What Are Disposable Earnings?
Every employee has tax and payment obligations that they have to meet. After these have been met, employees are left with earnings that can be spent – or invested – in any way that the employee decides. This part of your earnings is referred to as disposable earnings.
It’s worth noting that some deductions are not required by law and can therefore be part of your disposable earnings. These typically include:
- Medical insurance
- Pension plans
- Savings plans
- Life insurance
Disposable Earnings for Garnishments
Your disposable earnings refers to your net income after any tax and social security withholdings. It can therefore essentially be defined as the part of an employee’s income eligible for wage garnishments, which are court-mandated withholdings that go towards the payment of debt such as child support.
If you currently pay for things like life insurance or contribute to a retirement account, these liabilities can be reduced to increase your take-home pay and manage any wage garnishments.
What Is Disposable Pay for Garnishments?
As mentioned, legally required deductions cannot be classed as part of your disposable pay for garnishments – but anything you pay voluntarily can count.
Wages that can be garnished include any commissions and bonuses that you receive as an employee in addition to your normal pay.
How Much of My Wages Can Be Garnished?
Fortunately, there is a limit to how much of your income can be garnished, as per the Consumer Credit Protection Act.
The maximum amount that a court can order to be withheld from an employee’s wages is either 25% of their current disposable income, or the amount by which their income exceeds 30 times the federal minimum wage.
Whichever of these is the lesser amount is the limit of your disposable income that can be garnished.
See our full list of over 50 Small Business Terms here.
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