14.2.1.5.1 Calculation rules

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The CCPA garnishment provisions set a ceiling on the amount of a debtor’s disposable earnings that may be garnished. This subsection discusses these rules. State restrictions on garnishment, discussed in § 14.2.3, infra, should be also checked in every case, as they may provide greater protection for the debtor.⁷³

The “disposable earnings” protected by the CCPA are that part of the employee’s earnings remaining after the deduction of any amount required by law to be withheld. These deductions include federal, state, and local taxes, Social Security, and other governmental retirement programs required by law.⁷⁴ Deductions such as those for union dues, health and life insurance, charitable contributions, voluntary wage assignments, contributions to retirement plans that are not required by law, savings bonds, and payments to employers for wage advances or purchases are usually not considered required by law to be withheld when calculating the exemption.⁷⁵ One court has held, however, that payments into a 401(k) retirement plan should be deducted from gross wages to determine disposable income because these payments are not considered earnings in the first place, at least for federal income tax purposes.⁷⁶ In addition, since the Affordable Care Act requires individuals to have health insurance⁷⁷ and to report any employer-provided health insurance on their tax returns,⁷⁸ it may be possible to argue that any employee-paid portion of the premium is required by law to be withheld. There should be no question that any amount withheld to pay a tax penalty for not having health insurance is an amount required by law to be withheld and so should be taken into account when calculating disposable earnings.

A Department of Labor fact sheet states that deductions employers make to repay themselves for salary advances extended to workers or merchandise purchased by workers are not required by law to be withheld.⁷⁹ Such a deduction may be treated as a garnishment entitled to priority under state law, however.⁸⁰ It can also be argued that an amount withheld by the employer to repay itself does not meet the federal definition of “earnings”⁸¹ because it is neither “paid” nor “payable.”

An existing garnishment for child support should not be treated as a deduction from income. Instead, after the disposable earnings are calculated, the court should treat the child support garnishment as a preexisting garnishment. If it consumes 25% or more of the debtor’s disposable earnings, there are no earnings available for creditors’ garnishments.⁸²

The maximum amount of disposable earnings that may be garnished (for debts other than court-ordered child support and alimony⁸³) is the lesser of:

• 25% of the disposable earnings for that workweek; or
• The amount by which disposable earnings for that week exceed thirty times the federal minimum hourly wage.

As of July 24, 2009, the federal minimum wage is $7.25 per hour.⁸⁴

Footnotes

73 See Appx. H, infra (summarizing state exemption laws, including wage garnishment protections); National Consumer Law Center, No Fresh Start in 2019: How States Still Allow Debt Collectors to Push Families into Poverty (Nov. 2019), available at www.nclc.org (state-by-state analysis of wage garnishment and exemption laws).
74 15 U.S.C. § 1672(b). See also Marshall v. Dist. Ct., 444 F. Supp. 1110 (E.D. Mich. 1978); First Nat’l Bank v. Hasty, 415 F. Supp. 170 (E.D. Mich. 1976), aff’d, 573 F.2d 1310 (6th Cir. 1977) (table); DiZazzo v. DiZazzo, 1992 WL 98124 (Conn. Super. Ct. Apr. 23, 1992) (voluntary 401(k) contributions and health insurance premiums were not required to be withheld so were “disposable earnings”; those amounts may be deducted from “earnings” under state exemption law but only to extent reasonable in light of support needs of beneficiaries under support order). Cf. United States v. Polivka Grp., L.L.C., 2017 WL 2880877 (N.D. Ill. July 6, 2017) (analyzing what expenses can be deducted when determining “disposable earnings” for self-employed real estate agent under Federal Debt Collection Procedures Act); Quiroz v. Dickerson, 2016 WL 11003529 (D. Nev. Jan. 20, 2016) (setting forth calculation method for determining disposable earnings when judgment debtor is practicing attorney).
75 U.S. Dep’t of Labor, Wage & Hour Div., Fact Sheet #30 (revised Oct. 2019), available at www.dol.gov. See United States v. Thomas, 2012 WL 147876 (E.D. Cal. Jan. 18, 2012) (voluntary contributions to retirement fund should not be deducted in calculating disposable income), adopted by, 2012 WL 869512 (E.D. Cal. Mar. 9, 2012); Nichols v. Weston, 2011 WL 1630336 (Ariz. Ct. App. Apr. 26, 2011) (“voluntary” payments to IRS, by wage assignment to which debtors agreed in order to avoid a levy, do not count toward 25% cap; private creditor may garnish 25% of wages).
76 In re Robinson, 240 B.R. 70 (Bankr. N.D. Ala. 1999).
77 26 U.S.C. § 5000A(a).
78 26 U.S.C. § 6055(b)(2).
79 U.S. Dep’t of Labor, Wage & Hour Div., Fact Sheet #30 (revised Oct. 2019), available at www.dol.gov. See also Sears, Roebuck & Co. v. A. T. & G. Co., 239 N.W.2d 614 (Mich. Ct. App. 1976) (deduction from debtor’s earnings to pay debt to employer was not a deduction required by law to be withheld).
80 Sears, Roebuck & Co. v. A. T. & G. Co., 239 N.W.2d 614 (Mich. Ct. App. 1976) (deduction from debtor’s earnings to pay debt to employer takes priority over judgment creditor’s garnishment).
81 15 U.S.C. § 1672(a).
82 Comptroller v. First Ala. Bank, 642 So. 2d 1349 (Ala. Civ. App. 1993) (child support order against debtor is considered a prior garnishment and is to be deducted from income available for garnishment rather than from gross income to determine disposable earnings); In re Marriage of Herrick, 640 N.E.2d 969, 973 (Ill. App. Ct. 1994); Koethe v. Carmel Heights Apartments, 328 N.W.2d 293 (Iowa 1982) (court-ordered assignment of wages to meet child support obligation must be treated as a prior garnishment, not as a deduction from gross income, when determining disposable income); In re Rummel, 954 N.E.2d 207 (Ohio Ct. App. 2011) (child support orders should not be deducted from income in determining amount available for garnishment); Lough v. Robinson, 675 N.E.2d 1272 (Ohio Ct. App. 1996) (when child support order consumes 38% of worker’s wages, no other garnishment is permissible); Union Pac. R.R. v. Trona Valley Fed. Credit Union, 57 P.3d 1203 (Wyo. 2002).
83 See § 14.2.1.5.4, infra.
84 Pub. L. No. 110-28, §§ 8101–8104, 121 Stat. 112 (2007).

The minimum wage had been $4.25 per hour from 1991 (Pub. L. No. 101-157, § 2, 103 Stat. 938) until October 1, 1996, when it increased to $4.75 per hour by virtue of the Small Business Job Protection Act, Pub. L. No. 104-188, § 2104, 110 Stat. 1755, which amended the Fair Labor Standards Act, 29 U.S.C. § 206. The Small Business Job Protection Act also enacted an increase, effective October 1, 1997, to $5.15 per hour. In 2007, Congress adopted Pub. L. No. 110-28, §§ 8101–8104, 121 Stat. 112 (2007), increasing the federal minimum wage from $5.15 to $5.85 per hour as of July 24, 2007, from $5.85 to $6.55 per hour as of July 24, 2008, and from $6.55 to $7.25 per hour as of July 24, 2009. The Washington, D.C., and regional offices of the Wage and Hour Division of the United States Department of Labor may be phoned for information on the current minimum wage. This information is also available on the Department of Labor’s website at www.dol.gov. The Department of Labor regulations—29 C.F.R. Part 870—which are reprinted in Appendix D.2, infra, still refer to the 1991 minimum wage levels. Calculations using the 2009 minimum wage level may be found in the Department of Labor’s Fact Sheet #30 (revised Oct. 2019), available at www.dol.gov.