Bonds, Credit Union, Charitable Contributions)

involuntary deductions 9 2
Involuntary Deductions 9-2
  • Neither the Employer or Employee has Control
  • If not Withheld - Penalties Equal the Deduction Amount Plus Fines and Interest
employer responsibilities 9 2
Employer Responsibilities 9-2
  • Bound to Comply With the Order
  • Withhold Required Amounts
  • Remit Amounts to Correct Agency
  • Notify the Employee
tax levies 9 2
Tax Levies 9-2
  • Levies can be for unpaid federal or state taxes

Federal Levy

  • Garnishing of Wages that are Not Exempt
  • Form 668-W – Notice of Levy
  • 6 Part Form (Parts 2 & 5 EE retains)
  • Tax levies must be satisfied before all other garnishments except for child support orders in effect before the date of the levy
federal levy 9 2
Federal Levy 9-2
  • Federal tax levies:
    • Form 668-W Notice of Levy on Wages, Salary, and other Income - contains 6 parts
      • Part I – employer’s copy – shows amount of levy
      • Part 2 thru 5 of 668-W – give to employee
        • Part 2 & 5 - employee retains
        • Parts 3 & 4 – EE must complete and return to employer within 3 days of the date the employer receives the form
        • Part 3 – When returned – ER completes reverse side and sends to IRS
      • Part 6 – kept by IRS
federal levy 9 2 3
Federal Levy 9-2,3
  • Standard Deductions & Personal Exemptions
    • Determined the Year Levy Received
    • If employee does not return Parts 3 & 4 of Form 668-W, exempt amount is calculated based on married filing separately (single) with one deduction
    • Employee is entitled to exempt amount – based on year levy is received – even when levy will span more than one tax year unless employee completes new Parts 3 & 4
  • IRS Exempt Table (Pub. 1494 – Table 1, P 9-4 & 5)
    • Some payments are exempt from federal tax levy – Tax Relief Act of 1997 severely limited what is exempt from levy
federal levy 9 6
Federal Levy 9-6
  • Take home pay is what remains after all normal deductions in effect at the time of the levy have been subtracted
  • Deductions that can be taken:
    • Only allowed deductions in effect at time of receipt of levy. New deductions are not exempt and deducted from disposable pay
    • Increases in pre-existing deductions that employee has no control of
  • Direct Deposit is not a deduction and subject to levy
  • Federal levies are not governed by Consumer Credit Protection Act
federal levy 9 8 9
Federal Levy 9-8,9
  • Employer cannot stop withholding until Form 668-D, Release of Levy/Release of Property from Levy received
  • If employee no longer working, or terminates employment while levy in place, return Part 3 to IRS with employee’s last known address
  • If employer chooses to ignore tax levy, employer is liable for full amount plus interest, and 50% penalty of amount recovered by IRS
  • Employee with two jobs – unless IRS notifies employer to reduce exempt amount, employer is to calculate “take home pay” as if second job did not exist
  • Payments to IRS are to be remitted on pay date to employee
federal levy
Federal Levy
  • Encourage employee to contact IRS to set up a Voluntary deduction agreement for owed taxes – “Payroll Deduction Agreement” – may prevent levy for employee
    • Form 2159 – Payroll Deduction Agreement
    • Employer Agrees to participate
    • Employee may discontinue at any time
child support withholding orders
  • Since 1/1/94, all initial child support orders require wage withholding unless both parents or the court & one parent agree to a different method of payment
  • Personal Responsibility & Work Opportunity Reconciliation Act of 1996 – if a child support order issued or modified before 10/1/96 becomes overdue, it becomes immediately subject to withholding
  • Child support enforcement framework – joint federal/state responsibility
child support 9 11
Child Support 9-11

Maximum Amount to Withhold:

  • 50% of disposable earnings if employee is supporting another spouse and/or children
  • 55% if above conditions met and employee is at least 12 weeks late in payments
  • 60% of disposable earnings if employee is not supporting another spouse and/or children
  • 65% if above conditions met and employee is at least 12 weeks late in payments
child support 9 111
Child Support 9-11
  • Calculating disposable earnings – subtract all deductions required by law from gross
    • Federal, State and local income tax
    • Social Security and Medicare tax
    • State unemployment or disability tax
    • Mandated payments for state employee retirement plans
    • Check state law regarding deduction of health insurance premiums
    • If a tax levy or other order has priority over new child support order, make sure amounts for the new order will not violate the CCPA maximum
child support 9 11 12
Child Support 9-11,12
  • One-time payments are subject to withholding orders – let agency know before payment made for determination of amount to be withheld
  • Tips are not part of employee’s earnings
  • Child support orders take priority over all other garnishments or attachments except for federal tax levies received before original child support order was established
  • Bankruptcy does not dismiss child support orders
child support 9 13 14
Child Support 9-13, 14
  • Effective date of order – no later than first pay period after 14 working days following mailing of notice to withhold
  • In May 2011 - Office of Child Support Enforcement approved a revised version of the Income Withholding for Support Order (IWO)– employers should be receiving this new form for all support orders
  • Payments withheld must be remitted within 7 business days of pay date to the state’s disbursement unit; payment can include all orders due the agency with details of amount withheld per employee and date withheld
child support 9 15
  • Employer can charge employee administrative fee for processing the withholding order each pay period – fee set by state law; child support payment & fee cannot exceed maximum for child support withholding per CCPA rules
  • If employment is terminated, employer must notify agency within a state set period of time of employee’s last known address and, if known, employee’s new employer and address
  • Employer liable for full amount not withheld & fine set by state law if failure to withhold occurs
child support
  • Revised IWO – May 2011 (P. 9-16) States, Tribes and others advised by OCSE to begin using new IWO immediately. This version expires May 31, 2014.
  • ER may reject IWO and return to sender if – IWO is not directed to SDU and if revised form is not used after 5/31/2012.
  • Electronic Income Withholding Orders (9-21) – e-IWO – involves electronic sharing of information between a state child support enforcement agency and employer. State sends e-IWO to ER and ER accept e-IWO electronically. 23 States utilize e-IWO. Can be a flat file or an XML file.
child support 9 19
ChildSupport 9-19
  • Withholding Orders from other States
    • Uniform Interstate Family Support Act – UIFSA – enacted in 1993 – requires employers to honor child support orders from another state so long as the order appears “regular on its face” – some of the rules of the order are regulated by UIFSA, while others are regulated by the employee’s work state
  • 1993 Uniform Interstate Family Support Act
    • Rules on the Order for:
      • Duration and Amount
      • Agency and Address
      • Medical Support, Fees, Costs
      • Arrears and Interest
child support1
Child Support
  • Withholding Orders from Other States - state law governs how they must be handled; state law of employee’s work site applies when total amount to withhold exceeds maximum allowed under state law
    • Allocate available wages to each order based on a percentage of the total amount required to be withheld
    • Allocate available wages to each order equally until each order is individually complied with or maximum amt of withholding allowed is reached
  • Adhere to Rules of Employee Work State for:
    • Administrative Fees
    • Mandatory Deductions for Disposable Income
    • Maximum Amount (%)
    • Time to Implement and Remit
    • Priority – Withholding and Allocating for Multiple Withholding Orders
child support 9 20
Child Support 9-20
  • Electronic Data Processing
  • Electronic data processing and payments – controlled and regulated by federal law. Fourteen states require payments to be submitted electronically. Over 30 states offer web-based payment systems
  • Employee Complaints
  • If employee does not agree with amount on order, employee must contact agency; employer required to withhold per order
  • If employee begins supporting new spouse and/or children, employee must contact agency
child support 9 22 23
  • International child support enforcement – Secretary of State sets up reciprocal agreements with foreign countries with certain procedures for establishing & enforcing child support orders issued in favor of U.S. residents. If no reciprocal agreement exists, states can enter into their own with foreign countries
child support 9 24 25
Child Support 9-24,25

Avoiding CS Order Withholding by decreasing WH allowances:

  • Employee can change their federal and state elections to reduce amount of disposable earnings, but IRS will withhold any arrearages from any refund

In the Military

  • Employer notifies the state that the employee is being mobilized
  • Notify child support agency with date of call to active duty


child support 9 25
Child Support 9-25
  • Independent contractors are not exempt from child support withholding orders
  • Current support obligations must be paid before any past due amount
  • Federal, state & local gov’t employees are not exempt from child support orders
child support example p 9 25
Child Support – Example – P. 9-25
  • Medical child support orders – employer-sponsored group health plans are required to comply with state laws. Each new order must address medical support. If “reasonable” insurance is not available, agency must ask for “cash medical support”.
    • “Reasonable Cost”– does not exceed 5% of gross income (or reasonable alternative determined by state)
    • Child Support Performance and Incentive Act of 1998 – required Secretaries of Labor and Health and Human Services to develop National Medical Support Notice (NMSN) to be considered a “qualified medical support notice”; December 2000 – regulations including a final National Medical Support Notice were issued.
    • Latest revision of NMSN Part A - took effect March 29, 2011.
child support 9 26 9 29
CHILD SUPPORT 9-26 – 9-29
  • Medical Support Orders (Cont’d)
    • Employer has 40 business days from date of notice to advise state agency if coverage is available and if child is already covered
    • Federal employees required to follow medical support orders under Federal Employees Health Benefits Children’s Equity Act
    • States can have their own regulations in some areas per federal law
    • If EE leaves employment - Notify the state as soon as employment is terminated. Give them the employee’s last know address and new employer, if known
  • Providing Private Medical Info is OK – does not violate HIPAA – NMSN is considered a written request from a law enforcement official and makes it lawful.
child support 9 33
Child Support 9-33
  • State Laws on Child Support Withholding
    • Table 9-1, P. 9-33 to 9-37
  • State Child Support Enforcement Agencies
    • P. 9-38 to 9-42
  • Federal Offices of Child Support Enforcement
    • P. 9-42 to 9-43
creditor garnishments 9 43
Creditor Garnishments 9-43
  • A Legal means in order to collect a debt
  • Creditor must obtain court order before the employer is required to withhold for a debt
  • More restrictions than child support orders
  • Consumer Credit Protection Act (CCPA)
    • Governs Amount to Garnish
    • Discharge of Employee – ER cannot discharge EE due to garnishing of wages
creditor garnishments 9 44
Creditor Garnishments 9-44
  • Tips -
    • Cash-Not Considered Earnings vs. Service Charge is Considered Earnings
  • Disposable Income – Deductions Required by Law
    • Federal, Social Security, Medicare, State and Local Taxes
    • State Unemployment
    • State Disability
    • Mandated State Retirement
  • Table 9-2 – Amount Subject to Garnishments
creditor garnishments 9 441
Creditor Garnishments 9-44

Maximum Amount of Disposable Income to Garnish

Lesser of:

25% of Disposable for Week, or

30 times the Federal Minimum Wage for Week (30 x $7.25 = $217.50)

creditor garnishments example 1 p 9 45
Creditor Garnishments – Example 1 (P. 9-45)
  • EE’s Weekly Disposable Earnings = $250
    • Garnishment for $300
  • Lesser of:
    • 25% of Disposable = $62.50
    • $250 - $217.50 = $32.50
  • Maximum Amount to Withhold = $32.50
creditor garnishments 9 45
Creditor Garnishments 9-45
  • Multiple garnishments
    • Disposable Income is the same
    • Take ‘Into Account’ Other Garnishments
  • Example 1 & 2 – P. 9-45
    • Disposable of $1,000 bi-weekly
    • Previous Child Support Order for $400
      • Take $400 for CS (= 40 %, max 25%), $0 for Creditor Garn
    • If Child Support Order was for $200
      • Take $200 for CS (= 20 %) + $50 for Creditor Garn.(=5%)
      • ( 25% max)
creditor garnishments 9 451
Creditor Garnishments 9-45
  • Minimum Wage Changes – will change the amount to be garnished (Table 9-2, P. 9-44)
  • Exception to CCPA Limits:
    • Not considered deductions required by law
    • Child Support
    • Tax Levies
    • Bankruptcy
    • Student Loans
creditor garnishments 9 46
Creditor Garnishments 9-46
  • Federal, State, Local EE’s : Exempt from garnishments unless specifically provided otherwise by state law. Postal Workers are NOT exempt.
  • Federal EE’s – subject to withholding for Child Support, Alimony and Tax Levies
  • State Regulations Include:
    • Maximum Amount Subject to Garnishment
    • Employee Termination
    • Priority of Multiple Garnishments
    • Exceeds Maximum Amounts
    • Time Limits & Out of State Orders
    • Administrative Fee & Penalties
bankruptcy 9 47
Bankruptcy 9-47
  • Governed by federal Bankruptcy Code – upon receipt of order, employer must stop withholding on any other garnishments – except for child support orders (and certain proceedings as outlined) – unless directed otherwise by bankruptcy trustee. Until employer gets a change in a bankruptcy order, they must withhold amount on order.
  • Orders under Chapter 8 override even federal, state and local tax levies.
  • Retirement plan loans are exempt from the automatic stay
    • Discharge of Employee – ER cannot discharge EE due to bankruptcy
student loans federal agency debt collections 9 48 49
Student Loans & Federal Agency Debt Collections 9-48,49
  • Student loan garnishments have restrictions:
    • No more than the lesser of15% of disposable income or 30 times federal hourly minimum wage
    • If more than one student loan garnishment received, total garnished amount is the lesser of25% of disposable income or 30 times federal hourly minimum wage
    • Employee cannot be terminated because of garnishment
    • Employee must receive notice at least 30 days before withholding begins
student loans federal agency debt collections 9 48 491
Student Loans & Federal Agency Debt Collections 9-48,49
  • Maximum Amount – Lesser of:
    • 15% of Disposable or
    • Excess of 30 x Federal Minimum Wage for Week (30 x $7.25)
  • Discharge of Employee Prohibited
  • Employee must receive notice of garnishment prior to beginning to withhold and have a chance to contest the order or work out a voluntary payment plan
    • Employer must begin withholding within the “reasonable period of time” – usually 2 pay cycles of receipt of order
federal agency debt collections 9 50
Federal Agency Debt Collections 9-50
  • If employer does not comply they are liable for the amount not withheld as well as damages
    • If employee is laid off and rehired within 12 months, employee has 12 months from date of reemployment before order becomes effective again
    • Federal agency orders take priority over other types of withholding orders received after the federal order (except for child support orders)
  • Penalties – Amount plus damages
federal wage hour law restrictions on deductions 9 48
Federal Wage Hour Law - Restrictions on Deductions 9-48
  • FLSA also has restrictions on deductions when they bring the employee’s wages below minimum wage and overtime pay laws
    • Board, lodging, & other facilities – can be deducted and can cause wages to fall below minimum wage if accepted voluntarily and is for employee’s benefit
    • Buying & maintaining uniforms – uniforms that cannot be worn used as “normal street wear”and employer pays for cleaning & maintenance, deductions cannot reduce pay below minimum wage
federal wage hour law restrictions on deductions 9 51
Federal Wage Hour Law - Restrictions on Deductions 9-51
  • Loans to employees – deduction for principal can reduce wages below minimum wage; interest deduction cannot reduce wages below minimum wage
  • Salary advances & overpayments – deductions due to bookkeeping errors can reduce pay below minimum wage
  • Docking pay for missed time – if deduction equals pay for time lost, no FLSA violation has occurred. If additional amount is deducted as a penalty, it cannot reduce pay below FLSA minimum wage.
  • Deductions for taxes – are considered wages paid to employee and FLSA minimum wage laws do not apply
federal wage hour law restrictions on deductions 9 52 53
Federal Wage Hour Law - Restrictions on Deductions 9-52,53
  • Garnishments & wage assignments – can be deducted even if deduction(s) reduce pay below FLSA minimum wage laws
  • Union dues – if required by union contract, FLSA minimum wage laws do not apply
  • Cash shortages, bad checks – if deduction will reduce pay below FLSA minimum wage, it cannot be taken
  • Employer insurance bonds – employer cannot deduct the cost of the bond from employee’s wages if it will reduce pay below FLSA minimum wage. Employer cannot require employee to pay for bond prior to employment.
voluntary deductions 9 54
Voluntary Deductions 9-54
  • Wage Assignments
  • Union Dues
  • Credit Union Deductions
  • US Savings Bonds
  • Charitable Contribution
voluntary deductions 9 541
Voluntary Deductions 9-54
  • Employee elects to have amounts taken directly from their paycheck.
  • Employee must give employer written authorization to allow the deduction
  • Last in order of priority
voluntary deductions 9 54 55
Voluntary Deductions 9-54,55
  • Wage Assignments

Employees assign wages to secure a debt

  • Garnishment limits do not apply

Not covered by the CCPA

  • Governed by state law
  • When more than one wage assignment is presented they must be taken in order of how they are received
  • Check Own State Laws
voluntary deductions 9 55 56
Voluntary Deductions 9-55,56
  • Union Dues are authorized by federal labor laws

Employer must get a written, signed authorization form from each employee. Cannot be revoked for 1 year or until contract expires.

  • Credit Union Deductions
  • Employers should get written signed authorization for the amount to be withheld, the length of time, and who should be paid
voluntary deductions 9 56
Voluntary Deductions 9-56
  • US Savings Bonds:
  • If it is offered the employee must sign up for this program & detail amount to be withheld and the type of bond
  • Beginning 1/1/2011 – no longer an option to purchase paper savings bonds through payroll deduction .
  • Bonds can be bought at financial institutions.
  • EE’s use Treasury Direct, a website that EE’s can buy Treasury securities directly from the U.S. Department of the Treasury
voluntary deductions 9 57
Voluntary Deductions 9-57
  • Charitable Contributions
    • Contributions of $250 or more must have proper substantiation with: 1) pay stub or W-2, and 2) copy of pledge card
    • Each contribution over $250 is treated separately
good luck future cpp s
Good Luck future CPP’s!

Cathryn Engelage, CPP

March 8, 2014


Phone: 312-474-3398