What Are Disposable Earnings for Wage Garnishment?

Disposable earnings represent the portion of an individual’s income that remains after legally mandated deductions are applied. Understanding what constitutes these earnings is important for individuals and employers alike, as it directly impacts financial responsibilities and protections under the law.

Understanding Gross Pay and Statutory Deductions

Gross pay refers to an employee’s total earnings before any deductions are made. This amount encompasses wages, salaries, commissions, bonuses, and even periodic payments from pension or retirement programs. These deductions are legally required.

These legally required withholdings, often termed statutory deductions, include federal income tax. State and local income taxes are also subtracted. Additionally, contributions to Social Security and Medicare, known as FICA taxes, are mandatory payroll deductions. Legally required contributions to employee retirement systems and existing court-ordered payments like child support also fall under statutory deductions.

Calculating Disposable Earnings

Disposable earnings are calculated by taking an individual’s gross pay and subtracting only the legally required deductions. The formula is straightforward: Gross Pay minus Statutory Deductions equals Disposable Earnings. This resulting figure is distinct from an individual’s take-home pay, as many common deductions that reduce take-home pay are not factored into the disposable earnings calculation for legal purposes.

Deductions that are not subtracted when determining disposable earnings include voluntary contributions and non-mandated benefits. For example, health insurance premiums are not considered statutory deductions. Voluntary contributions to retirement accounts, such as 401(k)s or 403(b)s, are not deducted when calculating disposable earnings. Other common voluntary deductions, such as life insurance premiums, union dues, charitable contributions, or repayments for employer advances, also do not reduce disposable earnings.

Disposable Earnings and Wage Garnishments

Disposable earnings form the basis for determining the maximum amount that can be legally withheld from an individual’s wages through a garnishment order. A wage garnishment is a legal or equitable procedure that requires an employer to withhold a portion of an employee’s earnings to satisfy a debt. The Consumer Credit Protection Act (CCPA) sets federal limits on how much of an individual’s disposable earnings can be garnished, ensuring that a significant portion of income remains for basic living expenses.

For most general consumer debts, federal law limits garnishments to the lesser of 25% of an individual’s disposable earnings or the amount by which their disposable earnings exceed 30 times the federal minimum wage. Different types of debts have varying limits. For instance, court-ordered child support or spousal support can lead to higher garnishment percentages, ranging from 50% to 60% of disposable earnings. Federal student loan defaults and non-tax debts owed to federal agencies may also result in garnishments of up to 15% of disposable earnings. While federal law establishes these parameters, some state laws may offer greater protection to individuals by setting lower garnishment limits.