In the Disposable Income tab of a garnishment record, the application allows you to manually exclude earnings or deductions from the calculation of disposable income, which is the amount of the employee's pay that is subject to being garnished, depending on the jurisdiction and the type of garnishment.
In general, disposable income is Gross Wages less Taxes and Deductions required by law.
Taxes are excluded from disposable income automatically.
Background
The earnings and deductions that can be included in the calculation of disposable income depend on the jurisdictional rules and garnishment type. For state garnishments, the application uses the rules of the employee's primary work state, while for federal garnishments, the application uses the federal rules.
Depending on the jurisdiction and garnishment type, the application might not automatically exclude a specific earning or deduction from the disposable income calculation. In this case, you can exclude the earning or deduction manually from the Disposable Income tab of a garnishment record.
Overview of Excluded Earnings
When you exclude an earning, you decrease the employee's disposable income. The application prevents this amount from being used towards paying the garnishment.
For example, in the Disposable Income tab, you exclude a taxable benefit earning. If an employee is paid $1,000 in salary and receives $50 in this taxable benefit, the application only garnishes from the $1,000. If the garnishment is calculated as 10% of their gross pay, the application deducts $100 (10% of $1,000, not $105 or 10% of $1,050).
Overview of Excluded Deductions
When you exclude a deduction, you decrease the employee's disposable income. The amount of the deduction is no longer subject to being deducted for the garnishment (that is, there is less income to deduct from).
For example, an employee has a garnishment in place that allows a pre-tax deduction for health benefits to be excluded from disposable income. The garnishment is set to deduct 10% of the employee's disposable income.
In the current pay run, the employee has the following:
- $1,000 in regular earnings
- $181.39 in taxes
- A $120 pre-tax deduction for health benefits, which is excluded from disposable income for the garnishment calculation
- A $50 post-tax deduction, which isn’t excluded from disposable income for the garnishment calculation
The application calculates disposable income by subtracting taxes ($181.39) and the pre-tax deduction ($120) from gross earnings, to get $698.61. It then calculates 10% of 698.61, to get a garnishment deduction of $69.86.
In certain states, such as Pennsylvania, some deductions are automatically excluded from disposable income. In this case, these deductions will be excluded from the garnishment regardless of settings in the Disposable Income tab, without having to take further action. Note that when you open the Disposable Income tab, any deductions that are automatically excluded will appear in the list of available deductions rather than the excluded list; however, they will be excluded by default without having to manually move them to the excluded list.
Excluding Earnings and Deductions from Garnishment Calculations
In the Disposable Income tab, the Earnings list includes a list of your organization's US normal, taxable benefit, and reimbursement earning codes. The Deductions list includes deduction codes that are assigned to the employee's payroll elections (in the Payroll > Payroll Elections screen of People).
You can use the arrows to move earnings and deductions to the Excluded Earnings and Excluded Deductions list, respectively, as shown in the following screenshot: