In an earlier chapter, we touched on wage garnishment as a means for the FTB to collect unpaid taxes. However, the other side of the fence can be if you are an employer and are called upon by the FTB to garnish wages of any of your employees.
Although you’ll find yourself jumping through some hoops upon an EWOT notification for an employee, you can’t fire someone for the added paperwork unless you’re willing to risk a discrimination suit. Employers who violate the federal law on firing over a garnishment can be sued for reinstatement and back pay (Cal. Fam. Code § § 5235, 5241; Lab. Code § 2929). In some cases, you could even be criminally prosecuted.
As an employer, being served with an income withholding order can be a disconcerting experience. These orders can come from a variety of sources, but they are all legally binding and require careful handling. Understanding how these orders work, what your obligations are regarding them, and how to comply with them is very important.
Failing to do so can have severe consequences for you and your business.
As an employer, you may receive an income withholding order in relation to one of your employees. These are wage garnishments, where employers are required to withhold a portion of the employee’s income and pay that money to the issuing agency in order to repay an outstanding debt.
The debt may be in relation to child or spousal support, student loans or other existing debts. One common reason is to repay an unpaid tax debt and in this case, the order will be an Earnings Withholding Order for Taxes or EWOT.
This is issued under authorization of Sections 706.070 through 706.084 of the California Code of Civil Procedure to enforce payment of a tax liability currently due to the State of California. As with any court order, you must comply. It is illegal not to do so and you may be held personally liable for the debt.
Before taking any other action, read the document carefully to identify the issuing party. Notify all parties involved that you are in receipt of the order in the manner specified below.
If there are multiple withholding orders, determine the priority of the orders as outlined below. You will need to determine the amount to be withheld and make arrangements for payments to be made to the issuer.
You must complete the following actions within the mandated time period or be in contravention of the order:
EWOT payments are made in the amount of 25 percent of an employee’s disposable income.
Disposable income is calculated as follows:
If there is more than one withholding order issued, the priority is as follows:
If a higher priority order, such as a court ordered withholding order for child support or JWOT, is issued after an EWOT, it takes priority. The EWOT will then be calculated as the remainder of 25 percent of the disposable income, if any.
The total withheld cannot be more than 25 percent of the employee’s disposable income, so if the child/spousal support order exceeds that amount, the EWOT ceases to be in effect.
If a second EWOT is issued when a first EWOT is in effect, the first EWOT remains in effect and is not displaced. The second issuer should be notified that the first EWOT is in place and you are already withholding on that order. An EWO will be displaced by an issued EWOT.
If the employee’s disposable income falls under the specified minimum, then no monies should be withheld. If the disposable income is above the minimum but under a specified threshold, the money withheld will be the difference between those two amounts where that is less than 25 percent. The amounts are laid out on Page 6 of the EWOT.
Either you or your employee may have questions about this process. Below are the answers to some of the more commonly raised issues.
No. Your employee may apply to the issuing agency for a review of the EWOT, which will be determined on a case-by-case basis. If it is determined that your employee’s circumstances warrant an alteration in the EWOT, you will be notified in writing. Without that instruction, you are required to comply in the terms specified.
Code of Civil Procedure (CCP) section 706.153 states that if an employer is deferring or accelerating an employee's earnings in an attempt to defeat or diminish the CDTFA's rights under the EWOT, the CDTFA may bring civil action against the employer.
The CDTFA is authorized to hold a taxpayer's employer liable for earnings the employer withheld pursuant to an EWOT, but failed to remit to the CDTFA.
The taxpayer must provide substantiating evidence (e.g., payroll documentation) to the CDTFA identifying amounts withheld as the result of a wage garnishment that were not remitted to the CDTFA.
If they have left the company permanently, you should complete the Employer’s Acknowledgement, Page 2A, and return. If the employee is out on disability, leave of absence or for any other temporary reason, and is expected to return within 12 months, you should withhold the monies as directed once they return to work and resume receiving an income.
Yes. However, you should specify which amounts apply to each employee. The check should identify each employee’s SSN, name, tax year and amount.
You are legally obligated to continue the order until told otherwise by the issuing agency. If the employee believes that there has been a mistake, advise them to contact the issuing agency and request that the EWOT be terminated or changed.
Their case will be reviewed and if there is a change in your obligations you will be instructed by the issuing agency in writing.
All withholding payments should continue until either the full amount of the EWOT has been satisfied or a termination order is sent by the issuer of the EWOT.
If you receive a higher priority notice, contact the issuing agency to inform them and then adjust payments as outlined above.
While complying with an EWOT may cause some inconvenience to you as the employer, it is extremely important that you understand your obligations and comply.
Both state and federal law provide some protection to employees who have a withholding order, so please seek legal advice if you are considering terminating your employee on the grounds of the withholding order.
A Continuous Order To Withhold (COTW) is a legal order seizing funds from a miscellaneous payer and remains in effect for up to a year from the date the COTW was issued.
A COTW attaches rents, commissions or scheduled payments from a sale of property or any other type of asset where continuous multiple payments are made. COTW payers do not include funds held by a bank or escrow company.
A COTW attaches 100 percent of the available funds at the time they are received, but does not exceed the amount due on the order.
A COTW is valid until the amount on the order is withheld in full or the 12 months has expired. The total amount due includes the total tax, penalties, fees and interest to the date of the COTW. Applicable tax years are all tax years with liabilities receiving due process that are due and payable.
FTB staff may modify or withdraw an OTW/COTW to ensure the fair and reasonable collection of tax revenue and to assure funds are not over collected.
FTB staff may modify or withdraw an OTW/COTW for the following reasons:
FTB staff is required to thoroughly review and verify all supplied documentation prior to modifying the order.
When modifying or withdrawing an OTW/COTW, FTB staff must document the basis of the action, and cite all supporting documentation. FTB staff should fax a copy to the bank and follow up by sending the hard copy via first class mail.
Wage garnishments are fairly common. While the majority of them are for child support and student debt, tax levies also impact both employees and employers. In fact, one in 14 workers carries a wage garnishment and an estimated 12 percent of those with a garnishment have more than one type.
Compliance with federal and state wage garnishments are a necessary part of doing business for many employers. Lack of compliance can be expensive. My experience with the FTB and understanding how these orders work, as well as what the obligations of an employer are, could help you to avoid problems with the state. As an employer myself, I am well aware of my own responsibilities in this matter. If you need further assistance, please give my office a call to set up a consultation.
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