1. Presented By: Liz Seidel, CPP February 13, 2016

2. Child Support Tax Levy Bankruptcy Student Loans Creditor Garnishments Voluntary Union Dues Savings Bonds Credit Unions Wage Assignments Charitable Contributions Involuntary

3.  Neither the Employer or Employee has control  If not withheld: ◦ Penalties equal the deduction amount ◦ Plus possible fines and interest

4.  Required by law to comply ◦ Employees must take objections to issuing agency or to their attorney  Withhold required amounts  Remit amounts to correct agency  Notify the employee

5. Federal Levy  Garnishes wages that are not “exempt” For this purpose only, “exempt” means roughly “amount employee is entitled to”  Tax levies must be satisfied before all other garnishments except for child support orders in effect before the date of the levy

6.  Form 668-W: Notice of Levy on Wages, Salary, and other income ◦ Part 1: shows amount of levy – ER’s copy ◦ Part 2 thru 5: give to employee  Part 2&5 - employee retains  Parts 3&4 – EE must return to ER within 3 days  Part 3 –ER completes reverse side and sends to IRS ◦ Part 6: kept by IRS

7.  Standard Deductions & Personal Exemptions ◦ Parts 3&4 not returned? Use married filing separately with one allowance Note: employers MAY NOT use W4 info! ◦ EE is entitled to exempt amount based on year levy is received  IRS Table (Pub. 1494 – Table 1, P 9-4 & 5)

11.  “Take home pay” is what remains after all normal deductions in effect at the time of the levy have been subtracted  Tax withholding amounts may be adjusted at the employee’s discretion  Increases to pre-existing deductions are allowed only if the employee has no control  New voluntary deductions: deduct from “exempt” amount prior to calculating net pay

12.  Disposable Earnings ◦ Deductions required by law ONLY ◦ Generally only taxes ◦ Used for Consumer Credit Protection Act (CCPA) compliance calculations  Take Home Pay ◦ All deductions from pay ◦ Equivalent to “Cash To Employee” ◦ Used in Federal Tax Levy calculation

13.  Using the following facts, calculate both the disposable earnings and the take home pay (Remaining net pay is issued on a paper check) * Assume employee is not in a state that requires health insurance premiums to be deducted when calculating disposable earnings

15.  If the EE returns parts 3 & 4 claiming Married Filing Joint with 1 allowance: How much will the employee’s net pay be? How much will go to the IRS?  What if the EE doesn’t return parts 3 & 4? How much will the employee’s net pay be? How much will go to the IRS?

17.  Employer cannot stop withholding until Form 668-D, Release of Levy/Release of Property from Levy received  Term? Return Part 3 to IRS with employee’s last known address  Non-compliance penalty? ER is liable for full amount plus interest, and 50% penalty  EE has 2 jobs? Doesn’t matter!  Pay date for IRS = pay date to employee

18.  Best Practice: Encourage employee to contact IRS to set up a Voluntary deduction agreement for owed taxes  “Payroll Deduction Agreement” may prevent levy for employee ◦ Form 2159 – Payroll Deduction Agreement ◦ Employer agrees to participate ◦ Employee may discontinue at any time

19.  All initial child support orders require wage withholding ◦ Unless both parents or the court & one parent agree to a different method of payment  If a child support order issued or modified before 10/1/96 becomes overdue, it becomes immediately subject to withholding  Child support enforcement framework – joint federal/state responsibility

20. Maximum Amount to Withhold:

21.  Calculating disposable earnings – subtract all deductions required by law from gross ◦ Federal, State and local income tax ◦ Social Security and Medicare tax ◦ State unemployment or disability tax ◦ Mandated payments for state EE retirement plans ◦ Check state law regarding deduction of health insurance premiums  If a tax levy or other order has priority over new child support order, make sure amounts for the new order will not violate the CCPA maximum

22.  Using the following facts, calculate both the disposable earnings and the take home pay (Remaining net pay is issued on a paper check) * Assume employee is not in a state that requires health insurance premiums to be deducted when calculating disposable earnings

24.  One-time payments are subject to withholding orders let agency know before payment made for determination of amount to be withheld  Tips are not part of employee’s earnings (but service charges are!)  Child support orders take priority over all other garnishments or attachments except for federal tax levies received before original child support order was established  Bankruptcy does not dismiss child support orders

25.  Effective date of order – no later than first pay period after 14 working days following mailing of notice to withhold  Income Withholding for Support Order (IWO) ◦ Standard form for all support orders  Payments within 7 business days of EE pay date

26.  Administrative fees ◦ ER can charge set amount per pay period ◦ Set by state law ◦ Combined amount cannot exceed CCPA limits  Term? Notify state per state rules  Non-compliance penalty? ER is liable for full amount plus fines set by state law

27. 1993 Uniform Interstate Family Support Act ◦ Must honor if “regular on its face” Work State Rules ◦ Administrative Fees ◦ Mandatory Deductions for Disposable Income ◦ Maximum Amount (%) ◦ Time to Implement and Remit ◦ Priority – Withholding and Allocating for Multiple Withholding Orders Support Order Rules ◦ Duration and Amount ◦ Agency and Address ◦ Medical Support, Fees, Costs ◦ Arrears and Interest

28.  Electronic Data Processing Electronic data processing and payments – controlled and regulated by federal law Required in 14 states Over 40 states offer web-based payment systems

29. International child support enforcement  Secretary of State and Secretary of Health & Human Services make agreements with “foreign reciprocating countries”  Procedures for establishing & enforcing child support orders issued in favor of U.S. residents.  If no reciprocal agreement exists, states can enter into their own with foreign countries

30.  Multiple withholding orders Follow employee work state rules! Some states use “pro-rating” method Some states use “equal-amounts” method Montana uses “first-in, first-out” Example, page 9-26 All current obligations must be met for all orders before any past due amounts can be paid on any order

31.  Employee Complaints: “Tell it to the Agency” If employee does not agree with amount on order, employee must contact agency; employer required to withhold per order If employee begins supporting new spouse and/or children, employee must contact agency  Avoiding withholding Employee can change their federal and state elections to reduce amount of disposable earnings, but IRS will withhold any arrearages from any refund

32.  In the military Employer notifies the state that the employee is being mobilized Notify child support agency with date of call to active duty  Independent Contractors Not exempt from child support withholding orders CCPA does not apply – use state limits  Public Sector Employees Not exempt from child support withholding orders tax

33.  Medical Child Support Orders Employer-sponsored group health plans are required to comply with state laws. Each new child support order must address medical support. “Reasonable Cost” – does not exceed 5% of gross income (or reasonable alternative determined by state) Employer has 40 business days from date of notice to advise state agency if coverage is available and if child is already covered  Providing Private Medical Info is OK CCPA does not apply – use state limits Does not violate HIPAA tax

34.  State Laws on Child Support Withholding ◦ Table 9.1, P. 9-35 to 9-39  State Child Support Enforcement Agencies ◦ P. 9-40 to 9-44  Federal Offices of Child Support Enforcement ◦ P. 9-44 to 9-45

35.  A legal means in order to collect a debt  Creditor must obtain court order before the employer is required to withhold for a debt  More restrictions than child support orders  Consumer Credit Protection Act (CCPA) Governs amount to garnish ER cannot discharge EE due to garnishing of wages  State laws may further limit amounts!

36.  Tips vs. Service Charge ◦ Cash or credit card tips – not earnings ◦ Service charge as part of bill - earnings  Disposable Income – Deductions Required by Law Federal, Social Security, Medicare, State and Local Taxes State Unemployment State Disability Mandated State Retirement  Table 9-2 – Amount Subject to Garnishments

37. Maximum Amount of Disposable Income to Garnish Lesser of:  25% of disposable for week*  30 times the Federal Minimum Wage for week* (30 x $7.25 = $217.50) *Adjust amounts to pay frequency per table 9.2

38. Example 1 (P. 9-43)  EE ’ s weekly disposable earnings=$250 Garnishment for $300  Allowed to withhold lesser of: 25% of Disposable = $62.50 $250 - $217.50 = $32.50  Amount to withhold = $32.50

39.  Minimum Wage Changes will change the amount to be garnished (Table 9.2, P. 9-44)  Exceptions to CCPA Limits: Child Support Tax Levies Bankruptcy Student Loans

40.  Multiple garnishments Disposable earnings are the same Take “into account” other garnishments  Example 1 & 2 – P. 9-47

41.  Federal, State, Local EE’s : ◦ Generally exempt from garnishments unless specifically provided otherwise by state law. ◦ Postal Workers are NOT exempt. ◦ Federal EE’s are subject to:  Child Support  Alimony  Tax Levies  State Regulations Include: Priority of multiple garnishments Orders exceeding max amt. on first payment Time limits & out of state orders Administrative fees Non-compliance penalties

42.  Not subject to CCPA ◦ Governed by federal Bankruptcy Code  Stop withholding on all other garnishments, including federal, state, and local tax levies  EXCEPT ◦ Child Support/Alimony ◦ Retirement plan loans

43.  Maximum amount – lesser of: ◦ 15% of Disposable* ◦ Excess of 30 x Federal Minimum Wage for week (30 x $7.25) *Increases to 25% if multiple student loan garnishments  30 day notice to EE  12 month grace period for layoff/rehire  Penalties – Amount plus damages

45.  Wage Assignments  Union Dues  Credit Union Deductions  US Savings Bonds  Charitable Contribution

46.  Employee elects to have amounts taken directly from their paycheck.  Employee must give employer written authorization to allow the deduction  Last in order of priority

47.  Wage Assignments ◦ Employees assign wages to secure a debt ◦ Garnishment limits do not apply - Not covered by the CCPA ◦ Governed by state law ◦ When more than one wage assignment is presented they must be taken in order of how they are received

48.  Union Dues are ◦ Authorized by federal labor laws ◦ Employer must get a written, signed authorization form from each employee. ◦ Cannot be revoked for 1 year or until contract expires.  Credit Union Deductions o Employers should get written signed authorization for the amount to be withheld, the length of time, and who should be paid

49.  US Savings Bonds ◦ Beginning 1/1/2011 – no longer an option to purchase through payroll deduction ◦ EE’s use Treasury Direct and sign up for a partial direct deposit, if ER allows  Not all payroll systems can handle the account number that includes a letter

50.  Charitable Contributions ◦ Contributions of $250 or more must have proper substantiation with:  1) pay stub or W-2, AND  2) copy of pledge card with donee name ◦ Each contribution is treated separately  Biweekly contributions of $10 (for a total of $260) do not create a contribution of more than $250

51. Questions ?

52. Liz Seidel, CPP February 13, 2016 E-Mail: liz.seidel@zurichna.com Phone: 847-762-7254