1. Involuntary Deductions 2. Tax Levies 3. Creditor ...

[Pages:16]Garnishments

Topics

1. Involuntary Deductions 2. Tax Levies 3. Creditor Garnishments 4. Federal Garnishments

?API Fund for

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Payroll Education, Inc.

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Involuntary Withholding

Involuntary Deductions

Neither employer nor employee has control Must deduct and remit to satisfy debt Failure to deduct results in penalties, fines,

and interest

Se3 ction 1

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Employer Responsibilities

1. Contact the agency or court to make sure the claim and amount are valid

Employer Responsibilities

2. Tell the employee about the order 3. Tell how to apply for exemptions, if any 4. Tell how the order will affect net pay

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Employer Responsibilities

5. Determine the maximum amount allowed by law

6. Determine priority, if more than one order

7. Contact legal counsel

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Priorities

Multiple involuntary deduction orders

Which order should be taken first?

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Priorities

Involuntary Deductions Bankruptcy

Child Support Creditor

Federal Administrative Federal Tax Levy Local Tax Levy State Tax Levy Student Loan

Key Child Support Elements

Priority Interstate orders New-hire reporting Electronic payments Centralized payments Standardized withholding form Multiple orders processed simultaneously

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Tax Levies

Tax Levies

Employee fails to pay taxes

Employer must determine:

1. Amount subject to the levy 2. If there are other claims

taking priority

Se11 ction 2

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State Tax Levy Rules

Some states follow the CCPA limits, some set specific limits, others have no restrictions

States without an income tax can issue a state tax levy

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State Tax Levy Rules

State

Provisions

AL

The Department of Revenue, Collection Services Division, has

the authority to issue executions and writs of garnishments for

unpaid state taxes.

Limits. Up to 25% of total wages or salary may be withheld.

Levy remains in effect until liability is satisfied.

AK

Alaska does not have a state income tax; however, an

attachment may be issued for the collection of a state tax or

license fee.

AZ

The Department of Revenue may collect unpaid state taxes by

levy. The levy is continuous from the date it is first made until

the liability is satisfied or becomes unenforceable.

Limits. The same amount is exempt from a state tax levy as is exempt from a federal tax levy.

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Federal Tax Levy Rules

Form 668-W, Notice of Levy on Wages, Salary, and Other Income

Part 1 is employer's copy Parts 2 ? 5 for the employee (returns 3 & 4) Part 6 is kept by the IRS

Federal Tax Levy Rules

Employer has duty to honor the IRS levy, not determine its validity

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Part 1

Part 1

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Federal Tax Levies

Form 668-W, Notice of Levy on Wages, Salary, and Other Income

Part 3 Employee completes Provides to employer Employer returns to the IRS

with the first payment

Part 3

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Part 3

Priority vs. Other Orders

Satisfied before all other garnishments

Except a child support predating the levy Except for attachments in effect prior to the

tax levy

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Disposable Earnings

An existing tax levy or federal garnishment

Has priority over a new

child support

Must be considered in

the CCPA maximum

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Example 1: Sam

? Current federal tax levy = $480 ? Disposable earnings = $1,150 ? Child support max = $690

(60% of $1,150) ? Child Support payment = $210

($690 - $480)

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Wage Exemption

Standard deduction and personal exemptions

For year the levy is received Provided by employee on 668-W, Part 4 If Part 4 not returned, married filing

separately, 1 exemption

Exempt amount on Publication 1494

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Wage Exemption

Other payments exempt from the levy

Unemployment benefits Workers' compensation

IRS can still attach a 15% levy

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2018 Publication

1494

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IRS Publication 1494

Levies spanning more than one year

Continue to use the original

Publication 1494

Unless the employee

submits a new Part 3 of Form 668-W

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Exempt Amount from Take-Home Pay

Subtract from gross pay

Federal, state, and local taxes All involuntary, voluntary deductions in effect Increases in preexisting deductions beyond

the employee's control

Deductions from a condition of employment

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Example 2: Jenna

Gross pay = $1,250 per week Tax status = Single, 1 exemption

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Example 2: Jenna

Deductions:

FIT = $200.00 SIT = $64.37 SS = $77.50 MT = $18.13 ?401(k) = $20.00 Total = $380.00

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Example 2: Jenna

How much is subject to the levy?

$1,250.00 - $380.00 = $870.00 (take-home) $870.00 - $204.81 (Pub 1494) = $665.19 $665.19 = Subject to levy

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Example 3: Mikaela

Gross pay = $2,000 semimonthly Tax status = Married filing jointly,

4 exemptions

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Example 3: Mikaela

Deductions:

FIT = $107.00 SIT = $70.30 SS = $111.60 MT = $26.10 ?401(k) = $60.00 Health insurance = $200.00 Total = $575.00

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Example 3: Mikaela

How much is subject to the levy?

$2,000.00 - $575.00 = $1,425.00 (take-home) $1,425.00 - $1,233.33 (Pub 1494) = $191.67 $191.67 = Subject to levy

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Levy Exemption Calculation

Taxpayer's standard deduction +

Value of exemptions on tax return ?

Number of pay periods

Exempt amount

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Levy Exemption Calculation

2017

$6,350

+

$4,050 ? 52

2018

$6,500

+

$4,150 ? 52

$200.00

$204.81

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Revised 2018 Levy Exemption?

$12,000 + $0 ? 52

$230.76

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Direct Deposit/Payroll Card

Method of payment is irrelevant Not considered a payroll deduction Considered a method of payment

New Voluntary Deductions

New voluntary deductions come from exempt amount

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Administrative Fee

May employers charge an administrative fee?

Nothing under federal law

prohibits this, but the fee cannot come from the amount due to the IRS

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Making Payments

Remit amounts on payday

Send to the address on 668-W, Part 1 Send Part 3 with first payment Can send a single payment covering multiple

employees

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Making Payments

IRPAC has recommended electronic payments

IRS is studying the idea

When to Stop Withholding

Form 668-D, Release of Levy/Release of Property from Levy

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2-30

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When Employment Ends

Complete the back of Part 3 and send to the IRS

Employer Liability

Employer is not liable to employee for amounts withheld

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