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What is Wage Assignment?

Wage assignments allow creditors to take money directly from an employee’s paycheck to pay off a debt. They are voluntary agreements between the employee and the creditor. Due to the fact that employees must sign documents authorizing a creditor to take money from their paycheck, wage assignments do not require court approval. These arrangements differ from wage garnishments, in which a creditor must go to court to obtain permission to collect part of a debtor’s wages. Moreover, the employee typically has the right to terminate the wage assignments, while one must go through a legal process to stop a wage garnishment. 

The United States often uses wage assignments to collect child support payments. Wage assignments may also be utilized to pay off other debts such as unpaid taxes or loans. 

Key Takeaways

  • A wage assignment is a voluntary agreement that allows creditors to collect money directly from an employee’s paycheck to repay a debt.
  • Wage garnishments are used to repay various debt obligations such as taxes, child support, or loans. 
  • State laws regulate the conditions and limitations for wage assignments. 

Wages Assignment Limitations

Wage assignments are not regulated by federal law and therefore are not required to follow the Federal Consumer Credit Protection Act. The laws concerning wage assignment vary from state to state. Following are a few examples of restrictions in various states:

  • Illinois does not allow wage assignments unless the debt has gone unpaid for at least 40 days.
  • In West Virginia, wage assignments are limited to 25% of an employee’s take-home earnings. 
  • Employers in Texas have no statutory obligation to honor voluntary wage assignments, but they may be required to do so under a contractual obligation.
  • New York does not allow wage assignments to exceed 10% of one’s gross income.
  • A spouse or domestic partner must also sign the wage assignment contract if the employee is married or has a domestic partner in Washington or Wisconsin.
  • Some states may require that the agreements be renewed annually and prohibit the assignments from lasting longer than three years. Additionally, various states allow wage assignments only when it is used to pay child support.

Bottom Line

Wage assignments are undoubtedly a complicated subject. As a matter of fact, plenty of people are not aware of the differences between wage assignments and wage garnishments. Also, although wage assignments are voluntary, employees are not always aware that they agreed to them. Wage assignment provisions may be hidden among the fine print in consumer contracts and loan documents, and employees may not learn about these clauses until it is too late. This is why it is essential to hire proper legal representation to review important contracts before signing them. A seasoned attorney will be able to help you handle these complex arrangements.

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