Disposable Earnings

Disposable earnings refer to the portion of an employee's pay that remains after mandatory deductions, such as federal taxes, state taxes, Social Security, and Medicare, are subtracted from their gross wages.

How are disposable earnings calculated?

Start with gross pay and subtract only mandatory pre-tax deductions required by law. These include federal and state income taxes, FICA tax (Social Security and Medicare), state disability insurance (when applicable), and any existing garnishments. Voluntary deductions, such as 401(k) contributions, health insurance, or union dues, are not subtracted when calculating disposable earnings.

How do disposable earnings affect wage garnishments?

Wage garnishments are capped at the lesser of 25% of an employee’s disposable earnings or the amount by which their weekly disposable earnings exceed 30 times the federal minimum wage. For child support, garnishments can range from 50% to 60% of the individual's disposable earnings, depending on their specific circumstances. These limits are in place to protect employees from losing a significant portion of their essential income.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.