How to File Taxes When Your Student Loan Is Being Garnished From Your Paycheck

by Chris Brantley
Up to 15 percent of your disposable income can be garnished.

Defaulting on your student loan can lead to wage garnishment without your consent, which can severely cut into your income. The garnishment, which is a percentage of your disposable income, is taken from your paycheck after taxes. You'll still use your gross pay, listed on your W-2, when filing and paying your income taxes. In a sense, it's just like making a voluntary student loan payment, as you do not receive any special tax deductions or credits for the amount garnished from your earnings.

Taxable Income

You file and pay taxes based on your taxable income, which is your gross income less applicable tax deductions, credits and allowances. Your wage garnishment does not affect your gross pay, but your net pay -- the amount left after tax withholding, FICA taxes and other paycheck deductions. When you get your W-2, the amount in box 1 is your gross pay. This is the amount you enter on line 7 of your 1040 or line 1 of the 1040EZ.

Deducting Student Loan Interest

You may still qualify for the student loan interest deduction if your loan is in default status. You should receive a form from your loan servicer documenting the total interest you paid on the loan for the tax year. If you meet the other requirements, like using the money only for eligible education expenses, you can take the deduction. You can also claim this deduction for other school loans not in default.

Tax Offsets

The Department of Education can seize your tax refund until your student loans are paid off. However, you must be notified in advance of the intent to offset any tax refunds. This notification also details your right to appeal the process if you think an error has been made. If you're married and the debt is yours alone, you may be able to stop your spouse's refund from being used for your defaulted loan.

Getting Back on Track

You can't discharge a federal student loan through Chapter 7 bankruptcy, but you may be able to set up a monthly payment plan -- less than the amount of your wage garnishment -- with a Chapter 13 bankruptcy filing. You can also attempt to rehabilitate the loan by making nine on-time payments over a 10-month period. Contact your loan holder to determine your eligibility for this option.

About the Author

Chris Brantley began writing professionally for a financial analysis firm in 1997. From 2000 to 2004, he worked as a financial advisor, specializing in retirement planning and earned his Series 7, Series 66 and insurance licenses. Brantley started his full-time writing career in 2012 and has written for a variety of financial websites, including insurance, real estate, loan and investment sites. He holds a Bachelor of Arts in English from the University of Georgia.

Photo Credits

  • Jupiterimages/Stockbyte/Getty Images