Being served with an income withholding order can be a disconcerting experience as an employer. 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.
An introduction income withholding orders
As an employer, you may receive an income withholding order in relation to one of your employers. 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.
What to do if you receive an EWOT
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:
- Deliver Employee’s Copy Pages 1A, 1B and 3 to the employee within 10 days of receipt.
- Complete and return the Employer’s Acknowledgement, Page 2A and Page 2B (if applicable), within 15 days of receipt
- With each payment that you send, include a copy of Employer’s Copy Page 1A of the EWOT
- The first payment should be sent at the end of the next pay period, i.e., the one that occurs at least 15 days after receipt of the order
- Continue making payments until the balance of the EWOT is paid, you receive written instructions that the EWOT is withdrawn or you receive a higher-priority Earnings Withholding Order.
How to process an EWOT payment
EWOT payments are made in the amount of 25% of an employee’s disposable income. Disposable income is calculated as follows:
- Calculate your employee’s gross income. That includes the total amount of all wages, salary, commissions, bonuses and vacation pay.
- Subtract deductions that are required by law, like federal and state income tax, State Disability Insurance, Social Security and Medicare.
- Do not subtract payments to which the employee has agreed voluntarily, such as union dues, 401K contributions, health or life insurance contributions or charitable contributions. This also includes existing spousal or child support payments and any existing payments that the employee has agreed to make to creditors.
- The amount that remains is the employee’s disposable income. Each EWOT payment will be 25% of that amount unless the amount falls below the minimum which is specified on Page 6 of the EWOT.
- You may also deduct $1.50 from the employee’s pay for each EWOT payment as reimbursement for your time in making the payments.
Determining the priority of various withholding orders
If there is more than one withholding order issued, the priority is as follows:
- First Priority: Court ordered withholding orders for child or spousal support.
- Second: Jeopardy withholding order for taxes (JWOT)
- Third: Earnings withholding order for taxes (EWOT)
- Fourth: Earnings withholding order (EWO)
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% of the disposable income, if any. The total withheld cannot be more than 25% 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%. The amounts are laid out on Page 6 of the EWOT.
Frequently asked questions about Income Withholding Orders
Either you or your employee may have questions about this process. Below are the answers to some of the more commonly raised issues.
My employee claims that the payment will create a hardship. Can I adjust the payment?
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.
The employee has left the company.
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.
Can I send one check if multiple employees are being levied?
Yes. However, you should specify which amounts apply to each employee. The check should identify each employee’s SSN, name, tax year and amount.
My employee claims that the EWOT is in the wrong amount or that the order has been cancelled.
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.
When may I stop making payments?
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.