A wage levy, sometimes referred to as a garnishment, is how the Minnesota Department of Revenue collects delinquent taxes from a debtor’s pay. After written notice to the taxpayer, the commissioner may notify the employer of the delinquency, and the employer must then withhold from compensation due or to become due each pay period until the commissioner releases the notice. Minn. Stat. § 270C.69, subd. 1.
The wage levy notice to an employer includes a disclosure form on which the employer calculates how much “additional withholding” will be taken from the debtor’s wages. The employer must file all wage levy disclosure forms and remit all wage levy payments by electronic means. Minn. Stat. § 270C.69, subd. 1(c).
A debtor’s wages may vary each payroll period which affects the amounts of the levy payments.
If the debtor is not currently earning wages because they are terminated, laid off or on a leave of absence, and the employer cannot comply with a wage levy, the Minnesota Department of Revenue will ask the employer to return an alternate disclosure form with information about the termination or layoff date, the debtor’s new employer, if known, and the debtor’s last known address and phone number.
If the employer does not respond to a levy or refuses to cooperate, the Minnesota Department of Revenue can hold the employer liable for the employee’s debt and add a penalty for failing to honor a levy.
As stipulated in Minn. Stat. §270C.69 subd. 2 and Minn. Stat. §571.927, an employer may not terminate or otherwise discipline an employee as a result of a wage levy. Title III of the federal Consumer Credit Protection Act also prohibits an employer from discharging an employee because his or her earnings have been subject to garnishment for any one debt, regardless of the number of levies made or proceedings brought to collect it. Title III does not, however, protect an employee from discharge if the employee’s earnings have been subject to garnishment for a second or subsequent debt.
Exemption Claim
Sent to the debtor with the Demand for Payment and Intent to Levy Wages letter is an Exemption Claim Form. The debtor uses it to claim the wage levy exemptions provided by Minn. Stat. §550.37 and In re Tomczyk, 295 B.R. 894 (Bankr. D. Minn. 2003), which treated the earned income credit and the Minnesota working family credit as exempt relief based on need under section 550.37, subdivision 14.
The Minnesota Department of Revenue is not allowed to issue a wage levy if it knows a debtor qualifies for an exemption.
Levy Reduction
Once the levy begins, it is too late to accept a debtor’s request to make voluntary payments to stop the levy. If the debtor demonstrates that the levy will cause significant financial hardship, the Minnesota Department of Revenue will consider a wage levy reduction. Any collector with authority to issue a wage levy also has authority to reduce the levy.
New Debts
After a wage levy begins, if the debtor has a new debt, the Minnesota Department of Revenue must give due process for the new debt while the wage levy continues. If the debtor does not pay the new debt in full, the Minnesota Department of Revenue will issue a new levy to the employer once the first levy is satisfied.
Levy Release
The department will release a wage levy when:
- The debtor is exempt from levy per Minn. Stat. §550.37 and In re Tomczyk, 295 B.R. 894 (Bankr. D. Minn. 2003).
- The debt is paid in full.
- If there is an adverse interest or a set off that prevents a payment to the Minnesota Department of Revenue.
- The debtor no longer works for the employer.
- The debtor files bankruptcy.
Adverse interests are other levies and/or garnishments against the debtor that reduce the amount that a wage levy can take. The maximum withholding for a pay period is decreased by amounts payable under a garnishment served before the notice of delinquency and by an irrevocable and previously effective assignment of wages. Minn. Stat. § 270C.69, subd. 1(b).
