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What Is Wage Assignment?

Definition and example of wage assignment, how wage assignment works, wage assignment vs. wage garnishment.

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A wage assignment is when creditors can take money directly from an employee’s paycheck to repay a debt.

Key Takeaways

• A wage assignment happens when money is taken from your paycheck by a creditor to repay a debt.
• Unlike a wage garnishment, a wage assignment can take place without a court order, and you have the right to cancel it at any time.
• Creditors can only take a portion of your earnings. The laws in your state will dictate how much of your take-home pay your lender can take.

A wage assignment is a voluntary agreement to let a lender take a portion of your paycheck each month to repay a debt. This process allows lenders to take a portion of your wages without taking you to court first.

Borrowers may agree to allow a lender to use wage assignments, for example, when they take out payday loans . The wage assignment can begin without a court order, although the laws about how much they can take from your paycheck vary by state.

For example, in West Virginia, wage assignments are only valid for one year and must be renewed annually. Creditors can only deduct up to 25% of an employee’s take-home pay, and the remaining 75% is exempt, including for an employee’s final paycheck.

If you agree to a wage assignment, that means you voluntarily agree to have money taken out of your paycheck each month to repay a debt.

State laws govern how soon a wage assignment can take place and how much of your paycheck a lender can take. For example, in Illinois, you must be at least 40 days behind on your loan payments before your lender can start a wage assignment. Under Illinois law, your creditor can only take up to 15% of your paycheck. The wage assignment is valid for up to three years after you signed the agreement.

Your creditor typically will send a Notice of Intent to Assign Wages by certified mail to you and your employer. From there, the creditor will send a demand letter to your employer with the total amount that’s in default.

You have the right to stop a wage assignment at any time, and you aren’t required to provide a reason why. If you don’t want the deduction, you can send your employer and creditor a written notice that you want to stop the wage assignment. You will still owe the money, but your lender must use other methods to collect the funds.

Research the laws in your state to see what percentage of your income your lender can take and for how long the agreement is valid.

Wage assignment and wage garnishment are often used interchangeably, but they aren’t the same thing. The main difference between the two is that wage assignments are voluntary while wage garnishments are involuntary. Here are some key differences:

Once you agree to a wage assignment, your lender can automatically take money from your paycheck. No court order is required first, but since the wage assignment is voluntary, you have the right to cancel it at any point.

Wage garnishments are the results of court orders, no matter whether you agree to them or not. If you want to reverse a wage garnishment, you typically have to go through a legal process to reverse the court judgment.

You can also stop many wage garnishments by filing for bankruptcy. And creditors aren’t usually allowed to garnish income from Social Security, disability, child support , or alimony. Ultimately, the laws in your state will dictate how much of your income you’re able to keep under a wage garnishment.

Creditors can’t garnish all of the money in your paycheck. Federal law limits the amount that can be garnished to 25% of the debtor’s disposable income. State laws may further limit how much of your income lenders can seize.

Illinois Legal Aid Online. “ Understanding Wage Assignment .” Accessed Feb. 8, 2022.

West Virginia Division of Labor. “ Wage Assignments / Authorized Payroll Deductions .” Accessed Feb. 8, 2022.

U.S. Department of Labor. “ Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA) .” Accessed Feb. 8, 2022.

Sacramento County Public Law Library. “ Exemptions from Enforcement of Judgments in California .” Accessed Feb. 8, 2022.

District Court of Maryland. “ Wage Garnishment .” Accessed Feb. 8, 2022.

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Wage Assignments and Garnishments: What Finance Leaders Need to Know

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Wage assignments and garnishments practices: Here are three things finance leaders must internally audit.

Wage assignments and wage garnishments are not the same. Each reflects a different process subject to different applicable laws. While there is always potential for a DOL Wage and Hour Division audit, financial leaders should internally audit their own processes to ensure compliance and efficiency while minimizing stress and anxiety for the employer and the employee. Here are three things to consider when conducting those audits.

1. Compliance

Wage assignments and wage garnishments differ in many ways. In fact, a wage assignment is not a garnishment. A wage assignment is a voluntary agreement between the employee and creditor where an amount is withheld from the employee's paycheck to satisfy a debt owed to a third-party recipient, whereas under a wage garnishment, the amount withheld from the employee's check is typically obtained through a court order initiated by the creditor.

Adding to the compliance challenge, there are several different types of wage garnishments, often with differing rules for each. For example, child support, bankruptcy and student loans are all types of wage garnishments. Wage garnishments for child support obligations are substantially governed by state law, which varies state to state, whereas garnishments for a bankruptcy plan are governed by federal law and garnishments for student loan debts are governed by either state or federal law, depending on the financing.

2. Efficiency

Businesses must be able to confirm when wage garnishments are initiated, when they cease and when more than one applies and in what order. This is what can make these withholdings complex — and messy. By having trackable systems in place, efficiency can be achievable.

3. Minimizing Stress and Anxiety

According to Workforce , wage garnishments can affect employee morale. Having wages withheld from paychecks may be a negative employee experience, especially when the employer has to get involved. For employers that are preparing audit-ready workplaces, these organizations face their own stress by potentially facing liability for noncompliance with respect to wage garnishment withholdings.

Having prudent processes in place may not only help with compliance and efficiency for the employer, but can also help alleviate stress for both the employee and the employer.

Learn about the ADP SmartCompliance® Wage Garnishment Module .

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What Is a Wage Assignment?

How wage assignment works.

• Why Are Wage Assignments Voluntary?

Wage Garnishment

The bottom line.

• Credit & Debt
• Debt Management

Wage Assignment: What It Means, How It Works

Wage assignment is the act of taking money directly from an employee's paycheck in order to pay back a debt obligation. Such an automatic withholding plan may be used to pay back a variety of debt obligations, including back taxes, defaulted student loan debt, and both child and spousal support payments.

Key Takeaways

• A wage assignment takes funds directly from an employee's paycheck to pay back a debt.
• How wage assignments are regulated varies by state, with some states even allowing for voluntary child support agreements.
• A wage garnishment is an involuntary deduction and requires a court order.

Wage assignments are typically incurred for debts that have gone unpaid for a prolonged period of time. Employees may sometimes opt for a voluntary wage assignment to pay for things like union dues or to contribute to a retirement fund.

A wage assignment is processed as part of an employer's payroll procedure. The employee's paycheck is decreased by the amount of the assignment and noted on their pay stub.

A wage assignment is often a lender's last resort to receive repayment from a borrower who has previously failed to pay a debt obligation.

Wage assignments are a valuable tool for collecting unpaid debts, but unfortunately, they may be associated with abusive lending practices . If you're struggling with your debt, one of the best debt relief companies or credit counseling agencies may be able to help you get back on track before a wage assignment is incurred.

What Makes Wage Assignments Voluntary?

In a voluntary wage assignment, a worker essentially asks their employer to withhold a portion of their paycheck and send it to a creditor to pay off a debt. Loan agreements may sometimes include a voluntary wage assignment clause in their terms should the borrower default on their loan.

Payday lenders often include voluntary wage assignments into their loan agreements to better their chances of being repaid. Laws regarding wage assignments vary by state.

For example, in West Virginia, wage assignments are capped at 25% of a worker's take-home earnings, the employee and the employer must sign the agreement, and agreements must be renewed annually. Under Illinois law, a lender cannot resort to wage assignment until a debt is 40 days in default. The wage assignment cannot continue for more than three years, and the worker can stop the wage assignment at any time.

Involuntary wage deductions, known as wage garnishments , require a court order and are most likely to be employed to collect spousal and child support payments that have been ordered by a court. Wage garnishments may also be used to collect unpaid court fines or student loans that have been defaulted on.

Several states allow individuals to sign up for voluntary child support agreements. In such a case, both parents must agree to a plan. Once that happens, a voluntary wage assignment may begin. If a child support or welfare agency is involved, they would have to approve any plan.

How Long Can I Have a Wage Assignment?

Since wage assignments are voluntary, the length of time that you use one can vary. Some loans include a wage assignment agreement, so you'll have to check the language of your loan to determine your obligation. Each state also has its own regulations regarding wage assignments.

How Much of My Income Can Go to Wage Assignments?

Every state has its own regulations, but typically 15–25% of your disposable income can be designated for wage assignments.

Is Wage Garnishment the Same as Wage Assignment?

While they are similar, wage garnishment and assignment are not the same. Wage garnishment is an involuntary paycheck deduction, typically ordered to repay child support, student loans, tax debt, or bankruptcy. A wage assignment is voluntary and may be used to repay a consumer debt.

Wage assignments may be a useful tool to help you pay down a debt. Wage assignments are voluntary but they may be hidden in the fine print of some loan products, so read everything carefully before signing. Check the regulations in your state to determine if your wage assignment is revocable.

West Virginia Division of Labor. " Wage Payment and Collection (WPC) Act: Payroll Deductions and Wage Assignments ," Page 3.

Illinois General Assembly. " (740 ILCS 170/) Illinois Wage Assignment Act ."

U.S. Department of Labor. " Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA) ."

Illinois Legal Aid. " Understanding Wage Assignment ."

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Wage Garnishment & Assignment: 4 must knows for employers

By Julie Farraj

Feb. 15, 2017

Proper management of wage garnishment can be especially crucial to growing businesses because as their hiring increases, they may also be inadvertently increasing their garnishment liability. That’s why it’s important for an employer to remember four things can help appropriately and accurately process wage garnishments while remaining compliant.

1. All garnishments are not the same.

Here’s a basic wage withholding definition: When an employee fails to repay a debt, a wage withholding court order can be issued against the employee’s earnings to satisfy that debt. This court order — also called a wage garnishment — requires the employer to withhold a portion of the employee’s wages and forward them to a third party. Wage garnishment orders also can be issued by government agencies such as the IRS, state tax agencies and the U.S. Department of Education.

Simple, right? A business receives an order about one of its employees and refers it to its payroll department to process by withholding the appropriate wages and forwarding it to the proper recipient.

There are six common types of wage garnishment. They are:

Child support garnishment comprises by far the highest volume of orders employers process, and, while some of the laws are very standardized, the law can vary by state.

Creditor garnishments are debts that occur when a person is delinquent on consumer payments (e.g. credit card debt). The creditor may take the debtor to court and seek a wage withholding order for the outstanding debt.

Bankruptcy orders . Based on research from the American Bankruptcy Institute , 97 percent of all bankruptcies are personal filings rather than business filings.

Student loans may be collected by the U.S. Department of Education, which may contract with collection agencies to enforce and collect the defaulted loans.

Tax levy garnishments can be issued at the federal, state or local level. Each state differs in its requirements and those laws may differ from federal levies.

Wage assignment occurs when an employee voluntarily agrees to have money withheld from his or her wages. Wage assignments are governed by state law and do not involve a court order. Since they are voluntary and the employee specifies the amount to withhold, they do not fall under the requirements of the Federal Consumer Credit Protection Act.

It’s important that employers keep in mind the type of debt owed, the party collecting it, and the laws applicable to that debt. Knowing which laws, rules, and regulations apply and keeping current on them when processing wage garnishments can be challenging for employers, and, if done incorrectly, may expose employers to various liabilities and penalties.

In addition, the six types of wage garnishments noted above are the most common wage garnishments; employers may receive other less common types of wage garnishments. It’s the employer’s responsibility to comply with and make sure all orders are processed in a timely manner and correctly whether or not they are familiar.

2. Wage garnishment can affect employee productivity and morale.

Most employers recognize that wage garnishment has a direct impact on employees. However, this impact can extend beyond their paychecks. Processing garnishments is not as straightforward as simply withholding wages from an employee’s paycheck and sending a payment. The process is far from simple and can be complicated by myriad emotions.

Employees often find it humiliating because the courts have intervened and employers have become involved in their private struggles.

Employees in this position may feel that they’re now working for the institutions to which they’re indebted rather than for themselves and their futures. Stress and anxiety are often natural extensions of the garnishment process.

An affected employee’s anxiety could show itself through decreased productivity or a lack of motivation. Employers can help affected employees and potentially decrease future garnishments by providing financial wellness training and counseling, as well as tax education, to help employees manage debt.

3. Wage garnishment can affect an employer’s finances and business efficiency.

Employees aren’t the only ones affected by wage garnishment. Employers expose themselves to financial and legal risk when they incorrectly garnish an employee’s wages, fail to file in a timely way, file a defective response, fail to follow specific requirements when sending payments, or make other missteps with a garnishment. Mishandling a garnishment can lead to a judgment against the employer for the entire amount of the employee’s debt, a lawsuit from the creditor or the employee, or other costs or penalties that the employer didn’t anticipate or budget for.

In the instance of garnishments for child support, employers could potentially feel the impact of laws designed to restrict travel. For instance, the Social Security Act was amended in 1997 with a sub-section that established the denial, revocation, or restriction of U.S. passports if the non-custodial parent has child support arrears of $2,500 or more. Additionally, some state agencies have the authority to deny or revoke drivers’ and professional licenses for past-due child support obligations .

If your business requires employees to travel internationally or employs drivers, these laws could impact an employee’s ability to do his or her job effectively and, by extension, impact the efficiency of your business.

Another current area of focus that could impact employers is in the creditor garnishment arena. Currently, the American Payroll Association is working with the Uniform Law Commission to establish a standardized processing for creditor garnishments through the Uniform Wage Garnishment Act, which proposes to standardize the wage-garnishment process for employers, employees and creditors. Currently, state laws differ significantly in their requirements regarding wage garnishment, from the beginning to the end of the garnishment, and are often outdated. This means businesses that operate in multiple states must identify and abide by these different legal requirements, which can potentially lead to processing errors, confusion, inefficiency and noncompliance.

Companies can help manage these challenges if they become familiar with garnishment laws and guidance from agencies such as the Federal Office of Child Support Enforcement, develop reliable and timely procedures for garnishment processing and ensure that policies are administered fairly for all employees facing a wage garnishment.

It may be useful to develop tools, resources and strong contacts with agencies, courts and garnishors. Staying close to these agencies may help your business remain aware of major changes to wage garnishment laws.

Consider participating in state and federally initiated pilot projects. These programs are valuable opportunities to positively build relationships, influence initiatives and provide needed feedback. Make sure you have established a way to monitor legislation that could affect garnishment processing.

Other steps an employer can take include participating with committees, attending conferences regarding wage withholding, and leveraging other contacts you’ve developed with the agencies, those imposing wage garnishments, or other employers.

4. Paper processing is the not the only option.

A study by the ADP Research Institute revealed that 7.2 percent of employees had wages garnished in 2013. Keeping pace with the proper and timely processing of wage garnishments is challenging for many businesses.

As wage garnishment volumes and laws intensify, garnishment processors have the option to use electronic funds transfer, or EFT, to save time, increase efficiency, streamline processes and potentially reduce costs.

Currently, virtually every child support state agency has the ability to accept child support payments via EFT, and some have even mandated employers to send payments electronically. Some tax levy agencies, trustees and student loan agencies also are implementing electronic payment capabilities. In addition to business efficiencies, EFT enables greater security of personally identifiable information, such as Social Security numbers.

Minnesota has passed legislation requiring employers to electronically file their response to a state tax garnishment summons with the state tax agency, and Wayne County Court in Michigan is piloting the option of electronic responses.

Electronic income withholding orders are already very popular. These enable states to electronically distribute income withholding orders and employers to electronically accept or reject them.

Clearly, wage garnishment can have a profound effect on the employee who is being garnished, as well as the employer who must implement the garnishment. It’s important for businesses of all sizes to understand the different types of wage garnishment, familiarize themselves with the laws governing them, and learn ways to accurately and efficiently process them.

Using best practices can help streamline an employer’s responsibilities and ease the potential anxiety an employee may feel with this sometimes-necessary workforce issue.

Julie Farraj is vice president of Garnishment Services for ADP Added Value Services. Comment below or email [email protected].

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What is a Wage Assignment?

A wage assignment is a deduction from an employee’s pay, which may be used to pay off debts, or to pay child or spousal support. Some loans stipulate to a wage assignment should they fail to make prompt payments to pay off the loan. In this case, if the loan is not repaid, money is deducted from an employee’s paycheck, either a specific sum or a percentage of earnings to collect debts owed.

There are two wage assignment types. One is voluntary, when an employee specifically asks his or her employer to deduct a portion of his/her wages to be paid to a designated third party. This is often easier for people than remembering to write important checks for loans or child support, or for things like payments of back taxes . The voluntary wage assignment tends not to reflect poorly on the employee, since it shows the employee is making a true effort to repay a loan or to honor financial obligations to others.

The second type of wage assignment is involuntary. It can also be called wage garnishment . This second type may occur when a person refuses to pay debts or agreed upon payments to a third party. Wage assignments of this second type may need to be honored by employers and may be requested by court order . Again, amounts can vary depending upon the financial obligations of the employee. Some wage assignments that are involuntary take a percentage of a paycheck, almost all of the paycheck, or a set amount. If an employee’s earnings increase or decrease, third parties may receive more or less money when the assignment is based on percentage.

If you do have to make a set payment, such as child support, creating a voluntary wage assignment is not a bad way to go. An involuntary assignment or garnishing of the paycheck suggests you may not be trustworthy or be able to live up to your obligations. It implies, even when this is not the case, that you have specifically resisted paying your debts, or worse, paying child support or spousal support. This can reflect on the employee’s character and might determine your future in a company.

Some individuals, if they have lots of debt, may have more than one wage assignment on a paycheck. Governments usually set a priority of which debts must be first addressed. If there is adequate money to cover all debt, the employee may still be able to make voluntary wage assignments, though some employers do charge for this extra service. When the assignment is involuntary, generally companies must comply with any mandated assignments, in the order in which the government determines. Where there is one income supporting a person, the wage assignment usually can’t remove all the money you make. Most assignments have to allow an employee to collect a subsistence income, unless that employee voluntarily assigns his/her wages in a different manner.

Tricia has a Literature degree from Sonoma State University and has been a frequent SmartCapitalMind contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

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Discussion Comments

Post your comments.

• By: Hedgehog Wage assignments may be used to pay child support directly from an individual's paycheck.
• By: joé Wage assignments are voluntary or involuntary deductions from one's paycheck.
• By: Africa Studio Court-ordered wage garnishment to settle a debt is an involuntary wage assignment.

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Assignment of Income Lawyers

(This may not be the same place you live)

  What Happens if you Assign your Income?

There are some instances when a person may choose to assign a portion of their income to another individual. You may be able to do this by asking your employer to send your paycheck directly to a third party.

It should be noted, however, that if you choose to assign your income to a third party, then this does not mean that you will be able to avoid paying taxes on that income. In other words, you will still be responsible for paying taxes on that income regardless of whether you decide to assign your income to a third party or not. This guideline is known as the “assignment of income doctrine.”

The primary purpose of the “assignment of income doctrine” is to ensure that a person does not simply assign their income to a third party to avoid having to pay taxes. If they do, then they can be charged and convicted of committing tax evasion .

One other important thing to bear in mind about income assignments is that they are often confused with the concept of wage garnishments. However, income or wage assignments are different from wage garnishments. In a situation that involves wage garnishment, a person’s paycheck is involuntarily withheld from them to pay off a debt like outstanding child support payments and is typically ordered by a court.

In contrast, an income or wage assignment is when a person voluntarily agrees to assign their income to someone else through a contract or a similar type of agreement.

How is Assigned Income Taxed?

Are there any exceptions, should i consult with an attorney.

As previously discussed, a taxpayer will still be required to pay taxes on any income that is assigned to a third party. The person who earns the income is the one who will be responsible for paying taxes on the income, not the person to whom it is assigned. The same rule applies to income that a person receives from property or assets.

For example, if a person earns money through a source of what is considered to be a passive stream of income, such as from stock dividends, the person who owns these assets will be the one responsible for paying taxes on the income they receive from it. The reason for this is because income is generally taxed to the person who owns any income-generating property under the law.

If a person chooses to give away their income-generating property and/or assets as a gift to a family member, then they will no longer be taxed on any income that is earned from those property or assets. This rule will be triggered the moment that the owner has given up their complete control and rights over the property in question.

In order to demonstrate how this might work, consider the following example:

• Instead, the person to whom the apartment building was transferred will now be liable for paying taxes on any income they receive from tenants paying rent to live in the building since they are the new owner.

There is one exception to the rule provided by the assignment of income doctrine and that is when income is assigned in a scenario that involves a principal-agent relationship . For example, if an agent receives income from a third-party that is intended to be paid to the principal, then this income is usually not taxable to the agent. Instead, it will be taxable to the principal in this relationship.

Briefly, an agent is a person who acts on behalf of another (i.e., the principal) in certain situations or in regard to specific transactions. On the other hand, a principal is someone who authorizes another person (i.e., the agent) to act on their behalf and represent their interests under particular circumstances.

For example, imagine a sales representative that is employed by a large corporation. When the sales representative sells the corporation’s product or service to a customer, they will receive money from the customer in exchange for that service or product. Although the sales representative is the one being paid in the transaction, the money actually belongs to the corporation. Thus, it is the corporation who would be liable for paying taxes on the income.

In other words, despite the fact that this income may appear to have been earned by the corporation’s agent (i.e., the sales representation in this scenario), the corporation (i.e., the principal) will still be taxed on the income since the sales representative is acting on behalf of the corporation to generate income for them.

One other exception that may apply here is known as a “kiddie tax.” A kiddie tax is unearned or investment-related income that belongs to a child, but must be paid by the earning child’s parent and at the tax rate assigned to adults (as opposed to children). This is also to help prevent parents from abusing the tax system by using their child’s lower tax rate to shift over assets or earned income and take advantage of their child’s lower tax bracket rate.

So, even though a parent has assigned money or assets to a child that could be considered their earned income, the money will still have to be paid by the parent and taxed at a rate that is reserved for adults. The child will not need to pay any taxes on this earned income until it reaches a certain amount.

In general, the tax rules that exist under the assignment of income doctrine can be confusing. There are several exceptions to these rules and many of them require knowing how to properly apply them to the specific facts of each individual case.

Therefore, if you have any questions about taxable income streams or are involved in a dispute over taxable income with the IRS, then it may be in your best interest to contact an accountant or a local tax attorney to provide further guidance on the matter. An experienced tax attorney can help you to avoid incurring extra tax penalties and can assist you in resolving your income tax issue in an efficient manner.

Your attorney will also be able to explain the situation and can recommend various options to settle the assignment of income issue or any related concerns. In addition, your attorney will be able to communicate with the IRS on your behalf and can provide legal representation if you need to appear in court.

Lastly, if you think you are not liable for paying taxes on income that has been assigned to you by someone else, then your lawyer can review the facts of your claim and can find out whether you may be able to avoid having to pay taxes on that income.

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Jaclyn started at LegalMatch in October 2019. Her role entails writing legal articles for the law library division, located on the LegalMatch website. Prior to joining LegalMatch, Jaclyn was a paralegal and freelance writer. After several years of working for both criminal defense and entertainment law firms, she enrolled in law school. While in law school, her law journal note was selected for first-round publishing, and can be found on various legal research databases. Jaclyn holds a J.D. from Benjamin N. Cardozo School of Law, specializing in both intellectual property law and data law; and a B.A. from Fordham University, majoring in both Journalism and the Classics (Latin). You can learn more about Jaclyn here. Read More

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Wage assignment and employers’ responsibilities

Tough economic times raise some tricky HR issues—for example, when an employee’s financial straits begin to affect his employer.

Must we honor a payday loan wage assignment?

Q. An employee borrowed money from a payday loan service at a very high interest rate that I feel is unfair. The payday loan service sent me a “wage assignment” notice and told me that our company must withhold money from his paychecks.  What is a wage assignment, and does our company actually have to honor it? A. A wage assignment is a document that allows a creditor to attach part of the employee’s wages if the employee fails to pay a specific debt. The creditor does not have to obtain a judgment in a court proceeding before requesting payment. Under the Illinois Wage Assignment Act (740 ILCS 170), private employers are obligated to honor a creditor’s properly served demand for a valid wage assignment, unless an employee presents a timely, valid , written defense to the wage assignment.

What constitutes a valid assignment?

Q. How can I tell if a wage assignment is valid? How long is it valid? A. A valid wage assignment document must have the words “Wage Assignment” printed or written in boldface letters of not less than ¼ inch in height at the head of the wage assignment and one inch above or below the line where the employee signs the assignment. The employee must have signed the document in person, and the document must show the date of execution, the employee’s Social Security number, the name of the employer at the time of execution, the amount of money loaned or the price of the articles sold or other consideration given, the rate of interest or time-price differential to be paid, if any, and the date on which such payments are due. A wage assignment is valid for no more than three years after the employee signs it and the employer’s name appears on it. If the employee changes jobs, the wage assignment is valid for two years, even though the new employer’s name does not appear on the assignment.

Handling wage assignments

Q. How does the wage assignment process start? A. Assuming that the wage assignment document complies with the formal requirements, the creditor must serve “demand to withhold” on the employer. The demand is valid only if:

The employee has defaulted on the debt secured by the assignment for more than 40 days, and the default has continued to the date of the demand.

The demand contains a correct statement of the amount the employee is in default, and the creditor provides an original or a photocopy of the assignment to the employer.

The creditor has served a “notice of intention to make the demand” upon the employee, with a copy to the employer, by registered or certified mail not less than 20 days before serving the demand.

Putting on the brakes

Q. Can an employee stop the wage assignment process? A. The employee does have a right to contest the demand. If an employee has a legal defense to the wage assignment, the employee may—within 20 days after receiving a notice of demand or within five days after the employer is served with the demand—notify the employer, in writing, of any defense to the wage assignment and send a copy of the written defense to the creditor by registered or certified mail.   As a result, the employee’s wages are not subject to a demand served by the creditor unless the employer receives a copy of a subsequent written agreement between the creditor and the employee authorizing such payments. Similarly, if the creditor receives a copy of the defense prior to serving its demand upon the employer, the creditor may not serve the demand upon the employer.  Whether the employee’s defense is legally valid is not an issue the employer must resolve. Instead, the employee and the creditor may attempt to reach another agreement or the creditor may simply bring a separate lawsuit against the employee to collect an outstanding debt. 

Calculating the wage assignment payment

Q. How much must the employer withhold—and when? A. The employer must begin payment to the creditor no sooner than five business days after service of such a demand.  The employer must withhold the lesser of:

15% of weekly gross wages

The amount by which the disposable earnings for a week (pay remaining after federal and state taxes, Social Security deductions and any other amounts required by law to be withheld, including required retirement contributions) exceed 45 times the federal minimum wage, unless a notice of defense is received within that five-day period.

The employer shall be paid a fee of $12 for each wage assignment. That $12 is credited against the debt.

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Table of Contents

Wage assignment.

A wage assignment is a voluntary agreement between an employee and a creditor, in which the employee authorizes their employer to deduct a specified amount from their wages to repay a debt owed to the creditor. This arrangement bypasses the need for wage garnishment, which requires a court order. Wage assignments are typically used for repaying loans, child support, or other financial obligations.

The phonetic pronunciation of the keyword “Wage Assignment” is:weɪʤ əˈsʌɪnmənt

Key Takeaways

• Wage Assignment is a voluntary agreement: Wage assignment occurs when a debtor agrees to a voluntary arrangement in which their employer dedicates a portion of their income to pay off the debtor’s outstanding debt. This allows the creditor to receive regular payments directly from the source of income without involving the debtor in the process.
• Wage Assignment is different from Wage Garnishment: While both terms involve the allocation of a debtor’s income towards outstanding debts, they differ in their implementation. Wage assignment is usually a voluntary process, while wage garnishment is a compulsory action taken by the court. In wage garnishment, the creditor has to obtain a legal order to collect the debt directly from the debtor’s employer.
• Revocability and Limitations of Wage Assignment: Depending on the jurisdiction, debtors might have the right to revoke a wage assignment at any time. Furthermore, certain limitations may be imposed on the amount assigned from wages—for instance, a percentage cap of the disposable income or a prohibition of assigning wages for specific categories of debts like child support or spousal support.

The term Wage Assignment holds significant importance in the realm of business and finance as it refers to a voluntary agreement between an employee and a creditor, in which the employee authorizes their employer to deduct a predetermined part of their salary to repay a debt. The importance of this arrangement stems from its ability to ensure that debts are responsibly and consistently managed, enabling an employee to pay off their financial obligations in a structured manner. Additionally, wage assignments also provide the creditors with a sense of assurance that they will indeed receive their outstanding payments, consequently enhancing the stability and predictability of financial transactions. Moreover, this safeguarded method of repaying loans can potentially improve the overall creditworthiness of an individual, providing access to more favorable loan terms and fostering a healthier financial ecosystem in the business and finance sectors.

Explanation

A wage assignment serves as a critical financial tool that enables individuals with outstanding debts to fulfill their monetary obligations by having a predetermined portion of their income allocated to pay off the debts directly. The purpose of wage assignment is to ensure that the debtor consistently makes scheduled payments towards their debt, facilitating a smooth repayment process while minimizing the possibility of default. This financial instrument proves to be useful not just for the debtor, who steadily works towards debt repayment, but also benefits the creditor, who receives regular payments without having to engage in more extreme debt collection practices.Wage assignment is also implemented in circumstances where individuals are required to make certain obligatory payments, such as child support or alimony, following a legal ruling. In such cases, a wage assignment ensures that the responsible party adheres to the mandated financial commitments. Moreover, it provides a sense of security to the recipients of these payments, as they can rely on a consistent source of financial support. Overall, wage assignment plays a crucial role in enabling debtors to fulfill their financial responsibilities in a more manageable, controlled manner, while sparing creditors from stressful and potentially costly debt recovery efforts.

A wage assignment is a voluntary agreement by an employee to transfer a portion of their future wages to a creditor in order to repay a debt. Here are three real-world examples related to wage assignments:1. Loan Repayment: John takes out a personal loan from a bank to cover an unexpected medical emergency. He agrees to a wage assignment, allowing the bank to directly deduct a specified portion of his bi-weekly paycheck until the loan is fully repaid.2. Child Support Wage Assignment: Jane, a divorced mother of two, has a court-ordered wage assignment in place to ensure her ex-spouse, Jim, regularly contributes to child support payments. Jim’s employer is legally obligated to withhold the assigned amount from his salary and send it directly to Jane or the designated child support agency.3. Payroll Advance Deduction: Sarah is struggling to manage her expenses and requests a payroll advance from her employer to cover immediate financial needs. Her employer agrees and she signs a wage assignment, permitting her employer to withhold the amount she borrowed from her future paychecks until the advance is repaid in full.

Frequently Asked Questions(FAQ)

A wage assignment is a voluntary agreement between an employee and a creditor in which the employee authorizes their employer to withhold a specific amount of their earnings and send it directly to the creditor to repay a debt.

Yes, a wage assignment is a legally binding agreement. Once authorized by the employee, the employer is required to comply with the terms of the agreement.

Wage Assignment is a voluntary agreement initiated by the employee or a request from the creditor, whereas Wage Garnishment is a mandatory, court-ordered process in which a creditor obtains a judgment against the debtor and then requires the debtor’s employer to withhold a portion of their wages until the debt is paid off.

Yes, most wage assignment agreements include a provision that allows the employee to revoke the agreement at any time. However, it is important to review the terms of your specific agreement and notify your employer in writing if you wish to revoke your wage assignment.

The amount that can be assigned depends on the terms agreed upon between the employee and the creditor. However, both federal and state laws typically impose limits on the percentage of an employee’s pay that can be assigned to ensure the employee has a reasonable amount of income left after the assignment.

There may be limitations on what types of debts qualify for wage assignment, depending on the laws and regulations in your jurisdiction. Generally, wage assignments are used to repay unsecured debts like credit card balances, personal loans, or medical bills.

The employer must be notified of the wage assignment, and they are legally required to comply with the terms of the agreement once authorized by the employee. It is not necessary for the employer to consent, but the employee must provide the employer with notice of the agreement.

A wage assignment in itself does not directly impact your credit score; however, it may be an indicator that you are experiencing financial difficulties, which can affect your credit in other ways. Repaying your debts through a wage assignment will generally help improve your credit score over time as the outstanding balance on the debt is reduced.

Related Finance Terms

• Garnishment
• Payroll Deduction
• Debt Repayment
• Voluntary Wage Assignment

Sources for More Information

• Investopedia: https://www.investopedia.com/terms/w/wageassignment.asp
• Corporate Finance Institute: https://corporatefinanceinstitute.com/resources/knowledge/other/wage-assignment/
• The Balance: https://www.thebalance.com/what-is-a-wage-assignment-462355
• NOLO: https://www.nolo.com/legal-encyclopedia/wage-assignment-creditors-applying-paycheck.html

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Wage Assignment Overview

Usually, a creditor has to go to court to take part of your wages. This is called wage garnishment .

However, if you signed a form agreeing to a wage assignment, a creditor can take your wages without first going to court. You may agree to a wage assignment when you sign a loan contract. This allows your creditor to have money deducted from your wages if you don't pay.

Starting a Wage Assignment

You must be at least 40 days behind on your loan before the creditor can have your employer start taking money out of your paycheck.

First, the creditor must mail you and your employer a Notice of Intent to Assign Wages 20 days before they can make the demand. The notice has to be sent to you by certified or registered mail. You should receive advance warning that money will be deducted from your wages.

The notice must follow a specific form and must include the following information:

• be sent to you and your employer;
• be sent by registered or certified mail;
• inform you the creditor will demand part of your wages from your employer in 20 days;
• include a copy of the wage assignment; 
• tell you how much you owe; 
• include your options to respond to the notice; and
• include a revocation notice form.

The creditor then must send a demand letter to your employer. The demand must contain the correct amount in default and include a copy of the assignment. If the notice or demand does not follow the requirements of the law, they have no legal effect.

If you do not revoke the wage assignment, then 20 days later (once the loan is 40 days past due), your employer will start paying a portion of your paycheck to the creditor to pay off your debt.

Day One: Loan is past due

Day 20: Creditor sends notice

Day 40: Wage assignment begins.

Amount of a Wage Assignment

The creditor may take from your paycheck whichever amount is less between the following two options:

• 15% of your total wages, salary, commission, and bonuses for any workweek; or
• The amount your take-home pay (after taxes and other withholdings) for a week is over $630 (which is 45 times the 2024 state minimum hourly wage ).

That means that you can only have a wage assignment if you take home over $630 per week.

Stopping a Wage Assignment

You can stop a wage assignment at any time for any reason. If you don't want the deduction to happen, write a letter to your employer and creditor stating you are canceling the wage assignment. Remember, you will still owe the money. The creditor can use other methods to collect it. That probably means a court case, which may end with an involuntary wage garnishment.

Length of a Wage Assignment

A wage assignment is good for 3 years from the date you signed the wage assignment. But, if you changed jobs after you signed the wage assignment, the wage assignment is only good for 2 years from the date you signed the wage assignment.   If a creditor tries to collect money from your paycheck after the time period expires, you should talk to a lawyer. You might be able to sue the creditor in court.

Note : Child support and student loans can also result in garnishments without a court case.

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Salary Calculator

The Salary Calculator converts salary amounts to their corresponding values based on payment frequency. Examples of payment frequencies include biweekly, semi-monthly, or monthly payments. Results include unadjusted figures and adjusted figures that account for vacation days and holidays per year.

This salary calculator assumes the hourly and daily salary inputs to be unadjusted values. All other pay frequency inputs are assumed to be holidays and vacation days adjusted values. This calculator also assumes 52 working weeks or 260 weekdays per year in its calculations. The unadjusted results ignore the holidays and paid vacation days.

Related Take Home Pay Calculator | Income Tax Calculator

A salary or wage is the payment from an employer to a worker for the time and works contributed. To protect workers, many countries enforce minimum wages set by either central or local governments. Also, unions may be formed in order to set standards in certain companies or industries.

A salary is normally paid on a regular basis, and the amount normally does not fluctuate based on the quality or quantity of work performed. An employee's salary is commonly defined as an annual figure in an employment contract that is signed upon hiring. Salary can sometimes be accompanied by additional compensation such as goods or services.

There are several technical differences between the terms "wage" and "salary." For starters, while the word "salary" is best associated with employee compensation on an annual basis, the word "wage" is best associated with employee compensation based on the number of hours worked multiplied by an hourly rate of pay. Also, wage-earners tend to be non-exempt, which means they are subject to overtime wage regulations set by the government to protect workers. In the U.S., these regulations are part of the Fair Labor Standards Act (FLSA). Non-exempt employees often receive 1.5 times their pay for any hours they work after surpassing 40 hours a week, also known as overtime pay, and sometimes double (and less commonly triple) their pay if they work on holidays. Salaried employees generally do not receive such benefits; if they work over 40 hours a week or on holiday, they will not be directly financially compensated for doing so. Generally speaking, wage-earners tend to earn less than salaried employees. For instance, a barista that works in a cafe may earn a "wage," while a professional that works in an office setting may earn a "salary." As a result, salaried positions often have a higher perceived status in society.

Most salaries and wages are paid periodically, typically monthly, semi-monthly, bi-weekly, weekly, etc. Although it is called a Salary Calculator, wage-earners may still use the calculator to convert amounts.

Miscellaneous Employee Benefits

While salary and wages are important, not all financial benefits from employment come in the form of a paycheck. Salaried employees, and to a lesser extent, wage-earners, typically have other benefits, such as employer-contributed healthcare insurance, payroll taxes (half of the Social Security and Medicare tax in the U.S.) that go towards old age and disability, unemployment tax, employer-contributed retirement plans, paid holiday/vacation days, bonuses, company discounts, and more. Part-time employees are less likely to have these benefits.

Miscellaneous employee benefits can be worth a significant amount in terms of monetary value. As such, it is important to consider these benefits as well as the base wage or salary offered when choosing between jobs.

Self-employed Contractors

Self-employed contractors (freelancers who sell their goods and services as sole proprietorships) typically provide their own rates, which can be hourly, daily, or weekly, etc. Also, contractors generally do not have benefits such as paid time off, cheaper health insurance, or any other monetary perks typically associated with full-time employment. As a result, their pay rates should generally be higher (sometimes significantly so) than the salaries of equivalent full-time positions. Nevertheless, rates in the real world are driven by many factors, and it is not rare to see contractors take lower compensation.

How Unadjusted and Adjusted Salaries are calculated?

Using a $30 hourly rate, an average of eight hours worked each day, and 260 working days a year (52 weeks multiplied by 5 working days a week), the annual unadjusted salary can be calculated as:

$30 × 8 × (260) = $62,400

As can be seen, the hourly rate is multiplied by the number of working days a year (unadjusted) and subsequently multiplied by the number of hours in a working day. The adjusted annual salary can be calculated as:

$30 × 8 × (260 - 25) = $56,400

Using 10 holidays and 15 paid vacation days a year, subtract these non-working days from the total number of working days a year.

All bi-weekly, semi-monthly, monthly, and quarterly figures are derived from these annual calculations. It is important to make the distinction between bi-weekly, which happens every two weeks, and semi-monthly, which occurs twice per month, usually on the fifteenth and final day of the month.

Different Pay Frequencies

The calculator contains options to select from a number of periods normally used to express salary amounts, but actual pay frequencies as mandated by varying countries, states, industries, and companies can differ. In the U.S., there is no federal law that mandates pay frequency, except one stating that employees must be paid in routine and predictable manners. Mandatory consistent payments give employees a lot of stability and flexibility. However, at the state level, most states have minimum pay frequency requirements except for Alabama, Florida, and South Carolina. For further details, consult state regulations regarding pay frequency.

The most common pay period frequencies tend to be monthly, semi-monthly (twice a month), bi-weekly (every two weeks), weekly, and daily. They are explained in the following chart.

U.S. Salary Information

In the U.S., salaried employees are also often known as exempt employees, according to the Fair Labor Standards Act (FLSA). This means that they are exempt from minimum wage, overtime regulations, and certain rights and protections that are normally only granted to non-exempt employees. To be considered exempt in the U.S., employees must make at least $684 per week (or $35,568 annually), receive a salary, and perform job responsibilities as defined by the FLSA. Certain jobs are specifically excluded from FLSA regulations, including many agricultural workers and truck drivers, but the majority of workers will be classified as either exempt or non-exempt.

The federal minimum wage rate is $7.25 an hour. However, states may have their own minimum wage rates that override the federal rate, as long as it is higher. For instance, the District of Columbia (DC) has the highest rate of all states at $17.50 and will use that figure for wage-earners in that jurisdiction instead of the federal rate. On the other hand, Georgia has their minimum wage rate set at $5.15, but the $7.25 federal minimum rate overrides it.

Factors that Influence Salary (and Wage) in the U.S. (Most Statistics are from the U.S. Bureau of Labor in 2023)

In the third quarter of 2023, the average salary of a full-time employee in the U.S. is $1,118 per week, which comes out to $58,136 per year. While this is an average, keep in mind that it will vary according to many different factors. The following are only generalizations and are not true for everyone, especially in regards to race, ethnicity, and gender.

• Age —A person closer to their peak income years, which is 40-55, will generally have higher salaries. Men aged 45 to 54 had the highest annual earnings at $73,008, and women earned the most between the ages of 45 and 54 at $58,448.
• Education —The higher the attained level of education of a person, the higher their salary tends to be. Workers 25 or over without a high school degree had median earnings of $37,492 compared to $47,060 for high school graduates. Workers with at least bachelor's degrees earned $84,240 annually on average.
• Experience —In general, the further entrenched a person is in their career, the more experience or perceived ability they have, or the more valuable their skillset, the higher their salary tends to be.
• Race and Ethnicity —Black men earned a median salary of $50,336, compared to white men at $64,012. The discrepancy is less for black women compared to white women: $46,072 and $53,092. Hispanic and Asian people of both genders earned $46,020 and $75,088, respectively.
• Gender —Men earned an average salary of $62,816, and women earned $52,260. Women are generally paid less than men, and this difference is called the gender pay gap. There are many reasons that this pay gap exists, including discrimination, the specific industry, motherhood, and gender roles.
• Industry —Industry affects wages paid, even in similar roles. For instance, all else being equal, an office clerk at a public school system will most likely make a lower salary than one at a private hedge fund. This also includes the relative stability of industries and companies and their forecasted trends.
• Location —Different locations will have different supplies and demands for positions, and average salaries in each area will reflect this. Keep in mind that the cost of living should be noted when comparing salaries. In some cases, a job that offers a higher salary may equate to less overall once the cost of living of a different location is accounted for.
• Misc. —To a lesser extent, salary is also influenced by the overall performance of companies; during years of high profits, a company may choose to pay a higher than average salary for a job applicant with excellent credentials. Also, in certain jobs, workers are expected to perform job responsibilities in dangerous working conditions, such as handling dangerous chemicals in a research facility, working in an underground mine with the presence of potential toxins, or patrolling a notoriously dangerous part of town as a police officer. Such jobs can be compensated with a higher salary in the form of hazard pay. Similarly, people who work less favorable shift hours, such as the "graveyard shift," which runs through the early hours of the morning, can sometimes earn a premium for doing so, due to the higher social and physical costs of working outside normal hours.

The 11 Annual Federal Holidays in the U.S.

Although there are 11 federal holidays in the U.S., companies typically allow time off for 6 to 11 holidays. Generally, only employees who work in a branch of the federal government benefit from all federal holidays. Employees that work for private employers are subject to the policy of their employer. Also, unless stated in a contract or collective bargaining agreement, an employer is not obligated to pay an employee anything extra such as overtime for working on a federal holiday.

Other countries have a varying number of public holidays. Cambodia has the most days in a year in the world set aside to be non-working days, as established by law, at 28, followed by Sri Lanka at 25. Remember to adjust the "Holidays per Year" input to calculate a correct adjusted result.

Vacation Days, or Paid Time Off (PTO)

Traditionally in the U.S., vacation days were distinctly separate from holidays, sick leaves, and personal days. Today, it is more common to have them all integrated together into a system called paid time off (PTO). PTO provides a pool of days that an employee can use for personal leave, sick leave, or vacation days. Most importantly, the reasons for taking time off do not have to be distinguished. There's no need to fumble over whether to designate an absence as sick or personal leave, or to have to ask the manager to use a vacation day as a sick day. There are, however, some downsides to having them combined. For instance, if an employee gets very sick for a week and has to take five days off, their total pool of PTO will be reduced by the five days absent, which may force them to reconsider the week-long vacation they had originally planned.

In the U.S., the Fair Labor Standards Act (FLSA) does not require employers to give their employees any vacation time off, paid or unpaid. Therefore, when interviewing and deciding between jobs, it may be wise to ask about the PTO policy of each potential employer. With that said, the average American gets around 10 days of PTO a year; the bottom 25% of wage earners only get an average of four paid vacation days a year. Most companies tend to institute a policy that increases the amount of PTO an employee gets every several years or so as an incentive to retain workers.

Most employers (over 75%) tend to provide vacation days or PTO for many beneficial reasons. They can help prevent employee burnout, maintain employee morale, or be used for any reasonable situations where leave is necessary, such as medical emergencies, family needs, and of course, actual vacations. As an aside, European countries mandate that employers offer at least 20 days a year of vacation, while some European Union countries go as far as 25 or 30 days. Some other developed countries around the world have vacation time of up to four to six weeks a year, or even more.

How to Increase Salary

There are very few people in the world who wouldn't welcome a higher salary, and there are a myriad of ways in which a person can try to do so. While it is definitely easier said than done, it is certainly possible.

• Education —Statistics have shown that the higher the level of education a person attains, the higher their average lifetime earnings. However, becoming more educated for a higher salary does not imply that everyone should immediately go out and receive a higher degree. Proof of knowledge can come in many other different forms. For one, qualifications or certifications are a less time-consuming and financially significant undertaking that can still result in a salary increase. Simply increasing relevant knowledge or expertise that pertains to a niche profession or industry can increase salary. This may involve staying up-to-date on current events within the niche by attending relevant conferences or spending leisure time reading on the subject.
• Experience —The more experience a person has within any niche industry or profession, the more likely their salary will increase over the years, given that they stay within the industry. This may be due to several reasons; for one, it shows that a person has enough interest in the industry to stay within it long-term. Secondly, by lasting within the industry long enough, there is sufficient proof that they are probably somewhat skilled. Employers see these as good signs and are more willing to increase a worker's salary.
• Network —For many niche professions or industries, there are professional organizations or trade associations that help their members network. These organizations try to connect their members with other members who may share the same profession and goals, or work in the same industry, which can potentially lead to job opportunities that can improve the salary.
• Performance Reviews —Most employers give out annual performance reviews to their employees. Most performance reviews usually involve a conversation between manager and employee regarding the past year and how the employee performed, the direction of the employee's role moving forward, including any new responsibilities they may have, and constructive criticism on what they could do better, among other things. Annual reviews that are, for the most part, positive are generally followed by an annual pay raise. If no raise is given, even after a glowing review, it may be in the employee's best interest to ask for a salary increase or begin considering other employment options.
• Negotiate —If a performance review was mostly positive, but no mention of a pay raise is made, it may be worth considering approaching the employer to attempt to negotiate a pay raise. Highlight achievements, particularly those that may have been mentioned in a performance review, such as meeting or exceeding certain sales goals, taking on a number of new job responsibilities, or anything valuable that was contributed to the employer that might warrant a raise. When starting a new job, it is also important to negotiate a higher salary, if possible.
• Change jobs —People that are stuck in a career they dislike with no salary increase and who have exhausted all other options to try to increase their salary may want to consider changing jobs. It is fairly common for some people to have a 10% or more increase in salary from doing so.

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What is a wage assignment?

Generally, a wage assignment is a court order directing the employer to take money out of the employee’s paycheck. The law allows local child support agencies to use a federal form called an Income Withholding Order/Notice for Support (IWO) that does not require a judicial officer's signature.

Why must an employer deduct child support payments from an employee’s paycheck?

When should an employer begin deducting child support payments out of an employee’s paycheck.

What is “Assignment of Income” Under the Tax Law?

Gross income is taxed to the individual who earns it or to owner of property that generates the income. Under the so-called “assignment of income doctrine,” a taxpayer may not avoid tax by assigning the right to income to another.

Specifically, the assignment of income doctrine holds that a taxpayer who earns income from services that the taxpayer performs or property that the taxpayer owns generally cannot avoid liability for tax on that income by assigning it to another person or entity. The doctrine is frequently applied to assignments to creditors, controlled entities, family trusts and charities.

A taxpayer cannot, for tax purposes, assign income that has already accrued from property the taxpayer owns. This aspect of the assignment of income doctrine is often applied to interest, dividends, rents, royalties, and trust income. And, under the same rationale, an assignment of an interest in a lottery ticket is effective only if it occurs before the ticket is ascertained to be a winning ticket.

However, a taxpayer can shift liability for capital gains on property not yet sold by making a bona fide gift of the underlying property. In that case, the donee of a gift of securities takes the “carryover” basis of the donor.  

For example, shares now valued at $50 gifted to a donee in which the donor has a tax basis of $10, would yield a taxable gain to the donee of its eventual sale price less the $10 carryover basis. The donor escapes income tax on any of the appreciation.

For guidance on this issue, please contact our professionals at 315.242.1120 or [email protected] .

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New Overtime Rule Raises Salary Level in Two Phases

The U.S. Department of Labor’s (DOL’s) two-part approach to implementing its new overtime rule —establishing one raise of the salary-threshold level on July 1 and another on Jan. 1, 2025—gives employers options for adjusting the pay of their exempt employees.

Effective July 1, the Fair Labor Standards Act’s (FLSA’s) annual salary-level threshold for white-collar exemptions to overtime requirements will increase from $35,568 to $43,888. As of Jan. 1, 2025, the annual salary threshold will rise to $58,656.

The final rule, which will affect millions of workers, is, as of 2025, an increase of nearly 65 percent. “It’s a very big jump,” said Natalie Bare, an attorney with Duane Morris in Philadelphia.

“Although SHRM and its membership support reasonable increases to the EAP [executive, administrative and professional] salary threshold that reflect the modern economy, the nearly 65 percent increase from the current level may not be in line with local wage rates for employees holding administrative, professional, and executive positions in some areas of the country,” said Emily M. Dickens, SHRM chief of staff, head of government affairs and corporate secretary, in a statement . “For this reason, SHRM advocated for a more nuanced, geographically tailored approach to any increase in the EAP salary threshold. 

[Related Resource: SHRM Annual Conference & Expo 2024 concurrent session  “Wage and Hour Compliance: A DOL Update and Ways to Avoid Common FLSA Overtime Liability Landmines” ]

Two-Part Approach

On one hand, the two-part approach gives employers the opportunity to avoid having to implement the entire jump in salary level in a short period, Bare said. On the other hand, many employers won’t want to go through this process twice for the same employees, so practicalities may call for addressing both updates at the same time, she added.

“The optics of two smaller gradual increases may appear more reasonable than a single larger increase, but I don’t think this will soften the impact to businesses who are already looking ahead to Jan. 1,” said Jeff Ruzal, an attorney with Epstein Becker Green in New York City.

Automatic Adjustment

In addition, the final rule includes a three-year automatic adjustment mechanism for updating the salary threshold.

In public comments submitted to the DOL on Nov. 7, 2023, SHRM said it supports regular and reasonable increases to the overtime salary threshold but opposes automatic increases.

“SHRM supports regular and reasonable increases to the salary threshold to ensure certainty for budgeting, as well as attraction and retention of EAP employees. However, SHRM believes that any future adjustment should follow a notice-and-comment period and a comprehensive analysis of worker earnings and economic trends,” Dickens said in the statement in response to the final rule. “SHRM urges that any future increases as contemplated in the regulation be reviewed before a final proposal is presented and that any such increase be subject to notice and comment to ensure that it includes considerations of the current economic landscape and other relevant labor and business factors.”

Who Is Affected

Workers who fall under the FLSA’s “white-collar” executive, administrative and professional exemptions are not eligible for overtime pay. To qualify for white-collar exemptions, employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1.5 times their regular hourly rate for hours worked in excess of 40 in a workweek.

[ Questions about the new rule? SHRM members can contact SHRM’s HR Knowledge Advisors to learn more.]

In a news release , the DOL said its final rule would expand overtime protections “to lower-paid salaried workers.” The opportunity to be paid overtime could be meaningful for some workers.

A veteran and widow in Arizona who identified herself only as Y. Hernandez and who earns $50,000 a year told WorkMoney, a nonprofit organization advocating higher incomes for all workers, “I advocated for this change because I believe in the principle of hard work. My husband and I were both Marine Corps veterans. Since he died in 2020, I’ve had to work harder than ever to survive. As a salaried support supervisor, I work an average of 45 to 48 hours every week, even though I’m only paid for 40 hours. I am constantly overwhelmed with the thought of how I would pay my bills. Now that I’ll be fairly compensated for my time, I can finally relax a little and not be so stressed about how I would afford utilities, rent, car payments and food.”

However, House Education and the Workforce Committee Chairwoman Virginia Foxx, R-N.C., said the overtime rule “is a bad deal for American employers and workers. This administration thinks it’s a good idea to dust off an Obama-era proposal that was scuttled in court and pitch it as a win for the workforce. The reality is employers—including nonprofits and colleges—are staring down the barrel of billions in annual costs to comply with the rule. At the same time, many salaried workers will be forced into hourly positions—undermining their financial security and putting benefits and workplace flexibility at risk.”

The raised salary-level thresholds may particularly burden small businesses, forcing some to choose between cutting jobs and raising prices, said Ted Hollis, an attorney with Quarles & Brady in Indianapolis.

“Some businesses that cannot do either may be forced to close, resulting in unintended but predictable side effects of this government action,” he said.

Proceed Cautiously

“In light of the near-certainty that the final rule will be challenged in court, and in light of the successful challenge in 2016, in my view, employers should start preparing their plans now for how to comply,” said Brett Coburn, an attorney with Alston & Bird in Atlanta. “But they should proceed with caution in terms of actual rollout or implementation, and they should prepare for uncertainty.”

The starting point to comply should be to look at the exempt employees whose salaries fall between the current salary threshold ($35,568) and the proposed new thresholds, he said. For each of those employees, employers should decide whether to increase their salary to keep them exempt or convert them to nonexempt, he said.

Approximately 1 million exempt workers are between the new $43,888 salary threshold level ($844 a week) and the current $35,568 threshold ($684 per week), said Keith Kopplin, an attorney with Ogletree Deakins in Milwaukee, citing DOL estimates. Another 3 million earn at least $43,888 annually but less than $58,656 ($1,128 per week).

Coburn said employers will need to:

• Budget for increases in salary and overtime expenses.
• Plan for how to roll out reclassification decisions. This will include training reclassified employees on timekeeping requirements and rules against off-the-clock work and managing employee relations concerns that employees might raise if they are upset about losing their salaried status.
• Decide, given the interim and 2025 salary-level thresholds, whether employers will accomplish this in two steps or jump straight to the 2025 threshold.

Employers might use the rule as an opportunity to take a fresh look at their exemption determinations, Coburn said. The rule “might provide some amount of cover for employers who might need to reclassify employees whose duties might not meet the requirements to be exempt.”

While reclassified employees might ask why they weren’t getting overtime pay before the change, an update in the exemption rules at least gives employers some explanation to provide for reclassification, Coburn said.

“For employees whose duties fall in a gray area—not comfortably exempt or nonexempt—but who are also impacted by the increased salary threshold, this might be a good time to move them to nonexempt on the basis of the salary threshold increase,” he noted.

Employers should also be mindful of state and local wage and hour laws that may impose additional requirements for exempt status beyond federal requirements under the FLSA, Hollis said.

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Gender pay gap in U.S. hasn’t changed much in two decades

The gender gap in pay has remained relatively stable in the United States over the past 20 years or so. In 2022, women earned an average of 82% of what men earned, according to a new Pew Research Center analysis of median hourly earnings of both full- and part-time workers. These results are similar to where the pay gap stood in 2002, when women earned 80% as much as men.

As has long been the case, the wage gap is smaller for workers ages 25 to 34 than for all workers 16 and older. In 2022, women ages 25 to 34 earned an average of 92 cents for every dollar earned by a man in the same age group – an 8-cent gap. By comparison, the gender pay gap among workers of all ages that year was 18 cents.

While the gender pay gap has not changed much in the last two decades, it has narrowed considerably when looking at the longer term, both among all workers ages 16 and older and among those ages 25 to 34. The estimated 18-cent gender pay gap among all workers in 2022 was down from 35 cents in 1982. And the 8-cent gap among workers ages 25 to 34 in 2022 was down from a 26-cent gap four decades earlier.

The gender pay gap measures the difference in median hourly earnings between men and women who work full or part time in the United States. Pew Research Center’s estimate of the pay gap is based on an analysis of Current Population Survey (CPS) monthly outgoing rotation group files ( IPUMS ) from January 1982 to December 2022, combined to create annual files. To understand how we calculate the gender pay gap, read our 2013 post, “How Pew Research Center measured the gender pay gap.”

The COVID-19 outbreak affected data collection efforts by the U.S. government in its surveys, especially in 2020 and 2021, limiting in-person data collection and affecting response rates. It is possible that some measures of economic outcomes and how they vary across demographic groups are affected by these changes in data collection.

In addition to findings about the gender wage gap, this analysis includes information from a Pew Research Center survey about the perceived reasons for the pay gap, as well as the pressures and career goals of U.S. men and women. The survey was conducted among 5,098 adults and includes a subset of questions asked only for 2,048 adults who are employed part time or full time, from Oct. 10-16, 2022. Everyone who took part is a member of the Center’s American Trends Panel (ATP), an online survey panel that is recruited through national, random sampling of residential addresses. This way nearly all U.S. adults have a chance of selection. The survey is weighted to be representative of the U.S. adult population by gender, race, ethnicity, partisan affiliation, education and other categories. Read more about the ATP’s methodology .

Here are the questions used in this analysis, along with responses, and its methodology .

The  U.S. Census Bureau has also analyzed the gender pay gap, though its analysis looks only at full-time workers (as opposed to full- and part-time workers). In 2021, full-time, year-round working women earned 84% of what their male counterparts earned, on average, according to the Census Bureau’s most recent analysis.

Much of the gender pay gap has been explained by measurable factors such as educational attainment, occupational segregation and work experience. The narrowing of the gap over the long term is attributable in large part to gains women have made in each of these dimensions.

Related: The Enduring Grip of the Gender Pay Gap

Even though women have increased their presence in higher-paying jobs traditionally dominated by men, such as professional and managerial positions, women as a whole continue to be overrepresented in lower-paying occupations relative to their share of the workforce. This may contribute to gender differences in pay.

Other factors that are difficult to measure, including gender discrimination, may also contribute to the ongoing wage discrepancy.

Perceived reasons for the gender wage gap

When asked about the factors that may play a role in the gender wage gap, half of U.S. adults point to women being treated differently by employers as a major reason, according to a Pew Research Center survey conducted in October 2022. Smaller shares point to women making different choices about how to balance work and family (42%) and working in jobs that pay less (34%).

There are some notable differences between men and women in views of what’s behind the gender wage gap. Women are much more likely than men (61% vs. 37%) to say a major reason for the gap is that employers treat women differently. And while 45% of women say a major factor is that women make different choices about how to balance work and family, men are slightly less likely to hold that view (40% say this).

Parents with children younger than 18 in the household are more likely than those who don’t have young kids at home (48% vs. 40%) to say a major reason for the pay gap is the choices that women make about how to balance family and work. On this question, differences by parental status are evident among both men and women.

Views about reasons for the gender wage gap also differ by party. About two-thirds of Democrats and Democratic-leaning independents (68%) say a major factor behind wage differences is that employers treat women differently, but far fewer Republicans and Republican leaners (30%) say the same. Conversely, Republicans are more likely than Democrats to say women’s choices about how to balance family and work (50% vs. 36%) and their tendency to work in jobs that pay less (39% vs. 30%) are major reasons why women earn less than men.

Democratic and Republican women are more likely than their male counterparts in the same party to say a major reason for the gender wage gap is that employers treat women differently. About three-quarters of Democratic women (76%) say this, compared with 59% of Democratic men. And while 43% of Republican women say unequal treatment by employers is a major reason for the gender wage gap, just 18% of GOP men share that view.

Pressures facing working women and men

Family caregiving responsibilities bring different pressures for working women and men, and research has shown that being a mother can reduce women’s earnings , while fatherhood can increase men’s earnings .

Employed women and men are about equally likely to say they feel a great deal of pressure to support their family financially and to be successful in their jobs and careers, according to the Center’s October survey. But women, and particularly working mothers, are more likely than men to say they feel a great deal of pressure to focus on responsibilities at home.

About half of employed women (48%) report feeling a great deal of pressure to focus on their responsibilities at home, compared with 35% of employed men. Among working mothers with children younger than 18 in the household, two-thirds (67%) say the same, compared with 45% of working dads.

When it comes to supporting their family financially, similar shares of working moms and dads (57% vs. 62%) report they feel a great deal of pressure, but this is driven mainly by the large share of unmarried working mothers who say they feel a great deal of pressure in this regard (77%). Among those who are married, working dads are far more likely than working moms (60% vs. 43%) to say they feel a great deal of pressure to support their family financially. (There were not enough unmarried working fathers in the sample to analyze separately.)

About four-in-ten working parents say they feel a great deal of pressure to be successful at their job or career. These findings don’t differ by gender.

Gender differences in job roles, aspirations

Overall, a quarter of employed U.S. adults say they are currently the boss or one of the top managers where they work, according to the Center’s survey. Another 33% say they are not currently the boss but would like to be in the future, while 41% are not and do not aspire to be the boss or one of the top managers.

Men are more likely than women to be a boss or a top manager where they work (28% vs. 21%). This is especially the case among employed fathers, 35% of whom say they are the boss or one of the top managers where they work. (The varying attitudes between fathers and men without children at least partly reflect differences in marital status and educational attainment between the two groups.)

In addition to being less likely than men to say they are currently the boss or a top manager at work, women are also more likely to say they wouldn’t want to be in this type of position in the future. More than four-in-ten employed women (46%) say this, compared with 37% of men. Similar shares of men (35%) and women (31%) say they are not currently the boss but would like to be one day. These patterns are similar among parents.

Note: This is an update of a post originally published on March 22, 2019. Anna Brown and former Pew Research Center writer/editor Amanda Barroso contributed to an earlier version of this analysis. Here are the questions used in this analysis, along with responses, and its methodology .

What is the gender wage gap in your metropolitan area? Find out with our pay gap calculator

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Carolina Aragão is a research associate focusing on social and demographic trends at Pew Research Center

Women have gained ground in the nation’s highest-paying occupations, but still lag behind men

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What the New Overtime Rule Means for Workers

One of the basic principles of the American workplace is that a hard day’s work deserves a fair day’s pay. Simply put, every worker’s time has value. A cornerstone of that promise is the  Fair Labor Standards Act ’s (FLSA) requirement that when most workers work more than 40 hours in a week, they get paid more. The  Department of Labor ’s new overtime regulation is restoring and extending this promise for millions more lower-paid salaried workers in the U.S.

Overtime protections have been a critical part of the FLSA since 1938 and were established to protect workers from exploitation and to benefit workers, their families and our communities. Strong overtime protections help build America’s middle class and ensure that workers are not overworked and underpaid.

Some workers are specifically exempt from the FLSA’s minimum wage and overtime protections, including bona fide executive, administrative or professional employees. This exemption, typically referred to as the “EAP” exemption, applies when: 

1. An employee is paid a salary,  

2. The salary is not less than a minimum salary threshold amount, and 

3. The employee primarily performs executive, administrative or professional duties.

While the department increased the minimum salary required for the EAP exemption from overtime pay every 5 to 9 years between 1938 and 1975, long periods between increases to the salary requirement after 1975 have caused an erosion of the real value of the salary threshold, lessening its effectiveness in helping to identify exempt EAP employees.

The department’s new overtime rule was developed based on almost 30 listening sessions across the country and the final rule was issued after reviewing over 33,000 written comments. We heard from a wide variety of members of the public who shared valuable insights to help us develop this Administration’s overtime rule, including from workers who told us: “I would love the opportunity to...be compensated for time worked beyond 40 hours, or alternately be given a raise,” and “I make around $40,000 a year and most week[s] work well over 40 hours (likely in the 45-50 range). This rule change would benefit me greatly and ensure that my time is paid for!” and “Please, I would love to be paid for the extra hours I work!”

The department’s final rule, which will go into effect on July 1, 2024, will increase the standard salary level that helps define and delimit which salaried workers are entitled to overtime pay protections under the FLSA. 

Starting July 1, most salaried workers who earn less than $844 per week will become eligible for overtime pay under the final rule. And on Jan. 1, 2025, most salaried workers who make less than $1,128 per week will become eligible for overtime pay. As these changes occur, job duties will continue to determine overtime exemption status for most salaried employees.

The rule will also increase the total annual compensation requirement for highly compensated employees (who are not entitled to overtime pay under the FLSA if certain requirements are met) from $107,432 per year to $132,964 per year on July 1, 2024, and then set it equal to $151,164 per year on Jan. 1, 2025.

Starting July 1, 2027, these earnings thresholds will be updated every three years so they keep pace with changes in worker salaries, ensuring that employers can adapt more easily because they’ll know when salary updates will happen and how they’ll be calculated.

The final rule will restore and extend the right to overtime pay to many salaried workers, including workers who historically were entitled to overtime pay under the FLSA because of their lower pay or the type of work they performed. 

We urge workers and employers to visit  our website to learn more about the final rule.

Jessica Looman is the administrator for the U.S. Department of Labor’s Wage and Hour Division. Follow the Wage and Hour Division on Twitter at  @WHD_DOL  and  LinkedIn .  Editor's note: This blog was edited to correct a typo (changing "administrator" to "administrative.")

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Income from salary

INCOME FROM SALARIES

Any remuneration paid by an employer to his employee in consideration of his service is called Salary.

It includes monetary value of those benefits and facilities provided by the employer which are taxable.

Section 15, 16 and 17 of the Income tax act, 1961 deal with the computation of income under the head Salaries. To understand the computation of Income under the head Salaries, the following important concepts must be understood:

1. EMPLOYER AND EMPLOYEE RELATIONSHIP 2. BASIS OF CHARGE( SECTION 15) 3. PLACE OF ACCRUAL OF SALARY(SECTION 9(1)) 4. TAX FREE SALARY 5. SALARY PAID BY FOREIGN GOVT./ENTERPRISES 6. ALLOWANCES

Employer and employee relationship - Any Income can be taxed under the head “salaries” only if there is a relationship of an employer and employee between payer and payee. Any income would be deemed to be income from salary only if relation of employer and employee exist. Their relationship should be of master and servant. A master is a person who directs what is to be done and how it is to be done, and the servant is one who is required to conduct the work in manner prescribed by master.

Basis of charge [Section 15]:

a. Any salary due from an employer or a former employer to an assessee in the previous year , whether paid in that previous year or not.

b. Any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due in that previous year or before it became due to him.

c. Any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income tax in any earlier previous year.

Important Points

# If any salary paid in advance is included in the total income of any person for any previous year, it shall not be included again in the total income of the person when the salary becomes due.

# Any salary, bonus, commission or remuneration due to or received by a partner of a firm from the firm shall not be regarded as salary for the purpose of this section. The same shall be taxable under the head Profits and gains of business and profession as per section 28 of Income Tax Act,1961.

PLACE OF ACCRUAL OF SALARY [sec. 9(1) (ii)]

The Golden Rule is that salary will be deemed to accrue or arise at a place where services are rendered.

1. If any income taxable under head Salaries is earned in India, it is deemed to accrue or arise in India.

2. If a person employed in India goes on leave outside the country and draws his salary for the leave period there, the leave salary shall be deemed to have been earned in India.

3. If a person after having served in India , retires from service and settles outside India, then the pension drawn by him in the foreign country will be deemed to have been earned in India and will be treated as Indian Income.

In case of a citizen of India who is a government employee and renders any service outside India, salary received by him would be treated as income deemed to accrue or arise in India although the services are rendered outside India. As per section 10(7), allowances and perquisites received by him in the foreign country from the Indian government are exempt from tax.

TAX FREE SALARY

When the employee receives tax-free salary from his employer, it means employer himself pays the tax which is due on salary of such employee and for the purpose of computation of INCOME FROM SALARIES under Income Tax act 1961, such amount will be added to his salary.

SALARY PAID BY FOREIGN GOVERNMENT /ENTERPRISES

Salary paid by foreign Govt. /enterprises to its employees serving in India is taxable under head Salaries, unless it is specifically exempt under section 10

ALLOWANCES :- Payments in cash made by the employer to his employees usually at regular intervals, other than salary are known as allowances. In other words, it is defined as a fixed quantity of money given regularly in addition to salary for meeting specific requirements of the employees. From Income Tax point of view, there are 3 types of allowances which are as under:-

a. TAXABLE ALLOWANCES b. ALLOWANCES EXEMPT UPTO SPECIFIED LIMITS c. FULLY EXEMPT ALLOWANCES

1. TAXABLE ALLOWANCES are those allowances which are fully taxable under Income tax act, 1961.While computing taxable salary whole amount is added into the salary. Following are the allowances which are fully taxable:

- Dearness Allowance and dearness pay - Fixed medical allowance - Tiffin allowance - Servant allowance - Non practicing allowance - Hill allowance - Warden/ Proctor allowance - Deputation allowance - Overtime allowance

- Other allowances like City Compensatory allowance, Telephone allowance, Holiday allowance, Special qualification allowance, etc.

All the above allowances can be understood by their names but yet there are some allowances, which I think needs explanation. So there explanation is given below:

Dearness Allowance : This allowance is given to employees on account of high prices. Sometimes Dearness Allowance is given as Dearness pay. Normally we think that these 2 words are synonyms, but in actual they have different treatment. Dearness Allowance is an allowance granted to the employees to compensate for the cost of inflation. However, when certain portion of the Dearness Allowance is converted into Dearness Pay, then the applicable allowance would get calculated on (Basic Pay + Dearness Pay). For instance normally Dearness Allowance is calculated as a % of Basic Pay. In cases where there is Dearness Pay, then the Dearness Allowance would get calculated on (Basic Pay + Dearness Pay). To that extent the employee would get increased amount in absolute terms. Such DP is also taken into account at the time of arriving at the pension benefits etc

Non Practicing Allowance : It is generally given to those medical doctors who are in government service and they are banned from doing private practice. This allowance is given to them to compensate this ban.

Deputation allowance: When an employee is sent from his permanent place of service to some other place or institution or organization on deputation for a temporary period, this allowance is given to them.

City Compensatory Allowance: This allowance is paid to employees who are posted in big cities. The idea is to compensate the high cost of living in cities like Delhi, Mumbai, Bangalore, and other metropolitan cities. However, it is a fully taxable allowance. i.e. the amount of this allowance will be taxed with the salary received.

ALLOWANCES EXEMPT UPTO SPECIFIED LIMITS

i. HOUSE RENT ALLOWANCE ii. ENTERTAINMENT ALLOWANCE iii. SPECIAL ALLOWANCES FOR MEETING CERTAIN EXPENDITURES

EXPLANATION OF ABOVE ALLOWANCES

HOUSE RENT ALLOWANCE :-

HRA is given to meet the cost of a rented house taken by the employee for his stay. The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of Income Tax Rules. HRA is exempt to the extent of the minimum of following 3 amounts:

- Actual Amount Received,

- Excess of Rent paid by the assessee over 10 % of salary due to him for the relevant period,

- 50% of the salary if residential house is situated at Mumbai ,Kolkata, Delhi, Chennai .

- 40% of the salary if residential house is situated at city other than above metropolitan cities.

ENTERTAINMENT ALLOWANCE :-

It is an allowance given by an employer to his employee. It is first included in income from salary under section 15 and then deduction is allowed to a govt. employee under sec 16(ii). Least of the following amounts shall be deducted:-

Amount Actual received, 1/5 of salary , where salary = Basic Salary Rs. 5000

SPECIAL ALLOWANCES FOR MEETING CERTAIN EXPENDITURES

There are two types of special allowances under this category:-

a. Special allowances for performance of official duties – These allowances are exempt to the extent of actual amount received or the amount spent for the purpose of official duties, whichever is less. E.g. Travelling allowance, Daily allowance, Helper allowance , etc.

b. Allowances to meet personal expenses:-

There are many allowances covered under this category, but here I am explaining the provisions of few allowances which are as follows:-

Children Education Allowance - Exempt upto actual amount received per child or Rs.100 p.m. per child upto a maximum of 2 children, whichever is less.

Hostel Expenditure Allowance – Exempt upto actual amount received per child or Rs.300 p.m. per child upto a maximum of 2 children, whichever is less.

Tribal Area Allowance – Exempt upto actual amount received or Rs. 200 per month, whichever is less.

Transport Allowance – It is exempt upto Rs.800 p.m. but in case of blind or orthopedically handicapped, it is exempt upto Rs. 1600 p.m.

Allowance allowed to transport employees working in any transport system –It covers Fixed Allowance given by employer to his employee working in any transport system, to meet his personal expenditure during his performance of duty and amount of exemption shall be 70% of such allowance or rs.10,000 p.m. whichever is less.

FULLY EXEMPTED ALLOWANCES:- There are certain allowances which are fully exempt under Income Tax Act,1961 :-

1.Foreign Allowance – This allowance is usually paid by the government to an Indian citizen outside India for rendering services in abroad. It is not taxable atall. There may be several types of foreign allowances e.g. Overseas allowance, Children Education allowance,etc. Important point: This Exemption is available only to government employees and they must be citizen of India.

2. Sumptuary allowances – These allowances are given to High Court/ supreme Court Judges and are fully exempt from tax.

3. Allowance From UNO – Allowances paid by UN organizations to its employees are fully exempt.

4 . Per Diem Allowance – It means Per Day Allowance. If per Diem Allowance is paid for the use of hotel, boarding and lodging facilities to an employee, any surplus accruing to him from such allowance are exempt from tax.

CONCLUSION :- The Taxation of income received from salaries is not just a concept to learn only but practically it puts a lot of challenges in front of tax return preparers so as to ensure that correct provisions are applied while computing the net salary income. Income from salary seems to be a very small portion but it contains lot of provisions, the study of which is must before practically applying it.

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AAYUSHI BANSAL (student) Category Income Tax   Report

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Here's how much income it takes to be considered rich in your state

By Khristopher J. Brooks

April 26, 2024 / 6:33 PM EDT / MoneyWatch

Many Americans aspire to join the ranks of the wealthy, but the income threshold for being considered rich depends a lot on where you live. 

It also takes considerably more income to join the top 5% of earners than just a few years ago, according to new research from GoBankingRates.com, which examined state income data for the five-year period from 2017 to 2022. The latter year represents the most recent household income data from the U.S. Census Bureau. 

The easiest place to reach the top of the heap is West Virginia, where an annual income of $329,620 will qualify you as among its highest earners. But you'll have to earn more than twice that, at $719,253, to join the top 5% in Washington D.C. 

Americans' fortunes have improved during the last few years, partly due to the federal government's pandemic stimulus efforts that doled out billions in aid to businesses and taxpayers, said Andrew Murray, lead data content researcher for GoBankingRates. At the same time, the nation's top-earning households are gaining a greater share of income, fueling rising income inequality, Census data shows.

"COVID relief policies bolstered the economy, leading to boosted stock prices, real estate and savings," Murray told CBS MoneyWatch. "These conditions were especially favorable for the wealthiest of Americans, who experienced dramatic income increases, especially considering the fact that many companies saw record profits."

To be sure, income isn't the same as wealth, which has also grown since the pandemic . But earning a higher salary can help families build their assets, allowing them to buy homes, invest in education for their children and take other steps to cement their wealth. 

The outsized income growth of the nation's top-earning families before and after the pandemic may be one of the U.S. economy's most important storylines, Murray said. 

"Even though the bottom 20% of earners saw drastic increases in pay, their overall wealth share in the country actually decreased, as the rich became much richer," he said. 

After West Virginia, Mississippi had the second-lowest threshold for joining its top-earning households, at $333,597, according to GoBankingRates. 

Meanwhile, joining the 5% of earners requires considerably more in many Eastern states, with Connecticut's threshold at $656,438 and New York at $621,301, the study found.

"This comes down to cost of living," Murray said. "People in New York or D.C. are paid higher salaries than people in states with a lower cost of living, such as Arkansas or Louisiana."

Between 2017 and 2022, Idaho, Nevada and Washington saw the biggest jumps in the amount needed to be considered among their states' top earners, according to GoBankingRates. Idahoans require an extra $115,769 in annual income, while Nevadans need an additional $129,469. Washingtonians must earn $166,144 more to join the top 5%.

The reason is due to changes in the economies of Idaho, Nevada and Washington during the past few years, Murray said. Washington, for example, saw residents' incomes rise 44% between 2017 and 2022, which Murray said is "likely due to Seattle's rising reputation as a tech hub after COVID."

In Idaho, thousands of people moved to Boise during the pandemic, bringing with them their salaries from remote-work jobs, he said. 

"In the case of Nevada, which ranked number two studywide, gambling became more readily legalized and accessible from 2017 to 2022," Murray said. "This led to major profit increases for companies headquartered in Las Vegas."

• Income Inequality

Khristopher J. Brooks is a reporter for CBS MoneyWatch. He previously worked as a reporter for the Omaha World-Herald, Newsday and the Florida Times-Union. His reporting primarily focuses on the U.S. housing market, the business of sports and bankruptcy.

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Tax Treatment of Income from Salary in Brief

Understanding the taxability of salary components and retirement benefits is crucial for both employees and employers in India. The Income Tax Act defines various elements of salary, allowances, and perquisites that are subject to taxation. Additionally, retirement benefits like gratuity, pension, and provident funds have specific tax implications. This article provides insights into the tax treatment of different components, exemptions available, and deductions applicable to optimize tax planning.

Income under the head Salaries

1.1 Salary is defined to include:

d) Gratuity

e) Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages

f) Advance of Salary

g) Leave Encashment

h) Annual accretion to the balance of Recognized Provident Fund

i) Transferred balance in Recognized Provident Fund

j) Contribution by Central Government or any other employer to Employees Pension Account as referred in 80CCD

1.2 Points to consider:

a) Salary income is chargeable to tax on “due basis” or “receipt basis” whichever is earlier.

b) Existence of relationship of employer and employee is must between the payer and payee to tax the income under this head.

c) Income from salary taxable during the year shall consists of following:

i. Salary due from employer (including former employer) to taxpayer during the previous year, whether paid or not;

ii. Salary paid by employer (including former employer) to taxpayer during the previous year before it became due;

iii. Arrear of salary paid by the employer (including former employer) to taxpayer during the previous year, if not charged to tax in any earlier year;

Exceptions –  Remuneration, bonus or commission received by a partner from the firm is not taxable under the head Salaries rather it would be taxable under the head business or profession.

1.3 Place of accrual of salary:

a) Salary accrues where the services are rendered even if it is paid outside India;

b) Salary paid by the Foreign Government to his employee serving in India is taxable under the head Salaries;

c) Leave salary paid abroad in respect of leave earned in India shall be deemed to accrue or arise in India.

Exceptions –  If a Citizen of India render services outside India, and receives salary from Government of India, it would be taxable as salary deemed to have accrued in India.

1.4 Taxability of various components of salary:

1. Motor Car (taxable only in case of specified employees [See note 4] except when car owned by the employee is used by him or members of his household wholly for personal purposes and for which reimbursement is made by the employer)

2. Educational Facilities

Taxable only in the hands of specified employees [See note 4]

2.1 Other Educational Facilities

3. Employees Provident Fund

Tax treatment in respect of contributions made to and payment from various provident funds are summarized in the table given below:

* Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits) + turnover based commission

Payment from recognized provident fund shall be exempt in the hands of employees in following circumstances:

a) If employee has rendered continue service with his employer (including previous employer, when PF account is transferred to current employer) for a period of 5 years or more

b) If employee has been terminated because of certain reasons which are beyond his control (ill health, discontinuation of business of employer, etc.)

No exemption shall be available for the interest income accrued during the previous year in the recognised and statutory provident fund to the extent it relates to the contribution made by the employees over Rs. 2,50,000 in the previous year.

However, if an employee is contributing to the fund but there is no contribution to such fund by the employer, then the interest income accrued during the previous year shall be taxable to the extent it relates to the contribution made by the employee to that fund in excess of Rs. 5,00,000 in a financial year.

4. Specified Employee

The following employees are deemed as specified employees:

1) A director-employee

2) An employee who has substantial interest (i.e. beneficial owner of equity shares carrying 20% or more voting power) in the employer-company

3) An employee whose monetary income* under the salary exceeds Rs.50,000

*Monetary Income means Income chargeable under the salary but excluding perquisite value of all non-monetary perquisites

All about Income from House Properties

Profits and Gains from Business and Profession

Capital Gain – All you want to know

Tax Treatment of Income from Other Sources

[As amended by Finance Act, 2023]

Source- Income Tax India Website- Republished with amendments

• House Rent Allowance
• Payment of Gratuity Act 1972
• pension scheme
• perquisites in salary
• salary income
• tds on salary
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42 Comments

Dear Sir is Honorarium to doctor is counted under head salary or professional income. Honorarium is given monthly of fixed amount for 8 hours per day shift duty.

Many many thanks for providing a bunch of information on taxation for service class employees in any sector in India. I hope you may add taxation details in cafeteria approch in salary by GOI. I also request to provide some tips also to reduce tax load of general employees.

Urgent requirement

Pension is taxable under the head Salaries. Further from 1-4-2018, for Sr Citizens, pension received upto 50000/- is exempted. 1. Will the pension received from EPFO is taxable under the head salary? Because there is no employer – employee relation and employers PAN has to be quoted in the ITRs. 2. If the employer, on retirement of its employee, purchase an annuity and call it as ‘Pension Plan’ , whether such pension is eligible for exemption?

Answers can be posted on my email also

All amount of Pension is taxable except Commutation (One time Lum Sum Received). In other words regular income on a/c of pension/annuity/ interest is taxable. However for SC Rs. 50000/- deduction is allowed.

Flying allowance Rs. 1,20,000/- whether deductible which is not shown in Form 16 by Employer Air India in case of Captain crew,

Dear Sir Our one employee was expired in 2016. Now his widow is getting last drawn salary monthly as per govt. Rules I want to know whether this amount is taxable or not.

I am a retired employee from PSU retired in October 2017. For my PSU, the enhanced gratuity limit from 10 lakh to 20 lakh has been announced in 2019 w.e.f 1.1.2017. The same has been paid to me a couple of days back. However, the employer has deducted TDS on the gratuity. As per the amendment in IT Act effected in March 2018, gratuity received upto 20 lakh has been made fully exempt. Kindly advise me what to do. Since the enhanced gratuity has been paid to me only in July 2019, I think it is exempt from Tax. Kindly advise.

Whether professional tax is applicable for Pensioners in general and State/Central Govt pensioners in particular.

Pension is taxable under the head Salaries. Further from 1-4-2018, for Sr Citizens, pension received upto 50000/- is exempted. 1. Will the pension received from EPFO is taxable under the head salary? Because there is no employer – employee relation and employers PAN has to be quoted in the ITRs. 2. If the employer, on retirement of its employee, purchase an annuity and call it as ‘Pension Plan’ , whether such pension is eligible for exemption?

Can I know about section 76 and 96 of I T Act 1961 please

jo meri manjilo ki jaati hai teri naam ki koi dhadak hai naa.

i am a resident indian and I got some amount credited into my account as I checked/evaluated few Thesis ( of South Africa university) phd students; will that amount will be my salary and should be accounted as taxable salary and at what rate? please provide relevant guidance to help filing return?

very useful,great,thank you.

Salary not paid to me by my Employer for the period Aug 16 to March 16. Last date of my return filling is 31.07.17 . Pls advise should I file my ITR on receipt basis or accrual basis

I will receive an advance salary of Rs.5 lac in addition if I work at the company for 3 years, but if I leave before that period I need Rs.5 lac. Will the advance salary be taxable.? If yes, then in which year.?

Sir, would you tell me what is a LINE ALLOWANCE? to whom is it given?

This is very useful for me. Thank you tax guru.

this article is very useful

Very important info by tax guru.keep it up further.

Very useful as notes

nice one…….

great, thanks tax guru..

tax guru is always best, simple language…….. it helps very much THANKS for it

it helps very much thanks

Its very useful thank you very much

very useful, thanx

Very Useful information. I also request to update this with other benefits available under sec. 80

Thank you, H.SUNDER 9345782937

very nice information… Great Work

THANKS FOR NICE INFORMATON.

very nice information. Thank you L.C.SWARNKAR

Very useful information for all salaried persons

Most useful information

Most useful information for a salaried employees. Thanks a lot

thank you very much for such elaborated information very useful must know all salried people

Very very valuable information, thank you very much for grate work. This always helpful individually to all Salary employees. I once again thanks for your great job. with regards…

Very useful all information at one go

DHARMENDRA DAVE. BARODA EXCELLENT, WHAT A DETAILED INFORMATION ABOUT TAXABLE & NON TAXABLE SALARY INCOME & ALLOWANCES,PERQUISITES FOR ALL INDIVIDUALS TAXPAYERS THANKS TAXGURU. WITH BEST REGSRDS

VERY USEFUL , HANDY INFORMATION AT ONE GO , THANKS

All salary class people must know it….

Thank you GIRISH 9538852134

Grate information at one shot….. very much helpful…

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New Biden rule would make 4 million white-collar workers eligible for overtime pay

The Biden administration on Tuesday announced a new rule that would make millions of white-collar workers newly eligible for overtime pay .

Starting July 1, the rule would increase the threshold at which executive, administrative and professional employees are exempt from overtime pay to $43,888 from the current $35,568. That change would make an additional 1 million workers eligible to receive time-and-a-half wages for each hour they put in beyond a 40-hour week.

On January 1, the threshold would rise further to $58,656, covering another 3 million workers.

“This rule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid for that time,” Acting Labor Secretary Julie Su said in a statement. “So often, lower-paid salaried workers are doing the same job as their hourly counterparts but are spending more time away from their families for no additional pay. This is unacceptable.”

Column: Biden's overtime pay proposal is the last thing our economy needs. Employers must speak up.

The new standard fulfills one of President Biden’s signature objectives of raising the wages of low- and middle-class Americans and it comes within months of his face-off with former President Donald Trump in the November election. For years, Biden and Democrats in Congress have proposed raising the federal minimum wage from $7.25 an hour but have been blocked by Republican lawmakers.

The new initiative also follows a pandemic that led to widespread burnout among millions of U.S. workers and a desire by many to strike a better work-life balance . The health crisis triggered severe labor shortages that gave employees the leverage to seek more flexible hours and higher pay.

Last summer, the Labor Department proposed lifting the salary threshold for exempt employees to about $55,000 but updated the benchmark in the final rule after receiving more than 33,000 public comments.

While hourly workers are generally entitled to overtime pay, salaried workers are not if they earn above a certain pay level and supervise other workers, use professional expertise or judgment or hire and fire workers, among other duties.

The new standard could be legally challenged by industry groups that have argued that excessively raising the standard exceeds Labor’s authority and adds heavy regulatory and financial burdens or compliance costs.

“This rule is another costly hoop for small business owners to jump through," Beth Milito, executive director the the National Federation of Independent Business's small business legal center. "Small businesses will need to spend valuable time evaluating their workforce to properly adjust salaries or reclassify employees in accordance with this complicated mandate.”

Some companies could lift workers' base pay to the new threshold to avoid paying overtime or convert salaried workers to hourly employees who need to punch a clock. Others could instruct salaried employees to work no more than 40 hours a week, bringing on part-time workers to pick up the slack. Still others may reduce employees' base pay to offset the overtime, effectively sidestepping the new requirement.

In 2016, the Obama administration proposed doubling the overtime salary threshold to $47,476 from $23,660 but a federal judge in Texas struck down the increase as excessive. In 2020, the Trump administration set the current standard of $35,568.

The initial bump in the salary threshold to $43,888 that takes effect July 1 is based on a Trump administration formula that sets it at the 20 th percentile of the full-time weekly earnings of salaried employees in the lowest-wage region, which is currently the South. The increase to $58, 656 on January 1 adopts a new formula that sets the threshold at the 35 th percentile of those weekly earnings.

In a statement, the Labor Department said it's confident the new standard can better withstand a legal challenge because it's notably lower than than the 40th percentile benchmark set by the Obama administration.

"This is a meaningful methodology change that addresses potential concerns that the salary level test should not play an outsized role in relation to the duties test," Labor said.

The Labor Department also said it raised the threshold for “highly compensated” employees who only need to perform one of the duties of executive, administrative or professional workers to be exempt from overtime. That benchmark will rise from $107,452 to $151,164 by January.

Starting July 1, 2027, the rule requires Labor to adjust the salary threshold every three years to account for updated wage data.

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IR-2024-116, April 19, 2024

WASHINGTON — The Internal Revenue Service today encouraged taxpayers who missed the April tax-filing deadline to file a tax return as soon as they can.

The IRS offers different resources to help those who may be unable to pay their tax bill in total. Those who missed the deadline to file but owe taxes should file quickly to minimize penalties and interest.

Taxpayers should keep in mind that payments are still due by the April 15 deadline, even if they requested an extension of time to file a tax return. An extension to file is not an extension to pay.

File and pay amount owed to reduce penalties and interest

Taxpayers who still owe taxes should file their tax return and pay any taxes owed quickly to reduce penalties and interest. Until the balance is paid in full, interest and penalties accrue on taxes owed.

Even if a taxpayer can't afford to immediately pay the full amount of taxes owed, they should still file a tax return and pay as much as possible. This reduces interest and penalties on the outstanding amount and may help avoid a possible late-filing penalty.

There are options for taxpayers who owe the IRS but cannot afford to pay . For more information see the penalties page on IRS.gov.

Taxpayers may qualify for penalty relief if they have filed and paid timely for the past three years and meet other important requirements, including paying or arranging to pay any tax due. For more information, see the first-time penalty abatement page on IRS.gov.

Electronically pay taxes owed

A quick, easy way for individuals to pay taxes owed securely is through IRS Direct Pay , debit or credit card or digital wallet , or their IRS Online Account . Taxpayers may also apply online for a payment plan (including an installment agreement) .

Those who pay electronically get immediate confirmation after submitting payment. The Electronic Federal Tax Payment System (EFTPS) and Direct Pay allow taxpayers to receive payment email notifications. Find more payment options on IRS.gov/payments .

Some taxpayers automatically qualify for extra time to file and pay taxes due without penalties and interest, including:

• Taxpayers in certain disaster areas. There’s no need for these taxpayers to submit an extension; extra time is granted automatically due to the disaster. Information on the most recent tax relief for disaster situations is available on the IRS website.
• U.S. citizens and resident aliens who live and work outside of the United States and Puerto Rico get an automatic two-month extension to file their tax returns. This year they have until June 17 to file. However, tax payments are still due April 15 or interest will be charged.
• Members of the military on duty outside the United States and Puerto Rico. Details are available in Publication 3, Armed Forces’ Tax Guide PDF .
• Those serving in combat zones have up to 180 days after they leave the combat zone to file returns and pay any taxes due.

Owed a refund? Don’t overlook filing a tax return; 2020 unclaimed refund deadline May 17

Taxpayers who choose not to file a return because they don't earn enough to meet the filing requirement may miss out on receiving a refund due to potential refundable tax credits. Some examples are the Earned Income Tax Credit and Child Tax Credit . Taxpayers sometimes fail to file a tax return and claim a refund for these credits and others for which they may be eligible.

There's no penalty for filing after the April 15 deadline if a refund is due. However, taxpayers due a refund should still consider filing as soon as possible. Every year, the IRS estimates that there are nearly a million taxpayers potentially due refund money who failed to file prior year tax returns.

For taxpayers who didn’t file a 2020 tax return, time is running out to claim those refunds . The deadline to file 2020 returns is May 17, 2024.

Taxpayers still needing to file for tax year 2023 are encouraged to use electronic filing options including IRS Free File , which is available on IRS.gov through Oct. 20 to prepare and file 2023 tax returns electronically.

Taxpayers can track their refund using the Where's My Refund?  tool on IRS.gov, IRS2Go or by calling the automated refund hotline at 800-829-1954 . To use the tool, taxpayers need the primary Social Security number on the tax return, the filing status and the expected refund amount. The refund status information updates once daily, usually overnight, so there's no need to check more frequently.

Selecting a trusted tax professional

Taxpayers who still need to file a return may wish to consult a tax preparer. The IRS has resources to help taxpayers choose a tax professional . Tools like the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications allows taxpayers to find tax return preparers who have completed IRS requirements for the Annual Filing Season Program or who hold a professional credential recognized by the IRS.

Taxpayer Bill of Rights

Taxpayers have fundamental rights under the law that protect them when interacting with the IRS. The Taxpayer Bill of Rights divides them in 10 categories. IRS Publication 1, Your Rights as a Taxpayer PDF , reiterates these rights along with the agency's obligation to protect them.

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