Sunday, March 16, 2014

An Error on Kentucky Wage Garnishment Form AOC-150

15 USC § 1673 places limits on the amount that can be withheld from a debtor's paycheck by way of a wage garnishment. See: What's the maximum amount of wage garnishment? There are different percentage limits depending upon the type of debt being collected, but in every case the statutory limits are applied to disposable earnings and not gross earnings. 15 U.S. Code § 1672(b) provides the following definition:
The term “disposable earnings” means that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld.  
Examples of legally required deductions are federal, state and local income or occupational taxes, the Medicare tax and Social Security contributions. Each of these are "required by law to be withheld." and ought to be excluded from the calculation. The Affidavit and Answer of Garnishee (Employer) portion of Kentucky's AOC form 150, Order of Wage Garnishment, includes instructions how the debtor's employer is to compute disposable earnings.

As you can see from this image scan of AOC-150, all the proper exclusions are provided for except the Medicare tax. 

Although I'm reluctant to say that this is wrong, it is clearly a mistake and it ought to be corrected.

The current tax rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. By not excluding the Medicare tax from a debtor's disposable earnings calculation, the amount of a wage garnishment is about 0.36% more than it would otherwise be. It's not a crippling amount.

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