An individual’s employer is responsible for withholding and remitting income tax their employees owe to the Internal Revenue Service (IRS). These are called employment taxes.
Employment taxes include Social Security taxes and unemployment taxes. Federal laws in the United States require an employer to withhold federal income tax as well as Social Security and Medicare taxes from their employees’ paychecks and to send that money to the IRS. State and federal laws also require businesses to pay additional unemployment tax.
If an individual’s employer fails to remit these taxes to the IRS, they are engaging in tax evasion. It is important for an employee to review their pay stubs to ensure these deductions are listed because they will be liable for those amounts if their employer did not pay them.
What is an Income Deduction Order?
An income deduction order is an order that requires an employer to withhold a specific amount of money from an individual’s wages. These income deductions are made to satisfy financial obligations.
In some child support cases, the court will enter an income withholding order. These orders may also be known as child support withholding orders or wage withholding orders.
In many cases, the non-custodial parent will be ordered to pay a certain amount in child support, typically monthly. The amount and frequency is determined by the court.
In some cases, an income withholding order is sent to an individual’s employer. This order directs the employer to surrender a portion of that individual’s income in order to satisfy their child support payment obligation.
If an employer receives an income withholding order, they are required to verify that it is valid. The order should come directly from the court or child support agency. The order must also require the employer to send the payment to the state agency that handles child support.
If the order is valid, the employer should notify the employee and begin deducting the appropriate amount from their paycheck. Obviously, the employer should not deduct more than is required by the order.
An employer can face legal consequences for filing to follow an income withholding order issued by a court. Many states impose fines against employers who knowingly violate these orders.
In addition, an employer cannot make employment decisions based on the employee owing child support. The employee may have legal recourse against their employer if they fire or discipline the employee based on the income withholding order.
What Are the Types of Income Deductions?
There are several common types of income deductions. These include current child support payments and Chapter 13 bankruptcy payments.
Voluntary deductions and withholdings are those which the employee authorizes. For example, an employee may request withholdings for things such as:
- Health insurance premiums;
- Disability insurance premiums;
- 401(k) contributions;
- Union dues; and
- Debts owed to the employer by the employee.
What is a Wage Garnishment?
A wage garnishment, also known as a wage attachment, is a court order that directs an employer to deduct money from an employee’s pay. This money is then sent to the creditor that sought a judgment against the employee. Wage garnishments are often used for back child support and credit card judgments.
In most cases, a creditor must obtain a court order to garnish the wages of the debtor for the repayment of their debt. Debts paid by wage garnishment often include auto loans, credit cards, and home loans. If the individual has a large amount of debt, the court may order a wage garnishment so that the individual does not further increase their debt and force themselves into bankruptcy.
There are limits to the amount of money that can be taken from an individual’s paycheck using a wage garnishment. The typical limit for a wage garnishment is 25% of the amount that is left after all tax obligations are deducted. However, state laws may limit that amount further.
For example, if 15% of an individual’s paycheck is being deducted for federal student loans and another wage garnishment is ordered, only 10% of the individual’s paycheck may be garnished to satisfy that debt. Limiting the garnishment leaves the individual with some money with which to live.
If an employer does not comply with a wage garnishment order, they may face fines and, in more serious cases, criminal charges and even jail time. These consequences also apply if the employer fails to pay the correct amount of garnished wages or deducts a higher amount of wages than without the defendant’s knowledge or consent.
Additionally, an employer is not permitted to fire an employee because of a wage garnishment order. If the employer fires an employee due to a wage garnishment which is protected under Title II of the Consumer Credit Protection Act, they may be fined for face imprisonment for up to a year.
Are There Differences Between Income Deductions and Wage Garnishments?
Yes, there are differences between income deductions and wage garnishments. Income deductions are most frequently used in bankruptcy and child support cases. Wage garnishments are not.
Other differences between income deductions and wage garnishments include:
- Wage garnishments are used to satisfy past debts;
- Income deductions are not subjected to any state or federal wage garnishment limits;
- Income deductions are used to automatically deduct current financial obligations; and
- To obtain a wage garnishment, a creditor is usually required to file a lawsuit.
Can I Stop a Wage Garnishment?
Yes, it is possible to stop a wage garnishment. The individual can go to court in order to resolve the issue or they may file bankruptcy to obtain an automatic stay.
What is an Automatic Stay in Bankruptcy?
An automatic stay is ordered by a bankruptcy court at the outset of a bankruptcy case. It automatically stops most actions by a creditor, debt collection agency, or government agency against the individual who filed for bankruptcy.
Is it Ever Legal to Withhold Salary from an Employee?
Employers are legally required to issue pay or salary that is earned by an employee within the time period that is stated in their employment contract. If an employee earned a paycheck, their employer cannot hold it from them.
There are certain specific situations in which an employer is permitted to deduct amounts from an employee’s paycheck. These include voluntary deductions and withholdings and income withholding orders discussed above.
As previously noted, an employer must comply with a court-ordered payroll deduction. The most common court-ordered payroll deductions include:
- Unpaid taxes;
- Child support;
- Alimony; and
- Other debts owed to the government, for example, federal student loans.
Some states permit an employer to withhold shortages and replacement costs for broken or damaged property that are attributable to the employee. However, the deduction is illegal if it causes the wage paid to the employee to fall below the minimum wage set by that state.
Some states also allow an employer to deduct for items such as uniforms, tools, lodging and meals. However, this is only permitted if it does not cause the employee’s wage to fall below the state minimum wage.
Do I Need Help From a Lawyer to Resolve Income Deductions and Wage Garnishments?
It is essential to have the assistance of an experienced bankruptcy lawyer for any income deduction and wage garnishment issues you may have. Your lawyer will be able to review your situation, advise you on the proper steps to resolve your issue, and represent you during any court proceedings.