What is Federal Wage Garnishment?

Pablo Garcia

Federal wage garnishment occurs when the US Federal Government takes a percentage of a person’s wages to satisfy a debt to a federal agency. The federal laws that regulate garnishment of wages by private creditors do not apply to debts owed the Federal Government. There is also less procedural protection for the debtor than that afforded by a state garnishment proceeding. However, some steps can be taken to prevent a federal agency from garnishing wages.

Wage garnishment may be conducted by creditors as a way to recover funds on a loan.
Wage garnishment may be conducted by creditors as a way to recover funds on a loan.

Types of income that are protected by federal law from garnishment by private creditors are not exempt from federal wage garnishment. These include unemployment benefits and Supplemental Security Income SSI (SSI). In SSI cases, garnishment is usually avoided because Social Security reduces or temporarily halts benefits to recapture the debt. Unemployment benefits are often a tax issue because of the failure to report the benefits as income.

Unpaid taxes to the Internal Revenue Service (IRS) and outstanding student loans guaranteed by the US Department of Education (USDE) are two principal reasons federal agencies garnish wages. Unlike private creditors under state law, federal agencies do not need a court order for wage garnishment. The agency involved need only send a notice of garnishment to the debtor. If that person does not come to an arrangement with the agency for repayment, a federal wage garnishment letter is sent to her employer with instructions for withholding wages and in what percentage amount.

While there is a fifteen percent limit on garnishments for unpaid student loans, the Federal Government uses its own formula to calculate a person’s “disposable income.” This is income left after paying for necessities like food and housing. It takes into account the number of people in the debtor’s household, as well as other debts like child support payments.

In the areas of student loan and tax debt, there are steps that can prevent federal wage garnishment. These are largely a matter of informing the agency beforehand of any potential payment problem, or responding immediately to a garnishment notice. The agency involved will have the forms needed to address the situation.

Student loan borrowers can defer loan payments based on illness, unemployment, or changes in circumstances. The borrower may also consolidate several student loans into a single loan with a lower monthly payment. In certain circumstances, it is also possible to request a new payment plan that more accurately reflects the borrower’s present and future income.

In the case of tax debt, the taxpayer can request to set up a repayment schedule. The IRS will let the taxpayer choose an amount she knows she can pay, calculated against her necessities and other debts of which the government might not be aware. Generally, if the taxpayer takes this step, the IRS will accept the payment plan. The payments are usually made monthly, and the agreement remains in force as long as the payments are made.

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