What is Wage Garnishment in Payroll?

Understanding all of the ins and outs of payroll is hard enough without having to manage notices that suddenly appear in your inbox, ordering you to take money out of an employee’s paycheck. It can feel intimidating, confusing, and honestly a little uncomfortable—especially when you’re not sure what your legal obligations are or how to talk to the employee about it.

At Paper Trails, we understand these challenges and work to help business owners navigate complicated, often stressful payroll and HR processes. One of these issues? Wage garnishment.

In this article, we’ll break down:

• What wage garnishment is
• How it works
• The different types of wage garnishments
• Your responsibilities as an employer
• What to do if you get multiple orders or if you weren’t notified
• And answers to common questions from business owners like you

Let’s get started.

Overview of wage garnishment

Wage garnishment is a legal process where a portion of an employee’s earnings is withheld to pay off a debt. This order usually comes from a court or government agency and requires the employer to take money out of the employee’s paycheck and send it to a specific place—such as a child support agency, the IRS, or a creditor.

This isn’t something you can ignore. Employers are legally required to comply with these orders. If they don’t, they may face penalties, fines, or even be held responsible for the entire amount owed.

How does wage garnishment work?

Once your business receives a wage garnishment order, you’re expected to comply quickly. The order will outline how much to withhold, when to start, and where to send the payments. The amount to withhold is typically based on the employee’s disposable earnings—which is what’s left after legally required payroll deductions like taxes.

You may have to send a written notice to your employee and confirm with the issuing agency that you’ve received and will comply with the order. Then, garnishments are taken each pay period until you're notified to stop.

It’s important to note: wage garnishment is a post-tax deduction, meaning it comes out after payroll taxes have been calculated.

Types of wage garnishment

Not all garnishments are the same. Here are the three most common types that small businesses may encounter:

Child support and alimony

This is the most common type of garnishment. Federal law allows up to 50% of an employee’s disposable income to be garnished if they’re supporting another spouse or child. If not, that number can rise to 60%. And if payments are more than 12 weeks late, an additional 5% may be added.

Unpaid taxes

Federal and state tax authorities don’t need a court order to initiate a wage garnishment. You may receive a levy notice from the IRS or your state tax department, requiring you to withhold a set amount or percentage.

Unlike other garnishments, Title III limitations don’t apply to tax debts, so the percentage withheld can vary.

Creditor garnishments

If an employee defaults on a credit card, medical bill, or other consumer debt, a court can issue a garnishment order. In these cases, the maximum garnishment is the lesser of:

• 25% of disposable earnings, or
• The amount by which disposable earnings exceed 30 times the federal minimum wage.

These are just the most common types of wages garnishments. There are other types as well, each coming with their own unique compliance requirements, so be sure to follow instructions on the notices carefully. Other types could include:

• Student loan defaults
• Outstanding medical bills

• Bankruptcy payments

  

Employer’s role and responsibilities

As a business owner, you’re the one responsible for ensuring garnishments are handled correctly. Here’s what that looks like in practice:

Managing garnishment orders

Once you receive a garnishment order, don’t sit on it. Read it carefully and follow the instructions. You may be required to respond to the agency, verify employment, or submit documentation confirming receipt.

Notification procedures

You typically need to inform the employee that their wages are being garnished. Some orders come with a standardized form; others require a formal letter outlining the garnishment amount, schedule, and reason.

Withholding and payment process

Calculate the amount based on the employee’s disposable income, deduct it from their paycheck, and send the payment to the agency or court listed in the order. Use your payroll system to track and report each garnishment accurately.

Implications for payroll management

Wage garnishments have an impact on certain aspects of your payroll processes. Let's look at two areas of importance.

Handling multiple garnishments

If you receive more than one garnishment for the same employee, child support and tax levies take priority. After those are satisfied, you can address other garnishments—if the employee has remaining disposable income. You may also need to notify the court if the employee’s wages don’t cover all orders.

Record-keeping requirements

Keep detailed records of each garnishment—how much was withheld, where it was sent, and the balance remaining (if known). If you use a payroll system like isolved, you may be able to automate and store these records digitally.

Wage garnishment FAQs

Lets take a look at some common questions surrounding wage garnishments:

What is wage garnishment, and how does it work?

Wage garnishment is when an employer is legally required to withhold a portion of an employee’s paycheck to repay a debt. The amount withheld is usually based on the employee’s disposable income, and the money is sent directly to a government agency or court-ordered creditor.

What type of debt can result in garnished wages?

Common debts that lead to garnishment include:

• Child support payments
• Unpaid taxes
• Student loan defaults
• Credit card debt payments
• Outstanding medical bills
• Bankruptcy payments

How much of an employee’s wages can be garnished?

The amount an employee must pay usually depends on the debt. For example:

• Up to 50-65% for child support (depending on family situation and lateness)
• Up to 25% for creditor debts
• Varies for tax levies and bankruptcy orders

Remember, only disposable income is subject to garnishment—not gross wages. This means that all required payroll taxes must be withheld from an employee's paycheck BEFORE any money is taken to cover the wage garnishment.

What rules should an employer follow if an employee has multiple garnishment orders?

You must prioritize child support and federal tax levies first. If there’s still income left after those deductions, then other garnishments may be processed. Always refer to the instructions in each order and state law to determine priority.

Can an employer refuse to garnish wages?

No. Employers must comply with garnishment orders. If you ignore or delay action, your business could be liable for the full debt amount, court costs, and penalties.

What if the employer did not notify me of wage garnishment?

If you’re an employee wondering why your paycheck suddenly dropped and your employer did not notify you of wage garnishment, they may be out of compliance with notice rules. Employers are typically required to inform employees in writing before the garnishment starts. If that didn’t happen, speak to your payroll department and consider reaching out to the issuing agency for clarification.

How can I stop wage garnishment immediately?

If you’re the employee involved and wondering, "How can I stop wage garnishment immediately?” The truth is—there’s no magic switch. But options include:

• Paying the debt in full
• Negotiating a repayment plan with the creditor
• Challenging the garnishment in court (if you believe it’s incorrect)

Employers must continue garnishment until they receive a formal release or satisfaction notice from the court or agency.

Final thoughts

Wage garnishment isn’t something most small business owners think about until a notice lands on their desk. But when it does, you need to act fast, follow the rules, and stay compliant—otherwise, it could cost your business more than just time.

At Paper Trails, we don’t just process payroll—we help businesses understand how to handle wage garnishment orders the right way. If you’re unsure how to move forward, we’re here to support you and make the process a little less painful.