Garnishment and the 1968 federal cap
Garnishment is one of the oldest tools a creditor has: a legal order that reaches past the debtor to a third party who owes the debtor money — most often the employer who owes wages. Rather than chase the debtor directly, a creditor holding a judgment, or an agency with statutory authority, can order the employer to divert part of each paycheck to satisfy the debt. For most of history this was a blunt instrument that could strip a paycheck to almost nothing. In 1968, Title III of the Consumer Credit Protection Act set federal limits — capping how much of a paycheck most creditors can reach and protecting a baseline of earnings — and built the framework that still governs.
What garnishment does to the employer is the key lesson for the offshore team. It turns the employer into an involuntary collection agent: handed a legal order, the employer must calculate the right amount under specific rules and remit it, on time, to the right party — with no discretion to refuse, and real liability for getting it wrong. That role makes garnishment the most clearly execution-oriented term in the payroll cluster: the determination was made by a court, and the job left is to carry it out faithfully.
What is a garnishment?
A garnishment is a court- or agency-ordered deduction from an employee’s pay, withheld by the employer and remitted to satisfy a debt — child support, a tax levy, a defaulted student loan, or a creditor judgment. Federal law caps how much can be taken from disposable earnings, and the employer must honor the order exactly or risk liability for the amount it should have withheld.
A garnishment is a command, not a request. A court or agency has already determined that the debt exists and that wages must be diverted; the employer is not asked to evaluate the debt, only to execute the order correctly.
How garnishment limits and priority work
Disposable earnings — the calculation base. Garnishment limits apply to disposable earnings: gross pay minus legally required deductions (federal, state, and local income tax; Social Security; Medicare; state unemployment). Voluntary deductions — 401(k), health insurance — are not subtracted, so disposable earnings are typically higher than take-home pay.
The consumer-debt cap. For ordinary creditor debts, the maximum is the lesser of 25% of disposable earnings, or the amount by which disposable earnings exceed 30 times the federal minimum wage ($217.50/week based on $7.25 minimum wage). Below that floor, nothing can be garnished.
Special debts with higher limits:
- Child support and alimony: up to 50% of disposable earnings if the worker supports another spouse or child, 60% if not, plus 5% if 12 or more weeks behind. Highest priority of all.
- Federal tax levy (IRS): uses Publication 1494 exemption tables via Form 668-W — not bound by the 25% consumer cap, can take substantially more.
- Federal student loans: up to 15% of disposable earnings, administratively, without a court order.
Priority and the aggregate cap. When multiple orders are active, a priority sequence governs — child support first, then federal tax levies, then state levies, then federal administrative garnishments, then consumer debts — and the total is still limited. If child support already takes 50%, a consumer garnishment cannot add another 25%; the employee has hit the ceiling.
Employer duties. The employer must honor the order, calculate correctly, remit on time, and notify the employee. Failing to withhold can make the employer liable for the debt. Federal law bars firing an employee over a single garnishment. States may protect more of a paycheck than federal law — never less.
CCPA limits at a glance
| Debt type | Maximum from disposable earnings | Priority |
|---|---|---|
| Consumer / creditor debt | Lesser of 25% or amount above 30× minimum wage ($217.50/week) ⚠️ | Lowest |
| Child support / alimony (current + supporting family) | Up to 50% of disposable earnings | Highest |
| Child support / alimony (no other dependents) | Up to 60% (+5% if 12+ weeks in arrears) | Highest |
| Federal student loan | Up to 15% (administrative, no court order needed) | After tax levies |
| IRS tax levy | Publication 1494 exemption tables — can exceed 25% | After child support |
⚠️ The protected floor is based on the federal minimum wage ($7.25/hour as of publish). Verify at publish.
How garnishments are handled in software
Payroll platforms (Gusto, ADP, QuickBooks Payroll) calculate disposable earnings, apply the correct cap for the debt type, honor the priority sequence, withhold, and remit — automating most of the process once the order is entered accurately. QuickBooks Online and Xero record the withholding and the remittance to the creditor or agency in the books.
The software executes the order it is entered with flawlessly. What it cannot do is validate an ambiguous or defective order, resolve a genuinely contested priority collision, or interpret a conflicting notice. The system executes a clear order; an unclear one still needs human interpretation.
How CPA firms handle garnishments
For a firm or payroll team — with counsel where an order is contested — garnishment is mostly execution around a narrow point of interpretation. The firm sets up the calculation, determines disposable earnings, applies the correct cap for the debt type, sequences multiple orders against the priority rules and the aggregate limit, and ensures remittance is on time to the right party. Where an order is ambiguous, defective, or collides with another in a way the standard priority rules do not resolve, the firm involves counsel rather than guessing.
Garnishment and offshore accounting
Garnishment inverts the lesson the rest of this glossary keeps teaching. Almost every other term has warned the offshore team away from a determination — do not classify the worker, do not set the salary threshold, do not conclude nexus. Garnishment removes the determination entirely. By the time the order reaches the employer, a court or an agency has already decided everything that requires judgment: that the debt exists, who owes it, how much, and that wages must be diverted to pay it. There is nothing for the employer — or the offshore team — to determine. There is only the order to execute.
That makes garnishment the most thoroughly offshore-able term in the payroll cluster. Computing disposable earnings, applying the correct cap for the debt type, honoring the priority sequence when orders stack, remitting to the right party on time — this is rule-bound arithmetic against an external authority, exactly the kind of precise, procedural work the offshore team does well, with none of the substance judgments that limited the surrounding terms.
But the inversion comes with an inverted danger. In the other terms, the failure was overstepping — applying judgment where the offshore team had no business. Here the failure is the mirror image: treating a legal order as a discretionary instruction rather than the command it is. That takes two forms. The first is adding judgment that is not wanted — pausing to evaluate whether the debt seems fair, whether the amount looks right, whether the order should really be honored — when none of that is the employer’s to question. The second, and more common, is the precision failure: miscalculating disposable earnings by subtracting voluntary deductions that do not belong in the base; misapplying the cap; mishandling priority when multiple orders compete; or not actioning the order promptly.
What makes precision failures uniquely consequential here is that execution error is itself the liability. An employer that under-withholds or ignores a valid order can be held liable for the amount it should have withheld. So the discipline garnishment demands is not restraint — it is fidelity: execute the external command exactly, completely, and on time. Compute disposable earnings the defined way, not netting the voluntary deductions. Apply the right cap for the debt type. Honor the priority order and the aggregate ceiling when orders collide. Remit on schedule. The one place a genuine question remains is the narrow seam where the order itself is unclear — a defective or ambiguous notice, competing orders the priority rules do not cleanly resolve. There the offshore team flags rather than guesses, surfacing the conflict for the firm or counsel. But that seam is narrow; outside it the work is pure, high-fidelity execution.
What are the common misconceptions about garnishment?
- “A garnishment is up to the employer to decide whether to honor.” No. It is a legal order; the employer must comply, and failing to withhold can make the employer liable for the debt.
- “Garnishment is capped at 25% of pay.” Only consumer-debt garnishments — and it is 25% of disposable earnings, not gross. Child support can reach 50–60%, and IRS levies can take considerably more.
- “Disposable earnings means take-home pay.” No. Disposable earnings are gross minus legally required deductions. Voluntary deductions like 401(k) and health insurance are not subtracted, so the base is usually higher than take-home.
- “If an employee has two garnishments, we withhold both fully.” Not necessarily. A priority order governs and an overall cap applies, so a second order may receive little or nothing if the first already reaches the limit.
- “We can let an employee go to avoid dealing with a garnishment.” No. Federal law prohibits firing an employee because of a single garnishment.
What terms are commonly confused with garnishment?
| Confused with | The key difference |
|---|---|
| Benefits Administration | Handles voluntary deductions the employee elects; a garnishment is an involuntary, legally ordered deduction |
| Tax Levy | One type of garnishment — IRS or state collecting unpaid tax — with its own uncapped calculation |
| Payroll Withholding | Routine required tax deductions; a garnishment is a separate court- or agency-ordered withholding for a debt |
| Wage Assignment | A voluntary, employee-agreed deduction not subject to the same CCPA limits as an involuntary garnishment |
Common client questions about garnishment
We received a garnishment order for an employee — what do we do?
You are legally required to act on it: calculate the right amount under the applicable limits, withhold it from each paycheck, remit it to the party named in the order, and notify the employee. Ignoring it or under-withholding can make you liable for the amount yourself — so it needs prompt, accurate handling rather than deliberation about whether to comply.
How much can be taken from a paycheck?
It depends on the type of debt. Ordinary creditor garnishments are capped at the lesser of 25% of disposable earnings or the amount above a protected floor. Child support can reach 50–60%, student loans up to 15%, and IRS tax levies use their own tables and can take much more. Disposable earnings means gross pay minus required taxes — not take-home after 401(k) and insurance, so the base is usually higher than people expect.
Your team runs our payroll — do you handle garnishments?
Yes, and this is largely execution on our side. A court or agency has already determined the debt and issued the order, so we calculate the correct withholding under the right cap, apply the priority rules if there is more than one order, remit on time, and notify the employee. We do not judge whether to comply or evaluate the amount — that has been adjudicated, and our job is to honor the order exactly, because getting the execution wrong is what creates liability. If an order is unclear or collides with another in a way the rules do not cleanly resolve, we flag it for the firm or counsel rather than guess.
An employee has three garnishments at once — which do we pay?
There is a defined priority order — child support first, then federal tax levies, then others — and an overall limit on how much can be taken, so they do not simply stack. We apply the priority sequence and the aggregate cap. Where competing orders create a genuine conflict the rules do not settle, that is a point to confirm with counsel rather than guess, but most multiple-order situations resolve cleanly under the priority rules.
Can we fire someone to stop having to process their garnishment?
No. Federal law specifically prohibits firing an employee because of a single garnishment, and doing so can create its own liability. The right path is simply to process the order correctly — it is a routine, if careful, part of payroll.
