Paycheck Fundamentals: Additional Deductions
Understand key deductions like garnishments and FLSA rules to manage employee pay effectively.
Goals and takeaways
- Understand how to process involuntary deductions such as garnishments
- Identify how voluntary and FLSA-restricted deductions impact employee taxable wages and net pay
Involuntary deductions (garnishments)
What is a garnishment?
A garnishment is a legal order requiring an employer to withhold a portion of an employee’s wages to satisfy a debt. Garnishments can include child support, tax levies, student loans, and creditor debts.
Employer responsibilities
When an employer receives a garnishment:
- Confirm the employee is active and covered by the order
- Notify the employee and explain the impact on their paycheck
- Do not offer legal advice but inform them of any employee actions they can take
- Determine the garnishment priority if multiple orders exist
- Calculate based on federal and state guidance
- Allocate disposable wages appropriately
- Contact legal if any ambiguity exists
- Retain correspondence and follow applicable deadlines
Common garnishment types
Child support orders
- Governed by federal and state laws
- Issued via an Income Withholding Order (IWO)
- Limits set by the Consumer Credit Protection Act (CCPA):
Support status | Not 12 weeks in arrears | 12+ weeks in arrears |
Supporting another family | 50% | 55% |
Not supporting another family | 60% | 65% |
Key rules:
- Never deduct more than the IWO instructs
- Disposable earnings = gross wages minus legally required deductions (e.g., taxes, state-mandated retirement)
- Voluntary deductions are not included in disposable earnings
- Child support takes priority over most garnishments unless a pre-existing federal tax levy is in place
- Follow state-specific remittance timelines and fee allowances
- Notify the issuing agency upon termination of employment
Federal tax levies
- Issued via Form 668-W
- Employer must provide Parts 2–5 to the employee within 3 business days
- Employee returns Part 3 (dependents) within 3 days
- Uses take-home pay after all pre-existing deductions
- Exempt amount based on IRS Publication 1494
- Amount remitted = take-home pay – exempt amount
- Continue withholding until you receive Form 668-D (release)
- May be replaced by a voluntary agreement (Form 2159)
Creditor garnishments
- Court-ordered garnishment for unpaid debt
- Maximum deduction = lesser of:
- 25% of disposable earnings
- Amount exceeding 30× federal minimum wage ($7.25/hour for 2022)
State laws may impose more protective rules for employees.
Other garnishment types
Bankruptcy
- Takes priority over all orders except child support
- Requires withholding to a trustee
- Does not cancel 401(k) loan repayments
Student loan garnishments
- Capped at 15% of disposable wages
- Employee must receive 30 days’ notice
- Reinstated within 12 months if reemployed
- Disposable wages calculation includes health insurance
Federal agency garnishments
- Issued using Form SF-329
- Used for non-tax debts (e.g., federal loans)
- Subject to CCPA and Debt Collection Improvement Act (DCIA)
- Limits: lesser of 15% of disposable wages or 30× minimum wage
Garnishment priority overview
Garnishment type | Priority Notes |
Bankruptcy | May pause other orders (except child support) |
Child support | Priority over all except pre-existing federal tax levies |
Creditor garnishment | Lowest priority |
Federal admin garnishment | Below tax levies and child support |
Federal tax levy | Priority over most other garnishments |
Local/state tax levies | State > Local > Creditor |
Student loans | Below child support; no federal priority guidance |
FLSA restrictions on deductions
Minimum wage protection
Under the Fair Labor Standards Act (FLSA), deductions cannot reduce an employee’s pay below the federal minimum wage unless exempted.
Permitted deductions (even if below minimum wage)
- Board, lodging, or facilities provided for the employee’s benefit
- Loan principal repayments (but not admin fees or interest)
Prohibited deductions
- Uniform costs (if below minimum wage)
- Cash shortages and bad checks (unless theft is proven)
Voluntary deductions
Voluntary deductions must be:
- Authorized by the employee (written or electronic)
- Deducted only when sufficient wages are available
Priority rules
Employers should prioritize deductions to prevent loss of key benefits (e.g., health insurance over 401(k)) and determine arrears handling.
Common voluntary deductions
- Union dues: Can reduce wages below minimum under CBA (Collective Bargaining Agreement)
- Charitable contributions: Must be substantiated by both employer and charity for tax deduction eligibility
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Last updated on June 6, 2025