Garnishment is a means for creditors to collect a portion of what’s owed to them by having the debtor’s employer pay a portion of their paycheck directly to the creditor. However, not everyone is paid in straight wages, and not everyone’s income consists of an employee paycheck. Those who are subject to a garnishment order may wonder what types of income are subject to garnishment.
Garnishment is governed by both federal and state law. In many cases, the federal and state laws conflict – as far as what can be garnished, as well as garnishment limits – and when that happens, the law that’s the most favorable to the employee prevails. The summary below pertains to the US federal garnishment laws, which are covered in Title III of the Consumer Credit Protection Act (CCPA.)
Wages, Bonuses, Commissions & Tips
Wage garnishment is by far the most common type of garnishment. An employee’s wages (whether hourly or salary) are subject to garnishing up to certain limits. In general, for consumer debts (such as automobile loans and credit cards,) up to 25% of an employee’s wages can be garnished. For child support and federal income tax debt, up to 50-65% can be subject to garnishment (depending on factors such as if the employee is supporting another family.)
Bonuses and commissions are considered income and are subject to garnishment under the same rules as other types of wages. However, in most states tips aren’t considered income, and thus are not subject to garnishment.
Social Security Disability Benefits
Supplemental Security Income (SSI) benefits can never be garnished. However, Social Security disability benefits can be garnished for child support and federal tax liabilities.
Workers Compensation Payments
Workers compensation payments, which are awarded when a worker is injured on the job, are generally exempt from garnishment.
Unemployment Benefits
In most cases, unemployment benefits are exempt from garnishment. However, if you received severance pay from your previous employer, this usually qualifies as income and is subject to garnishment.
Pensions & Retirement Plan Income
Income from pensions and other retirement accounts is only garnishable when the debt is for overdue income taxes or child support.
Veteran’s Administration (VA) Benefits
VA benefits are only subject to garnishment for child support and federal income tax liability, and cannot be garnished for consumer debt.
State Public Assistance
Again, this can vary by state, but most commonly, state assistance (cash benefits provided to low-income residents) is not subject to garnishment.
Investment-related Income
Income from investments, such as stock dividends and even rent payments from tenants, is almost always considered income and eligible for garnishment.
Child Support & Spousal Support Received
Payments received for the support of a child are never subject to garnishment. Spousal support could be garnished for child support and federal tax purposes only.
Bank Account Garnishment
Bank accounts can be garnished (this is also referred to as a bank levy.) There’s another catch related to bank account levies in regards to income that are otherwise exempt from garnishment. If this income is in a bank account that is subject to garnishment, it could be garnished that way.
However, as of May 1, 2011, when a bank receives a garnishment order they’re required to perform a two month look-back, and any direct deposits from public benefits (such as Social Security disability benefits) that would otherwise be frozen with the bank account, can be withdrawn by the account holder.