Do Garnishment Come Out of Bonus Checks?

Yes, garnishments come out of bonus checks, as well as to wages, salaries, commissions, and income from pensions or retirement programs. These types of earnings are subject to garnishment under the CCPA. However, lump sum payments not tied to personal services are not considered earnings and are not subject to garnishment. 

It is crucial to understand that the CCPA defines earnings as compensation for personal services, meaning any earnings from personal services can be garnished. However, lump sum payments not resulting from personal services are not classified as earnings under the CCPA. 

To provide you with a clear understanding, the following are considered earnings under the Consumer Credit Protection Act (CCPA):

• Wages
• Salaries
• Commission
• Bonuses
• Income from pensions or retirement programs
• Discretionary/non discretionary bonuses
• Profit sharing 
• Referrals 
• Relocation incentives
• Workers’ compensation payments for wage replacement 
• Termination pay and more

What is Wage Garnishment?

Wage garnishment is a legal procedure in which your employer is required to withhold a portion of your wages (if you are an active employee) to pay off tax debt owed to the IRS. Usually the IRS is the agency that initiates a levy for unpaid taxes, and the garnishment continues until the debt is fully paid off. 

The most common reasons for wage garnishment are unpaid taxes, child support, student loans, and other consumer debts. Your employer needs to comply with the withholding of your wages to avoid any penalties. As an employee, it is important to note that you have rights and protections under the federal and state laws that limit the amount you are garnished. 

Simply put, garnishment occurs when a taxpayer owes tax debt to the IRS, often referred to as a “continuous levy.” It is important to note that wage garnishment can be avoided by promptly communicating with the IRS and acknowledging any notices received.

Types of Wage Garnishment

• Child support
• Federal debt
• State debt

How Does Wage Garnishment Work If You Have a Withholding Order for Taxes?

The employer plays a crucial role in the wage garnishment process, as the IRS communicates directly with them to ensure that the withholding of wages occurs. The wages withheld by the employer are then paid to the IRS.

It is essential for employers to actively communicate with the IRS, as they are held responsible for the debt if they fail to comply with garnishment orders. Employers must comply with these orders to avoid penalties. The garnishment continues until the debt is fully paid or the court orders the employer to stop withholding wages. On average, the IRS may withhold up to 25% of an employee’s disposable income, taking into account factors such as monthly income and the number of dependents.

Employers must accurately calculate the garnishable wages for each pay period and ensure that the correct amount is withheld and sent to the IRS (or designated agency or creditor).

What Can You Do About Wage Garnishment?

If you have received wage garnishment notices from the IRS, you still have time to potentially challenge the garnishment, file an exemption, and negotiate a better outcome with the IRS. 

Ignoring the notices from the IRS is not recommended, as it can worsen the situation. 

That’s why, the first step is to acknowledge the notices by communicating with the IRS to explore possible solutions like, requesting a hearing, negotiating a payment plan, offer in compromise, or claiming exemptions. Maintaining open communication by you or by a tax relief professional with the IRS can improve the chances of a favorable resolution.

What if wage garnishment is a financial burden?

If the wage garnishment is causing financial distress and can’t provide your family’s basic needs, you can request a “claim of exemption.”

If the wage garnishment is causing financial stress, you can submit a “claim of exemption.” 

There are two forms you will need to fill out; form WG-006 and Form WG-007/EJ-165. These two forms tell the court why you need an exemption and explains your financial situation to the judge, showing why you need an exemption.  

You can do this process yourself or you can always hire a tax relief resolution to guide you step by step.

Can Wage Garnishment be Negotiated?

Yes, it can be negotiated. You will just need to qualify for the programs available: Installment agreement, Offer in Compromise, and Currently Not Collectible.

What Happens After Wage Garnishment is Paid in Full?

Once your balance is fully paid off, the IRS will notify your current employer to stop garnishing your wages to start receiving your normal paycheck.