Child Support & Garnishments
Managing your employee’s child support & garnishments can be a confusing feat, considering there are two aspects that you must think of: the bookkeeping side and the payroll side.As an employer, you’ve hired someone with child support or other wage garnishments. Now what? First, submit new employee paperwork and notify the state government where the work occurs.
The employer must submit the paperwork to the Department of Labor. Submitting the paperwork has multiple benefits for the economy, such as labor metric accuracy and the percentage of unemployment. The employer must submit information including name, address, SSN, date of hire or rehire, employer name, address, and FEIN.
The most important reason for ensuring a timely and prompt filing with the Department of Labor in the employer’s working state is the legal obligations set by the court for child support.
The Department of Labor will inform the employer via letter if the employee needs child support or has a wage garnishment order. As a side note, these other garnishments can include student loans, medical bills, tax levies, and federal wage garnishments. Garnishments can be federal state and local. What can and cannot be a wage garnishment vary depending from state to state. For example, South Carolina does not allow employers to garnish wages for delinquent credit cards, but other states may.
After the filing, the employer will receive a letter from the state government. This letter will explain the percentage that needs to be withheld and state the maximum amount the state should receive each month. The employer should not, for any reason, withhold any garnishments for the employee without that government official letter.
This warning works the other way, too. The employer should keep withholding the garnishments until they send a payoff letter. The employee should not communicate these changes to the business.
When firing an employee, the employer should quickly inform the state. Urgency helps avoid any issues with withholding that could affect the business. As an employer, I may think this is an employee problem. However, fines can occur if the employer is out of compliance.
Having an accountant or payroll specialist who can review the state letter will help clear up any confusion so the business can avoid any issues with compliance.
What happens if the employee does not pay child support? There are a variety of punishments for being found in contempt by the court. A mix of jail and fines could happen to the employee.
From an accounting standpoint, child support should never be on the P&L since it is not an expense for the business. If liability accounts are not set up, they would be included in the employee’s wages because the company holds onto those payments from the employee’s wages until they are paid to the appropriate state.
The preferred method would be to set up a liability account. When running payroll, the child support garnishment goes to the liability, increasing the balance. When the amount is paid to the state, it negates the withholding amount, leaving a zero balance in the liability.
When setting up the payroll mapping, especially with ADP, it is best to select “Garnishment”—child support-specific. This way, the accountant knows what is integrated into the books and can monitor the balances of garnishments. Child support is paid for each pay period, whereas many other garnishments, especially internal ones, are not. If child support is not labeled correctly, auditing what is happening in the liabilities will be more challenging.
A common misconception we, as accountants, run into is that businesses are used to automatic payroll tax payments by their payroll software. However, this is not the case for child support. If the company uses Gusto or QuickBooks Payroll, it must set up the payments in the state’s payment portal or whatever method the state recommends for paying garnishments. ADP does not automatically set up child support payments, but it is possible to set up and have ADP pay this garnishment for the business directly.
Most states will give you a child support order number so the employer can track their employees’ child support payments. Employers can use the child support order number to set up with the state’s online portal systems. The employees will stay in that portal until they leave the company.
Each state has different regulations and payment processes, so please reference the regulations and processes for the state where the employee works. If the business does not set up the payment promptly, the employer will receive penalties and fees for late submission.
Below are step-by-step instructions for setting up a child support garnishment in our three most popular payroll systems. Remember, this is NOT for paying the garnishment but for withholding it.
How to set up child support garnishment in QuickBooks:
- Hover over the Payroll tab on the left sidebar.
- Select Employees from the drop-down.
- Click on the employee’s name needing the garnishment.
- Scroll down to “Deductions and Contributions.”
- Click Start or Edit
- “Add garnishment”
- “Child/Spousal Support”
- A box will pop up on the right side. You can add the Description, Amount Requested, and Maximum percentage of disposable income.
- Save & Close
How to set up child support garnishment in Gusto:
- Go to the People section and select Team members
- Click on the employee’s name
- Click Add Garnishment or Custom Deduction
- Select garnishment as the deduction type
- Select Child Support as the garnishment type
- Enter the relevant information from the order, including the agency, county, and case number
- Enter the total amount to withhold
- Select the pay period
- Click Save & Continue
How to set up child support garnishment in ADP:
- Start with the Settings Gear
- Under payroll, there’s “Earnings and Deductions.”
- Click and Add Category of Garnishments and Deduction as Child Support
- Go to the People Tab
- Click on the employee’s name
- Click “Garnishments” in the lefthand sidebar under payroll
- Edit withholding information
- Select pay frequency
- Save & Close
ADP can also be set up to pay the agency automatically.
Overall, the importance of setting up garnishments correctly for employees who are required to have them by court order is evident. No one wants to deal with fines or penalties because of an accounting mistake or misunderstanding.
If you learn nothing else from this blog, remember not to deduct the garnishment from wages until you have clear government instructions. Follow up and pay the withheld amount to the proper state departments.
If you need additional help or have any questions, Waterford Business Solutions is happy to help. Feel free to call us at 864-351-0852 or email us at Info@WaterfordBusiness.com.