Garnishment- Federal Tax Levy

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Categories: Garnishments Author: Joan McAlister Editor: Derek Oberg Updated: April 7th, 2025 Intended Audiences: Human Resource Specialist Payroll Specialist

Introduction

This article is to instruct you how to add a Federal Tax Levy under Employee Management > Employee Pay > Garnishments.

Garnishments

Access the Garnishments screen by going to Employee Management > Employee Maintenance > Garnishments. Select the employee.


Make the following selections:

Garnishment Type: Select "Federal Tax Levy" from the drop-down menu.

Start Date: This field is optional. When used, the garnishment would start if the date entered here is less than or equal to the Period End Date of the payroll. If left blank, the garnishment will start with the next scheduled payroll.

Sequence Number: Garnishments are processed by the sequence number entered. A garnishment by law will determine the sequence. Please check with the agency if you are unsure of its priority. Child support always will have highest priority unless a Federal Tax levy is received prior to the child support. Therefore, if the Federal Tax Levy is received first, the sequence should be zero (0). If the Federal Tax Levy is received after a Child Support, the Child support should have a Sequence of zero (0) and the Federal Tax Levy should have a Sequence of one (1).

Description: Prints on reports and paychecks.

State: Not required for Federal Tax levies.

Payee


Client Payee: This drop-down includes all third parties set up under Client Management > Payroll > Third Parties when the third-party type is "Garnishment Payee." See the document "Third Party Payment" for details.

ACH Payee: This drop-down will include all Child Support payee's set up at the System-level.

Case Number: This field is used to enter a case number to print on the third-party check and as a reference.

FIPS Code: Not required for Federal Tax levies.

Medical Support Required: Not required for Federal Tax levies.

Garnishment Calculation

Percent: When selected, the Percent field is enabled. The percent of a Federal Tax levy is always 100%. Enter 100.

Percentage of: The default is Disposable Income. Leave the default since the Internal Revenue Service gives you the Take Home Pay after taxes and optional existing deductions per the court order.

Not to Exceed %: Always leave blank for Federal Tax levies.

Dependent Exemption: For any garnishments indicating an exemption for dependents, enter the exemption amount. The total amount calculated by the garnishment will be reduced by the exemption amount entered. Here is an example:

Per Pay Fee

Fee Amount: The Internal Revenue Service currently does not allow for an employer-based fee. Always check the court order for any changes.

Disposable Income

Deductions: All deductions set up at the company level will appear under Disposable income. Select any of the deductions already set up on that employee level deduction or benefit screen that the Court Order allows. By doing this, the Disposable income becomes:

 Gross minus taxes minus deductions selected

100% percent of that amount subtracted from the Minimum take home pay will be sent to the IRS as payment of the Federal Tax Levy garnishment

 

Minimum Take Home Pay

Per the instructions on the screen, enter zero (0) in the Override Multipliers field and the Minimum Take Home Pay from the court order or chart in IRS Publication 1494 obtained with the 668W.

Here is an example with a Minimum Take Home Pay of $765.19.


The employee's Net Pay will equal the amount entered in the minimum take home pay additional amount $765.19 + $50.00 dependent exemption amount equaling $815.19. The remaining net pay will appear as the Tax Levy Deduction amount:


Limits and Balances

The Court order received from the IRS (668W) will indicated the Tax Period and the total amount due based on the current amount. However, the IRS will continue to add interest to that amount until paid in full. Therefore, it is best not to enter the total amount due under limit since the system would stop the garnishment when the balance reached zero. Please wait until the Form 668D is received from the Internal Revenue Service before entering either a limit of zero (0) or an Expiration Date.

It is best to enter the Expiration Date when the 668D was received.

Here are the options under Limits & Balances:


Expiration Date: The garnishment will stop when it reaches the date entered.

Limit: The balance owed on a garnishment. The deduction will stop automatically when the system reaches zero.
Note: If both Expiration Date and Limit is entered, the deduction will stop at the one that is reached first.

Remaining Balance: This field is read-only, and only populated if there is a limit. The remaining balance calculation is (limit – taken) = remaining balance. If the limit amount is changed, the remaining balance will be changed after the payroll processes.

Arrears Balance: An arrears balance is accumulated if the entire period amount for the garnishment could not be withheld, the system will try to take the arrears balance in future payrolls if the employee has enough disposable income.

Update Arrears Balance: The amount entered in this field will update the current balance with the next payroll processed.

Annual Cap: When an amount is entered, the garnishment deduction will stop for the year when the YTD amount = Annual Cap is reached and then will resume in the following year. If the YTD garnishment goes below the Annual Cap at any time during the year, and the garnishment deduction has stopped, it would resume for the year (user increases the Annual Cap amount or a check is voided with a garnishment deduction).