What is a garnishment exemption?
A garnishment exemption refers to the portion of an employee’s wages that cannot legally be withheld to satisfy a court-ordered debt or financial obligation. When an employee’s wages are being garnished—whether for child support, back taxes, or unpaid loans—garnishment laws at both the federal and state levels place limits on how much of their paycheck can be taken. These limits are known as exemptions.
As an employer, you may be responsible for withholding garnished wages, but it's equally important to understand garnishment exemptions. Why? Because failing to apply the correct exemption amount could result in over-withholding, underpayment to the employee, or even legal liability for your business.
Why garnishment exemptions matter to employers
If you’re handling payroll, garnishment exemptions determine how much of an employee’s wages you can legally withhold and remit to a creditor. Federal law limits how much can be garnished, and many states have stricter rules to protect low-income workers.
Knowing how exemptions work helps you:
- Stay compliant with wage garnishment laws
- Protect your business from penalties or lawsuits
- Ensure employees take home the legally required portion of their paycheck
- Avoid confusion when dealing with multiple garnishments or states with different rules
Federal garnishment exemption limits
Under the Consumer Credit Protection Act (CCPA), the federal government restricts wage garnishment as follows:
- Up to 25% of disposable income can be garnished OR
- The amount by which disposable income exceeds 30 times the federal minimum wage, whichever is less
Let’s say an employee earns $600 weekly after mandatory deductions:
- 25% of $600 = $150
- 30 × $7.25 (federal minimum wage) = $217.50
- $600 – $217.50 = $382.50
In this case, the maximum garnishment is the lesser of the two—$150.
Note: “Disposable income” is the employee’s earnings after legally required deductions like taxes and Social Security, but before voluntary deductions.
Common types of garnishment with exemptions
- Child support and alimony – These garnishments follow different limits: up to 50–65% of disposable earnings, depending on family support obligations.
- Federal tax levies – The IRS uses its exemption tables based on filing status and dependents.
- Student loans and other debts – Garnishments for federal loans are generally limited to 15% of disposable earnings.
If multiple garnishments apply, you’ll need to follow a priority order and apply the appropriate exemptions to each one.
State-specific garnishment exemptions
Many states offer additional protections beyond federal law. For example:
- Some states reduce the garnishment cap to 15–20% of disposable income
- Others increase the minimum wage threshold used for exemptions
- A few states, like Texas and Pennsylvania, generally prohibit wage garnishment for most debts
Employers must follow the rule that provides the most protection to the employee—usually the state rule if it's more generous than the federal limit.
How to handle garnishment exemptions correctly
Here’s how to stay compliant:
- Read the garnishment order carefully – It will indicate the amount, type of debt, and relevant laws.
- Determine disposable income – Subtract taxes, Social Security, Medicare, and any mandatory retirement or disability contributions.
- Apply the exemption threshold – Use either federal or state guidelines, depending on which applies.
- Withhold and remit – Send the garnished amount to the creditor by the deadline.
- Track and document – Keep clear records of garnishments and exemptions in case of audit or employee dispute.
Garnishments can last for weeks, months, or years, so having a repeatable system in place is key.
How Homebase payroll helps with wage garnishment and exemptions
Wage garnishment can be a legal minefield for small business owners, especially if you’re managing it manually. Homebase payroll makes it easier to stay compliant, process garnishments accurately, and protect your business from costly mistakes.
With Homebase payroll, you can:
- Automatically calculate disposable income
- Apply garnishment limits and exemptions correctly
- Set up multiple garnishments per employee
- Track payments and deadlines for each order
- Maintain compliance with federal and state rules
Explore Homebase payroll to streamline garnishment processing, safeguard employee rights, and reduce your compliance burden—all in one easy-to-use platform.