If you have been negligent on your financial obligations, it is possible that you be forced to repay your debts through wage garnishment. Wage garnishing is a common practice used to recoup unpaid taxes, child support and unsecured debt, such as credit cards. Although wage garnishment may dramatically influence your take-home pay, it is within the legal right of the Internal Revenue Service and other federal agencies to collect unpaid money in this manner.
If you have been subjected to wage garnishing, your employer can decide whether or not they choose to incorporate this information on the W-2 they give to you for tax purposes. That being said, any funds garnished from your paycheck will be reported on your recurring pay stubs, which makes it relatively easy to determine how much money is being removed from your paychecks on an annual basis in order to pay back the money you owe. Reporting this information accurately can help you claim a variety of W-2 deductions as well.
Although your employer is not required to report wage garnishments on your W-2. you can manually insert this information on Box 14 of the form.
Understanding Your W-2
On a fundamental level, a W-2 provides employers with the ability to clearly document the annual sum of wages paid to an employee and all of the taxes that have been withheld from their paychecks. This document is an integral part of a working individual's annual tax return, as it acts as proof of income and ensures that they receive the appropriate refund or tax bill.
Although your employer is not legally required to state the sum total of income that has been removed from your paychecks in order to comply with wage garnishment orders, you can add this information yourself to the W-2 in Box 14, labelled "Other Information." In order to do this, simply add up the amount of money garnished from each of your paychecks (which must be included on each pay stub) for the recent tax year. This sum total will be the amount you provide for Box 14. Understanding these wage garnishment codes will help you maximize the deductions you can claim.
Deducting Wage Garnishment
If your pay has been garnished in order to pay overdue bills, you can claim garnishment tax deductions on your annual return. This assumes, however, that the bills themselves would qualify as a deduction irrespective of the mandated garnishing. So, for example, if your wages are being garnished to pay back student loan debt, you would be able to deduct any and all interest on that debt that your garnished wages repaid. This garnishment tax deduction can be particularly helpful for individuals who have suffered financially from these garnishes and are seeking to recoup some of their losses.
If you suspect that your wages are being garnished beyond the legal limit, you should consult the latest federal guidelines concerning this process. As a rule, no more than 25 percent of your disposable income can be garnished, or the difference between your weekly wages and 30 times the minimum wage. The lower of these two calculations will be garnished.
- Turbotax: Federal Guidelines for Garnishment
- IRS: About Form W2
- U.S. Department of Labor. "Garnishment." Accessed Sept. 30, 2020.
- U.S. Department of Labor. "Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA)." Accessed Sept. 30, 2020.
- U.S. Department of Labor. "Minimum Wage." Accessed Sept. 30, 2020.
Ryan Cockerham is a nationally recognized author specializing in all things innovation, business and creativity. His work has served the business, nonprofit and political community. Ryan's work has been featured at Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.