A non-wage garnishment is a way for creditors to collect unpaid debt balances from individuals who do not earn regular employment wages. People earn regular employment wages through regular pay, salaries, tips, bonuses and commissions. Income earned by self-employed individuals such as independent contractors does not count as regular wages.
A non-wage garnishment is when a creditor and state or federal agencies collect money from an individual through means other than garnishing their regular wages. Federal laws limit wage garnishments to 25 percent of an individual’s disposable income. With wage garnishments, federal laws limit the amount to 25 percent of an individual’s disposable income, but there are no such limits for non-wage garnishments. Laws only limit non-wage garnishments to the total amount of an individual’s unpaid debt plus any applicable fees such as penalties and accrued interest.
Creditors will typically file a Writ for Garnishment (Income Tax Refund/Credit) for a non-wage garnishment of an individual’s state income tax refund. Creditors have to file this writ within the individual’s state and usually file it in the county in which the person lives. Once a judge approves the writ, a state’s department of treasury will use the individual’s state income tax refund check to pay the garnishment order. The state’s treasury department refunds any money left after paying the garnishment back to the individual.
State Agency Debts
The state can garnish an individual’s state tax refund if he owes money to a state agency for things such as unpaid traffic tickets, court fines or state income taxes or if he is behind on his court-ordered child or spousal support payments. The state deducts the total amount owed for these debts from his tax refund check. If the state tax refund check exceeds the amount of his debt, the state will refund this amount to him.
Federal Tax Refunds
The IRS can use non-wage garnishments to collect on unpaid federal taxes. The U.S. Department of Education can also file a request for non-wage garnishment with the U.S. Department of Treasury’s Financial Management Services, or FMS, to collect on unpaid federally insured student loans such as Perkins or Stafford student loans. Creditors cannot garnish federal tax refunds. FMS pays federal tax refund garnishments in the order it receives the request or, in other words, on a first-come first-served basis.