CPM Wage Garnishment Compliance 3 — Questions and Answers
Question 1: For federal tax levies (IRS Form 668-W), how is the exempt amount from levy determined?
- It is a flat $500 per pay period
- It is based on the employee's standard deduction and personal exemptions claimed on a Statement of Exemptions (Correct answer)
- It equals 30 times the federal minimum wage
- It is always 25% of disposable earnings
Correct answer: It is based on the employee's standard deduction and personal exemptions claimed on a Statement of Exemptions
The IRS exempt amount is calculated from the employee's filing status and number of exemptions as stated on IRS Publication 1494 tables and the employee's completed exemption statement.
Question 2: If an employee fails to return the exemption statement (Part 3 of Form 668-W) within three business days, how should the employer treat the levy?
- Suspend withholding until the form is returned
- Withhold as if the employee is single with zero exemptions (Correct answer)
- Withhold the entire net paycheck
- Contact the IRS for a determination
Correct answer: Withhold as if the employee is single with zero exemptions
If the employee does not return the exemption form, the employer must withhold as if the employee is married filing separately with one exemption — effectively single with zero, using the lowest exempt amount.
Question 3: A student loan garnishment issued under the Higher Education Act (HEA) limits withholding to what maximum percentage of disposable pay?
- 10%
- 15% (Correct answer)
- 20%
- 25%
Correct answer: 15%
Administrative wage garnishments for defaulted federal student loans are capped at 15% of disposable pay under the HEA.
Question 4: Under Title III of the CCPA, 'disposable earnings' is best defined as:
- Gross wages before any deductions
- Wages remaining after legally required deductions (Correct answer)
- Net pay after all voluntary deductions
- Total compensation including non-cash benefits
Correct answer: Wages remaining after legally required deductions
Disposable earnings are the portion of earnings left after legally required deductions such as federal, state, and local taxes, Social Security, Medicare, and state unemployment insurance.
Question 5: Which of the following deductions does NOT reduce gross wages to 'disposable earnings' for garnishment purposes?
- Federal income tax withholding
- Social Security tax
- Voluntary 401(k) contributions (Correct answer)
- State income tax withholding
Correct answer: Voluntary 401(k) contributions
Voluntary deductions such as 401(k) contributions, health insurance premiums elected by the employee, and union dues do not reduce gross pay for disposable earnings calculations.
Question 6: An employer receives a garnishment order on Monday for wages earned the prior week that have already been paid. What is the employer's obligation?
- Withhold retroactively from the next paycheck
- The order does not apply to already-paid wages; begin withholding from next pay period (Correct answer)
- Return the previously paid wages to the court
- Notify the IRS immediately
Correct answer: The order does not apply to already-paid wages; begin withholding from next pay period
Garnishment orders only apply prospectively to wages not yet paid; wages already disbursed cannot be recouped under the order.
Question 7: Which type of income is generally exempt from most creditor wage garnishments under federal law?
- Overtime pay
- Commission income
- Social Security benefit payments (Correct answer)
- Bonus payments
Correct answer: Social Security benefit payments
Social Security benefits are generally protected from ordinary creditor garnishments under federal law, though they may be subject to garnishment for child support, alimony, and federal tax debts.
CPM Wage Garnishment Compliance 3
For federal tax levies (IRS Form 668-W), how is the exempt amount from levy determined?