Set up garnishments and tax levies

Articolo
09/29/2023

This article explains how to set up garnishments and tax levies. Garnishments and tax levies are created and managed by using the benefit framework. This framework helps guarantee that the effect that garnishments and tax levies have on payroll is handled correctly.

If you have questions about garnishments that aren't answered in this article, or in Enroll workers in garnishments or tax levies or Garnishments, tax levies, and administrative fees FAQ, contact your legal advisor. Here is a summary of each step in the process:

Set up disposable income definitions. When the court imposes an order to garnish a worker's wages, the actual amount of the garnishment is limited to a percentage of the worker's disposable income. The federal definition of disposable income is built into the payroll calculation. However, some states require additional reductions to disposable income. You can use disposable income definitions to identify those reductions and help guarantee that the correct earnings and deductions are included when the worker's disposable income is calculated.
Set up benefit elements for garnishments, tax levies, and administrative fees. Because garnishments and tax levies are processed as benefits, each garnishment or tax levy consists of a benefit type, plan, and option. Together, these elements create a single instance of a garnishment or tax levy. Administrative fees aren't permitted in every state. Even in states where administrative fees are permitted, they are never mandatory. Your organization must decide whether to charge them.
Create benefits for garnishments, tax levies, and administrative fees. You must have at least one benefit for garnishments and at least one benefit for tax levies. If a worker has more than one garnishment of the same type, you must have more than one garnishment benefit of that type. If your organization charges an administrative fee for handling garnishments and tax levies, you must have at least one benefit for the fee. You can also optionally have additional benefits for other administrative fees.

Note

In this article, the term garnishment implies both garnishments and tax levies, unless the text specifies otherwise. For more information about the concepts that are discussed in this article, see Garnishments, tax levies, and administrative fees FAQ.

Setting up disposable income definitions

When the court imposes an order to garnish a worker's wages, the actual amount of the garnishment is limited to a percentage of the worker's disposable income. Under the federal definition, the disposable income is determined by subtracting all deductions that are required by law from a worker's gross earnings or income. Gross earnings include wages, commissions, bonuses, paid time off (PTO) pay, and periodic pension statements. Here are some of the deductions that are required by law:

Federal, state, and local income tax
Social Security and Medicare tax
State unemployment or disability tax
State-mandated payments for state employee retirement systems

Under the federal formula, voluntary deductions (for example, deductions for life insurance, union dues, and retirement plan contributions) aren't subtracted from earnings. The federal formula has been built into the Payroll system.

Many states use the federal definition of disposable income. However, some states have their own definition that exempts some additional earnings from total wages and subtracts other deductions, to further reduce what is considered disposable income. You don't have to create a definition by using the federal formula. (The federal formula is built into the Payroll calculations.) However, you must create additional disposable income definitions to comply with each state's formula.

Important

State definitions are subject to change every year. Because it can be difficult to match your organization's earning codes and benefits to the definitions that are used by a specific state, we recommend that your legal advisors determine the earning codes and benefits that must be included in each disposable income definition. We also recommend that your legal advisors review the definitions every year.

When you create a disposable income definition, you specify the earnings and the benefits to reduce the worker's disposable income by. You don't have to specify the taxes. All mandatory taxes are automatically subtracted from the total wages.

Tax levies and other garnishments aren't automatically excluded from the worker's disposable income. To exclude them, you must specify them in the benefit section of the disposable income definition.

Important

Disposable income definitions don't have date-effective versions. When you change a definition, the change takes effect immediately. Therefore, we recommend that you not change any existing disposable income definitions that you've used.

You create a new disposable income definition on the Disposable income definition page. Enter a name and description for the new disposable income definition. Because disposable income definitions are typically defined for each state, consider using the two-letter state abbreviation as the first two letters of the name of every disposable income definition. For example, when you create a disposable income definition for garnishments from Texas, enter a name that starts with TX. Then, when you receive a new garnishment order, you can quickly see whether you already have the required disposable income definition, or whether you must create it.

When total wages are calculated, earning lines that are designated by the earning code are excluded. Click the Add button above the Reduce total wages by the following earnings grid, and select an earning code that represents the earnings that the state has identified as exempt from disposable income.

Important

It can be difficult to match your organization's earning codes to the definitions that a specific state uses. Therefore, we recommend that your legal advisors determine the earning codes that should be included in each disposable income definition.

When total wages are calculated, deductions for selected benefits are excluded. Click the Add button above the Reduce disposable income by deductions for the following benefits grid, and select benefits that the state has identified as exempt from disposable income. Remember that the system handles garnishments and tax levies as benefits. Therefore, to exclude the amount of garnishments or tax levies from a disposable income definition, you must add the garnishment or tax levy benefits here.

Important

We recommend that you work with your legal advisors to determine the benefits that should be included in each disposable income definition.

If you delete an earning code or benefit, it's automatically removed from all disposable income definitions. New earning codes and benefits that you create aren't automatically added. When you maintain earning codes and benefits, you must consider the effect that any changes will have on the disposable income definitions.

Setting up benefit elements

Garnishments and tax levies are handled as benefits. A benefit is a unique combination of a benefit type, plan, and option. Use this set of tasks to create the following benefit elements that are required in order to create garnishment and tax levy benefits:

Benefit types – You must create two benefit types: one for garnishments and one for tax levies. If your organization charges administrative fees for garnishments and tax levies, you must also create a benefit type for the administrative fees.
Benefit plans – Most organizations create a benefit plan for each type of garnishment and tax levy. You can create additional benefit plans. For example, you might create a separate benefit plan for tax levies from each state.
Benefit options – When you create benefit options, we recommend that you create a set of numbered options for garnishments and tax levies. For example, you might create options 01, 02, and 03. By numbering the options in this manner, you can quickly see the order that the garnishments were entered in.

When you set up the benefit elements for garnishments and tax levies, remember that multiple garnishments can be in effect for a worker at the same time, but the worker can have only one enrollment in each benefit at any time. Therefore, you must create multiple garnishment benefits. To create multiple garnishment benefits, you can set up multiple benefit plans or multiple benefit options. The easier method is to set up multiple benefit options, as described in the following set of tasks.

Setting up benefit types for garnishments, tax levies, and administrative fees

You set up benefit types for garnishments, tax levies, and administrative fees on the Benefit elements page. In the Type section of the Benefit elements page, enter the following information.

Field	Description
Name Description	Enter a name and a description for the type of garnishment benefit. For example, you might enter Garnishment as the name and Court-ordered garnishment as the description.
Concurrent enrollment	Select Multiple enrollments per type. This value is required, so that you can enroll a worker in more than one garnishment benefit or more than one tax levy at the same time.
Payroll category	Select one of the following payroll categories for the benefit type: For garnishments, select Garnishment. For tax levies, select Tax levy. Optional: For administrative fees, select Standard. The payroll category helps guarantee that the benefit follows the processing requirements that the government defines for garnishments or tax levies. The payroll category also determines which settings are available in the Plans area of this page. Settings that don't apply to the selected payroll category aren't available.

After you've created the benefit type for garnishments, repeat this setup to create a benefit type for tax levies and a benefit type for administrative fees, if your organization uses administrative fees.

Set up benefit plans

You also set up benefit plans on the Benefit elements page. At the side of the page, click Plans to show the Define benefit plans area. You must create at least one benefit plan for garnishments and one benefit plan for tax levies. However, we recommend that you create one benefit plan for each garnishment type and one benefit plan for each tax levy type. If you use this approach, create the following benefit plans:

Support order
Bankruptcy
Federal administrative
Student loan
Creditor
Federal tax levy
State tax levy
Local tax levy
Optional: Administrative fees

Enter the following information.

Field	Description
Name Description	Enter a name and a description for the benefit plan. For example, for the bankruptcy plan, you might enter Bankruptcy as the name and Bankruptcy order as the description. For an administrative fee plan, you might enter Admin fee as the name and Garnishments as the description.
Benefit type	Select the appropriate benefit type. This benefit type is one of the benefit types that you created in the previous section, "Setting up benefit types for garnishments, tax levies, and administrative fees."
Payroll impact	Select Deduction only.

On the Tax rule FastTab, enter the following information.

Field	Description
Pretax basis	Select None.

On the Payroll details FastTab, enter the following information.

Field	Description
Lock pay statement	Select this option to prevent changes to pay statement lines that include the garnishment or tax levy. When this option is selected, you can add lines that include the garnishment or tax levy to the pay statement, or delete them from the pay statement. However, you can't change the garnishment or tax levy lines that are on the pay statement. If you don't select this option, you can change garnishment and tax levy lines directly on the pay statement.
Deduction method	By default, this field is set to Partial. When the Partial deduction method is used, part of the garnishment amount is automatically deducted from a worker's pay if the whole amount can't be deducted legally.
Payroll types	Make sure that at least one of the following payment types is selected: Primary Additional Gross up Deductions for the garnishment or tax levy are included in payroll runs of the selected type. IMPORTANT: Many states have laws that specify how garnishments for child support are handled when a worker receives a lump-sum payment, such as a bonus, severance pay, or a vacation payout. The laws vary, but they typically include a provision that the state must be notified before a lump-sum payment is made. The state then gives the employer specific instructions about whether to calculate the garnishment and how to calculate it. In some cases, the whole lump-sum payment is subject to garnishment.
Deduction priority	This field determines the order that the garnishment or tax levy is deducted from pay in, relative to other deductions. The default value is 100. Don't change the default value on this page. Instead, to adjust the value, you must use the Maintain benefits page for each worker when the worker is enrolled in the garnishment or tax levy.
Limit period Limit amount	The limit period and limit amount differ for each worker, and for each garnishment or tax levy. These values are set for each worker when the worker is enrolled. Therefore, on this page, leave the Limit period field blank, and leave the Limit amount field set to 0.00.

On the Accounting FastTab, set up accounting information for each legal entity that has workers who are enrolled in the garnishment or tax levy.

Field	Description
Category	Leave this field blank.
Vendor	Leave this field blank.
Main account	Select the general ledger account to apply the payroll deductions to for this benefit plan.

On the Accounting FastTab, you can also optionally enter the default financial dimension values for the benefit plan. If there is more than one legal entity in your organization, repeat the setup on the Accounting FastTab for each legal entity.

Setting up benefit options

You also set up benefit options on the Benefit elements page. Click Options to show the Define benefit options area. To create a new benefit option, click New, and enter the following information.

Field	Description
Option Description	Enter a name and a description for the option. For example, you might enter 01 as the name and Garnishment/tax levy as the description. When you create benefit options for garnishments, we recommend that you create a set of numbered options for garnishments and tax levies. For example, you might create options 01, 02, and 03. By numbering the options in this manner, you can quickly see the order that the garnishments were entered in. You can optionally create a separate numbered sequence for each type of garnishment or tax levy.
Allow dependent coverage Allow beneficiary designations	Dependent coverage and beneficiary designations don't apply to garnishments or tax levies. Therefore, don't select the Allow dependent coverage and allow beneficiary designations check boxes.

Field

Description

Option Description

Enter a name and a description for the option. For example, you might enter 01 as the name and Garnishment/tax levy as the description. When you create benefit options for garnishments, we recommend that you create a set of numbered options for garnishments and tax levies. For example, you might create options 01, 02, and 03. By numbering the options in this manner, you can quickly see the order that the garnishments were entered in. You can optionally create a separate numbered sequence for each type of garnishment or tax levy.

Allow dependent coverage Allow beneficiary designations

Dependent coverage and beneficiary designations don't apply to garnishments or tax levies. Therefore, don't select the Allow dependent coverage and allow beneficiary designations check boxes.

Creating benefits for garnishments and tax levies

After you set up the benefit types, plans, and options, you must create the benefits for garnishments and tax levies. If your organization charges administrative fees for garnishments and tax levies, you must also create a benefit for the administrative fees. When you create a benefit, you link a benefit plan and an option, designate a benefit period, and assign eligibility rules to the benefit. You create benefits for garnishments and tax levies on the Benefits page. To create a new benefit, click New, and enter the following information.

Field	Description
Create a new benefit	Select a plan and an option.
Effective Expiration	Specify dates that are appropriate for the benefit.

After you've entered this information, click Create benefit.

Next, on the Eligibility rules FastTab, change the eligibility from All workers are eligible to Bypass eligibility process. The benefit eligibility process is used to determine which workers can enroll in a benefit, and when they can enroll. Because anyone can be enrolled in a garnishment at any time, there is no reason to use the benefit eligibility process.

Note

When eligibility is set to Bypass eligibility process, eligibility overrides have no effect. Therefore, you can skip the fields on the Eligibility overrides FastTab.

Next, on the Payroll details FastTab, enter the following payroll information. The values that you enter here are used as default values when you enroll a worker in the garnishment or tax levy.

Field	Description
Frequency	Select how often payroll calculations should occur. The frequency determines the pay periods that the selected benefit is calculated in. Most often, garnishments and tax levies use All.
Basis	Leave this field set to the default value, Fixed amount. When the Fixed amount basis is used, the payroll process starts with a fixed deduction amount, regardless of the amount of earnings. You can change the value to Percent of earnings, as required, when you enroll a worker in the garnishment or tax levy.
Amount or rate (Garnishment and tax levy)	For garnishment and tax levy benefits, leave this field set to 0.0000. The correct amount or rate is set on the Maintain benefits page for a specific worker when the worker is enrolled in the garnishment or tax levy.
Amount or rate (Administrative fees)	For administrative fee benefits, enter the amount of the fee that your organization charges. If you charge different administrative fees under different circumstances, you might want to create separate administrative fee benefits for each fee amount.

Finally, on the Earning basis FastTab, enter the earning codes that can be included when the basis is Percent of earnings. To enter an earning code, click Add, and then select the earning code in the list. Typically, your legal department determines the appropriate earning codes. Don't enter earning codes if the basis is Fixed amount, or if the benefit is for administrative fees.

Important

You can't change the list of earning codes on the Maintain benefits page for a specific worker. However, you can change the basis. If you change the basis to Percent of earnings, but no earning codes are entered here, the calculated amount of the deduction for the garnishment or tax levy is 0 (zero).