Involuntary and Voluntary Pay Deductions: Federal
Original Author: Ryan F. Donovan
Updating Author: Alice Gilman
- In addition to making required deductions from employees' wages for federal, state and local taxes, there are many other types of payroll deductions commonly made by employers. See Pay Deductions Generally.
- Employers are required by federal and/or state law to make deductions from employees' wages and to remit the amounts deducted to various government agencies or authorities in order to satisfy certain types of unpaid debts. These deductions are considered involuntary because employees do not elect them; instead they are imposed by law. Involuntary deductions include those made to satisfy debts for federal taxes, child support, creditor garnishments, bankruptcy orders, student loan garnishments and federal agency loan garnishments. Employers need to be well versed in all aspects of these types of orders to avoid serious penalties for noncompliance. See Involuntary Deductions.
- Employers are required to comply with federal tax levies issued by the Internal Revenue Service (IRS) against an employee who has failed to pay taxes. The employer must immediately begin withholding from the employee's wages according to the levy order and remit the withholdings to the IRS. Specific procedures must be followed when handling an order to ensure compliance and to avoid serious employer penalties. See Federal Tax Levies.
- HR and payroll departments play a central role in the enforcement of child support withholding orders issued against employees who are noncustodial parents. Increased government efforts in recent years to collect unpaid child support has forced employers to comply with a greater number of child support withholding orders within shorter time constraints. This requires HR and payroll professionals need to be well versed in a complex set of both federal and state laws, rules and procedures in order to remain compliant. See Child Support Withholding Orders.
- If an employee is subject to a court ordered creditor garnishment to pay off a debt, the employer will be required to withhold from the employee's wages according to the order. Employers must know how to calculate withholding, the order of priority when there are multiple garnishments against one employee, and when to follow state law. See Creditor Garnishment Orders.
- If an employee declares bankruptcy, his or her employer will likely receive an order from a court requiring the employer to withhold certain amounts from the employee's wages to satisfy the order. Withholding for most, but not all, other types of garnishment orders must be immediately put on hold until the bankruptcy order is satisfied. See Bankruptcy Orders.
- An employer may be required to withhold from an employee's wages according to one or more student loan garnishments if the employee has fallen behind in making loan payments. As with other types of involuntary withholding orders, the law limits the amount that may be withheld and prohibits the employer from discriminating against the subject employee. See Student Loan Garnishments.
- Federal government agencies are permitted to issue garnishment withholding orders against the wages of individuals who have failed to pay a nontax debt owed to the agency, without going to court to seek the order. As with other types of involuntary withholding with which employers must comply, the law limits the amount that may be withheld to satisfy such orders and prohibits an employer from discriminating against an employee subject to a withholding order. However, unlike other types of orders, the withholding limits change if an employee is already subject to certain other types of withholding orders when the employer receives a federal agency debt garnishment order. See Federal Agency Debt Garnishments.
- In addition to the involuntary payroll deductions with which employers must comply, employees often voluntarily choose or agree to have their employer make pay deductions on their behalf for items such as wage assignments, union and credit union dues, US Savings Bonds and charitable contributions. Voluntary deductions are primarily governed by state laws that specify the types of deductions that are permitted and prohibited, as well as the circumstances under which they may be made. Employers need to be familiar with these commonly requested deductions and the various federal and state laws and rules that apply to them. See Voluntary Deductions.
The following states have additional requirements for this topic under applicable state law.
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- Rhode Island
- South Carolina
- South Dakota
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- District of Columbia
- North Dakota
- West Virginia