What is wage garnishment? How does it work?

Wage garnishment

Managing payroll involves more than just processing paychecks. When an employee’s wages are withheld due to a legal obligation, businesses must follow strict regulations to stay compliant. In the United States, failing to adhere to federal and state labor laws can lead to costly penalties, administrative burdens, and potential legal risks. 

Understanding wage garnishment and following proper procedures helps employers protect their business while supporting employees through financial challenges. In this guide, we’ll explain what wage garnishment is, how it works, and how employers can ensure compliance

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What is wage garnishment?

Wage garnishment is a legal process that requires an employer to withhold a portion of an employee’s earnings to repay a debt. This typically occurs after a court order or government directive mandates deductions directly from an employee’s paycheck before they receive it. Garnishment, usually a post-tax deduction, is commonly used to collect child support, unpaid student loans, back taxes, and other legally owed debts.

Some government agencies can garnish wages without prior notice, meaning employees may not be warned before seeing deductions on their pay stubs. This raises an important question: Who can garnish wages without notice—legally? In the U.S., in most cases, government entities like the Internal Revenue Service (IRS) and state tax agencies can initiate wage garnishment without a court ruling, particularly for unpaid taxes and federal student loans. However, private creditors must first obtain a court judgment before an employer is required to withhold wages.

Federal and state laws limit how much can be deducted from an employee’s paycheck, ensuring that the worker retains enough disposable income for basic living expenses such as housing, food, utilities, and medical costs. Understanding these regulations helps businesses stay compliant with payroll garnishment rules and avoid penalties for improper withholding.

4 types of wage garnishment

There are different types of wage garnishment, each with its own regulations and limitations. Here are four of the most common: 

1. Child support garnishments 

Federal and state laws prioritize child support payments to ensure the well-being of dependents. When a parent falls behind on payments, courts can order wage garnishment, requiring the employer to deduct a percentage of the debtor’s earnings. In the U.S., child support garnishment rules under the Consumer Credit Protection Act (CCPA) allow up to 50% of a parent’s disposable income to be withheld—or up to 60% if they’re not supporting another child.

2. Tax levies 

In the U.S., government agencies like the IRS and state tax authorities can garnish wages without notice for unpaid taxes. Unlike private creditors, these agencies don’t need a judgment to initiate a levy. The amount deducted depends on factors like the employee’s filing status and the number of dependents, ensuring that the individual retains at least the federal minimum wage necessary for living expenses. 

3. Creditor garnishments

If an individual fails to repay unsecured debts like medical bills and credit cards, a creditor can seek a court order to garnish wages. However, U.S. federal law limits the amount that can be withheld, typically capping it at 25% of the employee’s disposable income or the difference between their earnings and 30 times the federal minimum wage, whichever is lower. 

4. Bankruptcy orders

When someone files for bankruptcy, the court may issue an order restructuring their debts and require a portion of the employee’s income to be withheld through payroll deductions to satisfy outstanding obligations. Unlike other garnishments, bankruptcy orders often consolidate multiple debts, ensuring that creditors receive payments while providing some relief to the debtor.

How wage garnishment works for employers

When an employer receives a wage garnishment order in the U.S., they must follow a structured process to comply with federal and state laws. Here’s how the process works: 

1. Receive the garnishment order: Employers are typically notified of wage garnishment through a court or government agency directive, like an IRS levy. The notice specifies the amount to deduct, the pay period when the deductions begin, and instructions for remitting payment.

2. Notify the employee: While some garnishments, like tax levies, can be enforced without prior notice, most require employers to inform the employee. Providing a copy of the garnishment order and explaining how it will affect their paycheck maintains transparency.

3. Calculate withholding amounts: Employers must ensure that the garnishments comply with legal limits. Remember, under the CCPA, the maximum amount that can be withheld is up to 60% for child support garnishments.

4. Process payroll deductions: The employer must modify the employee’s pay stub to reflect the garnished wages and send the deducted payment to the designated creditor or agency. Organizations must also ensure that the employee retains enough wages to cover essential living expenses. 

5. Handle multiple garnishments: If an employee has multiple active garnishments, certain debts take priority. For example, child support and federal student loans supersede other creditor claims. In cases where garnishments exceed legal limits, employers may need to ask the court or agency for clarification. 

6. Respond to legal inquiries and changes: Organizations must comply with federal and state laws regarding garnishments. If an employee disputes the garnishment or files for bankruptcy, the employer may receive additional court communications adjusting the withholding terms. 

7 employer obligations for wage garnishment

Employers must fulfill the following responsibilities when handling wage garnishments in the U.S.:

1. Respond to orders promptly: Employers must review and acknowledge any wage garnishment order upon receipt. Some agencies, such as the IRS or state tax authorities, require confirmation of receipt or employee earnings details within a few days to a few weeks, depending on the agency’s guidelines.

2. Comply with federal and state laws: Employers must comply with federal law, including the CCPA, and any applicable state laws regarding garnishment limits and withholding requirements. 

3. Process garnishment orders promptly: Employers must begin deducting wages from an employee’s paycheck as specified in the court order or notice. Delayed or missed payments may result in fines or employer liability. 

4. Calculate garnished wages correctly: Garnishments are based on the employee’s disposable income, which excludes legally required deductions like taxes and Social Security. Employers must also ensure that employees retain enough wages to meet the federal minimum wage threshold. 

5. Remit payments to the correct entity: Employers must send withheld funds to the appropriate creditor, agency, or court by the specified deadline. Failure to remit payments correctly can result in employer penalties.

6. Protect employee rights: Under the CCPA, terminating an employee due to a single wage garnishment order is considered unfair dismissal. However, protections may vary for employees with multiple garnishments. 

7. Keep accurate records: Employers should keep detailed records of all withholdings, deductions, and payments related to wage garnishment. Proper documentation ensures compliance and serves as a reference in case of audits or disputes. 

How do wage garnishment limits vary by debt type?

In addition to the 60% cap on child support garnishments, the CCPA sets limits on other types of debt. While child support and alimony typically result in the largest deductions, consumer debts, federal student loans, and unpaid taxes each have their own restrictions. Below is a breakdown of how much can be garnished for different obligations:

  • Consumer debts: Consumer debts (e.g., personal loans, medical bills, credit cards): Up to 25% of disposable income may be garnished.
  • Child support and alimony: Up to 50% of disposable income may be garnished if the employee supports another spouse or child, or 60% if they don’t. If payments are over 12 weeks overdue, an additional 5% may be deducted, bringing the total garnishment to 65%.
  • Federal student loans: The government can garnish up to 15% of disposable income without a court order for defaulted student loans.
  • Unpaid taxes: The IRS determines garnishment amounts based on filing status and number of dependents, ensuring that employees retain at least a minimum income threshold.

How to check wage garnishment balance

Employers must provide details about wage garnishment, but employees can take additional steps to verify their debt status. Here’s how: 

  • Review pay stubs: One of the easiest ways to verify wage garnishment deductions is by checking pay stubs, where they typically appear under "withholding" or "other deductions."
  • Contact the employer or payroll provider: Employees can request a detailed breakdown of their garnishment from their employer or human resources (HR) department, including the total balance owed and the amount paid so far. 
  • Check court documents: If the garnishment was initiated through a court order, the court should have records of the remaining balance and payment history. Employees can request these documents for verification. 
  • Contact the creditor or agency: The creditor, IRS, or relevant government agency can provide the current balance and payment details.
  • Review credit report: Some creditors report garnished wages to credit bureaus. Checking a credit report may provide insight into the remaining debt balance and overall financial standing. 

Simplify payroll compliance with Oyster

Handling wage garnishment is complex—it requires U.S. employers to manage withholdings, respond to court orders, and comply with federal and state laws. Errors can lead to costly penalties, so accuracy is a must.

Oyster simplifies payroll for employers in the U.S. and beyond, automating deductions, managing compliance with employment laws in 180+ countries, and supporting businesses with global payroll needs. With the right tools, you can stay compliant while focusing on what matters—growing your business.

Partner with Oyster today to streamline international payroll management. 

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.