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Nina Tchistiakova Updated by Nina Tchistiakova

Garnishment calculation is a function of Live Payroll only. It requires calculation of federal and states income taxes which are a function of Live Payroll only. The employee's Pay Period must be set on the employee's WH tab.

A specific deduction item is not provided by the program for wage garnishments, but a method to calculate garnishments is provided. To add a garnishment deduction item for an employer, go to the Payroll Setup tab on the Edit Employer/Payer Information screen. Under the Deduction Items list click the Add button. DO NOT select an item from the list in the Full Name field. Instead, type the desired name for the item in the Full Name field and complete the remaining fields appropriately as described below. See Deduction Items for more information on adding deduction items.

All garnishments should have certain settings. They should be paid by the employee, not the employer. Typically new employees would not be subject to it by default since most often a garnishment is set up for one employee.

The Calculation Method is used to uniquely define the deduction as a garnishment. Select "Garnishment % of disposable pay" from the list. When this selection is made, the list of exempt taxes will disappear. All taxes will be subtracted from gross income to determine disposable pay. The user may select the income items used to determine gross income. Typically all income is part of gross pay.

If the user wants to have the garnishment automatically stop after a certain limit is reached, then enter the limit in the "Max Deduction Amt." field. If the garnishment carries over to a new year, then the remaining limit from the prior year must be entered in the program for the next year.

A "Default Rate" can be entered to use for new employees. But since new employees are not typically subject to the garnishment, this field can be left blank. Instead enter the employee's garnishment rate on the employee setup screen rate tab. This rate determines what percent of disposable pay is deducted.

The federal minimum wage weekly multiplier must be entered in the "Multiplier" field in order to calculate the amount of disposable pay exempt from garnishment. The federal minimum wage multiplier is 30. If the employee's state minimum wage weekly multiplier is higher, then enter the higher multiplier. The program automatically adjusts the multiplier for pay periods other than weekly based on the setting on the employee WH tab. For information on the employee's state wage garnishment laws, see the state website. Also see the American Payroll Association's publication on Garnishments.

The current minimum wage must be entered in the "Fed/State min. wage" field in order to calculate the garnishment exemption amount. The 2012 federal minimum wage is $7.25. If the employee's state minimum wage rate is higher, then enter the higher rate.

If you want the garnishments to appear on Form W-2, typically Box 14, then select Box 14 from the list and enter a Box 14 description.

Overview of Wage Garnishments

Wage garnishments are calculated based on percentage of disposable pay. Disposable pay is calculated by subtracting required deductions from gross pay. Federal, state, local, and FICA taxes are deducted from gross pay automatically. Certain other deductions may also be allowed, such as involuntary retirement or pension plan payments and other required deductions. Some states allow other deductions, such as health insurance premiums. CFS Payroll System deducts taxes when determining disposable pay but users must make manual adjustments in order to take into account other items. For example, if the employee has deductions other than taxes which must be subtracted to determine disposable pay, then the user may have to lower the percentage rate for the garnishment to account for a lower disposable pay amount, or simply override the calculation. In certain cases it may be simpler to use a "variable" Calculation Method instead and manually enter the garnishment.

Typical wage garnishments are limited to 15% of disposable pay for each garnishment, with a total limit of 25%. Support garnishments can have higher limits. Garnishments are prioritized in the order received, but certain garnishments take precedence, such as support garnishments and federal or state tax levies. Federal and state tax levies are calculated in a different manner from a normal wage garnishment and the calculation method provided here does not apply. CFS Payroll System currently does not support the automatic calculation of federal and state tax levies.

A portion of disposable pay is exempt from garnishment. The weekly amount of exempt disposable pay is calculated as the multiplier times the minimum wage amount. Using the federal numbers it is 30 x $7.25 = $217.50 weekly. The exemption amount is prorated for other pay periods. An employee paid biweekly would have twice the exemption amount for the pay period. Only disposable pay above the exemption amount can be garnished. Since the state minimum wage and weekly multiplier may differ from the federal numbers, always use the higher numbers which result in a higher exemption amount for the employee.

Multiple Garnishments. If the employee has multiple garnishments, then the user must create one deduction item for each garnishment. A percentage rate must be assigned for each garnishment such that the total does not exceed the allowed limit. For example, if the employee has two garnishments for 15% each, but only a total of 25% is allowed by law, then the user must assign a rate of 15% to the higher priority item, and a rate of 10% to the lower priority item. When a garnishment is satisfied or ends, then the user may need to change the rate of the remaining item.

For additional information see the Department of Labor Federal Wage Garnishments.

For minimum wage information see the Department of Labor Minimum Wage.

For federal tax levy information see the IRS Tax Levy and Pub. 1494.

For general information from the American Payroll Association, see Garnishments.

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