Legal Definitions - disposable earnings

Disposable earnings refer to the portion of an individual's gross pay that remains after certain legally mandated deductions have been subtracted. These mandatory deductions typically include federal, state, and local income taxes, as well as Social Security and Medicare contributions (FICA taxes).

This remaining amount is what is legally considered available for purposes such as wage garnishment to satisfy debts like child support, student loans, or judgments from creditors. It is crucial to understand that voluntary deductions, such as contributions to a 401(k) retirement plan, health insurance premiums, or union dues, are generally not subtracted when calculating disposable earnings for these legal purposes.

• Example 1: Child Support Garnishment

  Scenario: Sarah owes child support, and a court has ordered her employer to garnish her wages.

  Illustration: Sarah's employer first calculates her gross weekly pay. From this, they subtract only the legally required deductions: federal income tax, state income tax, and FICA taxes (Social Security and Medicare). The amount remaining after only these mandatory deductions is her "disposable earnings." The child support payment will then be withheld from this disposable earnings amount, up to the maximum percentage allowed by law. Her voluntary deductions for health insurance and her 401(k) plan are not considered when determining this disposable earnings figure.

• Example 2: Student Loan Garnishment

  Scenario: David has defaulted on federal student loans, and the government has initiated an administrative wage garnishment.

  Illustration: David's employer will determine his gross bi-weekly pay. They will then subtract only the mandatory deductions, which include federal, state, and local income taxes, along with Social Security and Medicare taxes. The resulting sum is David's "disposable earnings." The government can then garnish a percentage of this amount, as permitted by federal law, to repay the student loan. David's voluntary contributions to a flexible spending account or his life insurance premiums are not deducted before calculating his disposable earnings for this garnishment.

• Example 3: Creditor Judgment Garnishment

  Scenario: Emily lost a lawsuit to a credit card company for an unpaid debt, and the court issued a judgment allowing the company to garnish her wages.

  Illustration: Emily's employer calculates her gross monthly salary. They then subtract only the legally required deductions: federal, state, and local income taxes, and FICA taxes. The remaining balance is Emily's "disposable earnings." The credit card company can then garnish a portion of this amount, subject to state and federal limits, to satisfy the debt. Emily's voluntary deductions for her gym membership payroll deduction or her company's employee stock purchase plan are not subtracted when determining her disposable earnings for this purpose.