Disposable Earnings

Disposable Earnings refer to the portion of an employee’s earnings remaining after legally required deductions (such as taxes and Social Security) are withheld, which can be used for wage garnishments or other court-ordered withholdings. Essentially, disposable earnings represent the net income available to an employee before voluntary deductions and are important in determining how much of a paycheck can be legally garnished.

This concept is especially relevant in debt collection, child support enforcement, and bankruptcy cases.

Key Facts

• Calculated by Subtracting Mandatory Deductions:
  
  • Federal, state, and local income taxes
  • Social Security and Medicare (FICA) taxes
  • Mandatory retirement contributions required by law
• Excludes Voluntary Deductions: Deductions like health insurance premiums, union dues, or retirement contributions are not subtracted when calculating disposable earnings.
• Used to Determine Garnishment Limits: Federal and state laws limit how much of an employee’s disposable earnings can be garnished to protect a minimum income level.
• Important for Wage Garnishments and Child Support: Garnishment orders often specify a percentage of disposable earnings that can be withheld.
• Calculated Per Pay Period: Disposable earnings are determined based on each individual paycheck rather than annual income.
• Regulated Under Federal Law: The Consumer Credit Protection Act (CCPA) limits garnishments to a maximum of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage, whichever is less.

1. What are disposable earnings?

Disposable earnings are your pay after all legally required deductions (like taxes) have been taken out, which can be used for things like wage garnishments.

2. How are disposable earnings different from net pay?

Disposable earnings exclude only mandatory deductions. Net pay subtracts both mandatory and voluntary deductions (like health insurance), so net pay is usually less than disposable earnings.

3. Why are disposable earnings important?

They determine the maximum amount that can be legally garnished from your paycheck by creditors or for child support.

4. How much of my disposable earnings can be garnished?

By federal law, up to 25% of disposable earnings or the amount exceeding 30 times the federal minimum wage per week - whichever is less.

5. What deductions are included when calculating disposable earnings?

Mandatory deductions like federal/state income tax, Social Security, Medicare, and other required withholdings are subtracted; voluntary deductions like health insurance are not.