The federal minimum wage will rise from $5.15 per hour to $5.85 per hour. One lesser known effect of this will be to raise the amount of a paycheck that is exempt from garnishment under Indiana’s civil collections laws. Garnishments are governed by a formula that directs employers to deduct the mandatory amounts (Social Security, federal, and local taxes, essentially) and, from that deduct the lesser of:
A. The amount by which the result exceeds 30 times the federal minimum wage; or
B. 25% of the result.
So, if your net take home pay would be $400, the employer would figure “A” is $400 – (30*$5.15) which equals $245.50. “B” is .25*$400 or $100. Since $100 is less, that’s the deduction. On the other hand, if your take home is $200, then “A” is $200 – (30*$5.15) or $45.50 whereas “B” is .25*$200 or $50, making the deduction $45.50. Under the current minimum wage, basically, you choose “A” if your take home is $206 or less; and “B” if your take home is more.
The new minimum wage law increases the exempt amount from $154.50 to $175.50. If you make less than $175.50, then you’re essentially garnishment proof. If you make between $175.50 and $234, then the garnishable amount is the difference between your take home amount and $175.50. And, if you take home $234, your garnishable amount is going to be 25% of your take home.
This has been collection law math. You can wake up now.
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