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Indiana's Income Withholding Law
Income withholding orders are the most convenient way to ensure that child support is paid. Indiana's income withholding law applies to all employers/income payors regardless of size. An "income payor" means an employer or other person who owes "income" to an obligor and "income" means anything of value. An Income Withholding Order (IWO) is for child support only. The income withholding law permits child support enforcement offices operating under the Title IV-D Child Support Program to require any employer to withhold current and delinquent child support obligations from an employee's earnings. The amounts withheld must be submitted to the Indiana State Central Collection Unit (INSCCU). The law also applies to payments owed to independent contractors. To view the Indiana state statute click IC 31-16-15. Below are answers to questions employers may have with respect to the law.
Why is an income withholding order (IWO) necessary?
An IWO assists non-custodial parents as well as custodial parties by ensuring that child support is paid regularly and an official record of the payment is created.
How is the obligation to withhold income initiated?
The employer will receive a written income withholding order from a court or a Title IV-D child support agency.
What information is on the income withholding order (IWO)?
The IWO states:
When must income withholding begin?
Withholding must begin no later than the first pay period occurring within 14 days after the date the income withholding order was mailed, faxed, or personally served on the employer. The employer is then required to withhold and forward the proper amount each time the employee is paid.
What if an employer has more than one employee that has a child support order?
An employer with 50 or more employees and more than one employee has a child support order, is required to submit payments electronically to the Indiana Central Collection Unit (INSCCU). For more information, please visit Payment Processing and Income Withholding For Employers. Employers may also contact the Employer Maintenance Unit (EMU) for any questions concerning child support payments at (317) 232-0327 or (800) 292-0403 or at EMU@dcs.in.gov.
What is the maximum amount that may be withheld each pay period from the employee's pay?
The permissible limit on withholding under the law depends upon the employee's current dependents and prior support obligations. A "dependent" means there is a child and/or spouse for whom the employee has responsibility. "In arrears" means the non-custodial parent owes past-due, unpaid support.
Percentage Withholding Limits
50% If the non-custodial parent has other dependents and owes no arrearage
or is less than 12 weeks in arrears.
55% If the non-custodial parent has other dependents and is over 12 weeks in
60% If the non-custodial parent has no other dependents and owes no arrearage
or is less than 12 weeks in arrears
65% If the non-custodial parent has no other dependents and is over 12 weeks
In most instances, the maximum percentage of disposable income earnings subject to withholding for the employee will be specified in the income withholding order. In the event that the court or agency does not know the employee's current support obligations, the employer may be required to obtain this information from the employee.
What are "disposable earnings"?
Disposable earnings are the earnings left after all deductions required by law are taken from the employee's wages, which include amounts withheld for income taxes and social security. Amounts withheld from earnings at the request of the employee or through an agreement with a labor union (union dues) are included in disposable earnings because the law does not require these deductions. In determining the maximum amount subject to child support withholding, any garnishments presently being deducted are also included as disposable earnings.
An employee's gross wages for the week are $250.00. From this amount, the employer withholds $40.00 in federal, state, and local taxes; $20.00 in social security taxes; $10.00 in union dues; $50.00 for insurance and $5.00 for the United Way. The employee has no spouse or other dependent children other than the one whom the support has been ordered and is not more than 12 weeks behind in the payment of support.
The employee's disposable earnings for the week are $190.00. $250.00 less $60.00 with the $60.00 equaling the sum of federal, state, and local taxes plus social security. The maximum amount that may be withheld from the employee's check to comply with the child support withholding law is $114.00 (60% of $190.00).
What if the employee already has other assignments of garnishment on his or her income?
While the total amount withheld may never exceed the permissible percentage limit as set by the Consumer Credit Protection Act (CCPA), child support withholding orders take priority over any other claim (secured or unsecured) on income except claims for current federal, state and local taxes. If, in complying with all child support withholding requirements, an employer has exceeded the 25% of disposable income limitation applicable to business garnishments under Indiana law and the CCPA, the business garnishment cannot be honored. If the income withholding order does not exceed the 25% limitation, the difference between what is withheld for child support and 25% of the employee's disposable income could be applied to a business garnishment.
An employee is subject to a child support order in the amount of $100.00 per week and also a business garnishment. If the disposable income is $500.00 per week, the child support obligation represents 20%. 5% or $25.00 can be applied to the business garnishment. However, if the disposable income is $400.00, the child support obligation would represent 25% of disposable income and the business garnishment cannot be deducted from his pay.
What is the lump sum law?
If an employee is entitled to a lump sum payment in the form of:
AND owes an amount of child support that is in arrears, the employer must withhold the lump sum.
The State of Indiana does not compute arrearages on cases that are not managed by local county Title IV-D prosecutor's offices. For these cases, unless the employer receives a court order specific to a case, no deduction of lump sums can be made. The employer may contact the Employer Maintenance Unit at email@example.com to find out if a case is a non-Title IV-D prosecutor's case or if there are arrearages on a specific case. For specific information about Indiana's law concerning lump sums, please reference IC 31-16-15-19.
How is it determined if a commission, in part or in whole, is subject to the lump sum law?
1) When the non-custodial parent is making a weekly established income that is not deducted from any commission (example: sales), then regular child support comes out of the weekly income and 100% of the commission must be deducted for arrearages up to the amount of the arrearage. Exceptions are, if an employer can calculate the same on a per day basis or if the employer has been instructed to deduct a percentage.
2) When the non-custodial parent works for commission only, but is being paid a weekly income (advance or draw) that is deducted from the commission on a regular basis, then the weekly child support obligation must come out of the weekly income, subject to the Consumer Credit Protection Act (CCPA) limits. Then, when there is a positive balance at the end of the month, the only deduction from this balance is to deduct any remaining balance that could not be paid during the weekly checks in order to pay the full child support obligation that was due for that time period, subject to the CCPA limits. If there is no positive balance at the end of the month, the amounts unable to be paid are not continued on to the next month. This then becomes the non-custodial parent's responsibility.
3) When the non-custodial parent is making a commission other than monthly (such as a real estate agent), and earning no weekly pay, either one of the two methods below is followed:
a) If the commission can be broken down into how many weeks it took to earn the commission, only the number of weeks multiplied by the weekly child support obligation is deducted, subject to Consumer Credit Protection Act limits.
b) If the commission cannot be broken down into a number of weeks, the commission is subject to 100% deduction up to the amount of the arrearage.
4) Collective Commissions: A collective commission is a portion of the premiums gathered on debt insurance, paid to the agent who collected them. This is treated like a bonus and subject to 100% interception.
How are lump sum payments treated?
Lump sum payments must be withheld if the employee has an existing arrearage. If the lump sum can be represented to a specific number of weeks, the employer should withhold the lesser of the total amount of the arrears or the product of the amount of support the employee is required to pay each week multiplied by the number of weeks represented by the lump sum payment. In either case, the amount withheld cannot exceed the percentage allowed by the Consumer Credit Protection Act (CCPA).
If the lump sum payment cannot be represented by specific payment amounts over a specific number of weeks, the entire net lump sum amount must be withheld (with no federal Consumer Credit Protection Act limitations) up to the amount of the employee's existing arrearage.
EXAMPLE 1: Percentage limitation applicable
If the order to withhold is for $100.00 per week, the lump sum payment is $1,000.00 which is equivalent to 4 weeks of regular pay and the outstanding arrearage is $2,000.00, then the lesser of $2,000.00 or $400.00 (4 weeks x $100.00) should be taken out for child support.
EXAMPLE 2: Percentage limitation not applicable
The company holiday bonus is $1,000.00 and is based upon past success of the company. Because the bonus is not representative of a certain amount per week calculation, the lump sum is not, under Indiana law, considered "disposable income" and not subject to federal Consumer Credit Protection Act percentages. The entire $1000.00 is subject to withholding up to the employee's arrearage amount.
What if the lump sum is for back pay?
If the lump sum is for back pay, it should be treated like regular pay, i.e. the child support multiplied by the number of weeks. The only difference is that if you also paid the child support obligation in full for any of the weeks during that period of time, there would be no additional deductions as this would be double dipping for the same period of time. If only a partial payment was made during this period of time, then the weekly obligation balance is due.
How do I prorate lump sums for multiple cases?
In order to determine what percentage of a lump sum payment applies to each case when there are multiple cases for one employee, it must first be determined what the arrearage amount is. To do this, please contact the Employer Maintenance Unit at (800) 292-0403 or firstname.lastname@example.org. Follow these steps and example to prorate for multiple cases:
1. Add together all of the non-custodial parent's arrearage amounts for each case. Separately, determine the percentage the amount is for each case of the total arrearages of the combined cases. EXAMPLE: $1,258.00 divided by $15,757.43 equals 8%
Case Arrearage per Case Percentage Case #1 123456 $1,258.00 8% Case #2 789012 $2,589.33 17% Case #3 345678 $3,654.00 23% Case #4 901234 $8,256.10 52% Total $15,757.43 100%
2. Separately, determine what amounts of the lump sum is to be paid on each case by separately multiplying the total amount you are sending, by the percentage of each case. EXAMPLE: $1,000.00 multiplied by .08 equals $80.00.
Amount per Case Case #1 123456
$80.00 Case #2 789012
$170.00 Case #3 345678
$230.00 Case #4 901234
What if the income withholding order (IWO) received by the employer is for an individual who is considered an "independent contractor" for whom taxes are not deducted when the employer compensates the contractor for the contractor's services?
In the case of pay to an independent contractor where no taxes are withheld, the Child Support Bureau suggests as a policy; in order to be able to do the above steps 1-3 and in order to express fairness to the independent contractor, the employer may assume taxes of 23% for step #1 and then proceed to steps #2 and #3. (Note: the rate was 20% for the years 2011 and 2012 due to the tax break.)
is $120.00; therefore, the full IWO amount of $120.00 can be withheld in addition to the $2.00 fee for a total of $122.00. The sum of $120.00 is to be forwarded for the child support obligation. You would keep the $2.00 fee.
If the gross payment of $400.00 had been for a two-week period, then the calculation would be as follows:
is $169.40; therefore, the full IWO amount cannot be withheld. The lesser amount to be withheld is the percentage limiter amount of $169.40. The amount to be forwarded for the child support obligation would be $167.40. You would keep the $2.00 fee.
What happens when the affected employee's employment is terminated, on leave of absence or is laid-off?
If an employee is terminated, on leave of absence or is laid-off, please contact the Employer Maintenance Unit (EMU) at email@example.com.
Is the employer entitled to a fee for the administrative costs of withholding?
Yes. At the employer's option, they may deduct a fee of $2.00 from the employee's pay each time income is withheld and forwarded to either the Office of the County Clerk or to Indiana State Central Collection Unit (INSCCU). The assessment of this fee will not decrease the amount of income that must be submitted unless the total amount withheld would otherwise exceed the permissible limit.
If the income withholding order is for $115.00 per week and the maximum amount subject to withholding is $115.00 per week, the employer may still deduct a fee of $2.00 from the employee's pay, however, the employer then submits only $113.00 for child support.
What is an Annual Support Fee?
The Annual Support Fee (ASFE) is a once-a-year administrative fee for processing child support payments. Employers may receive an income withholding order for an employee's annual support fee. The ASFE income withholding order does not change how or where employers send regular child support payments. The fee is considered part of the child support obligation, therefore, the Consumer Credit Protection Act applies. As with child support withholding, employers may retain the $2.00 fee from the employee's wages.
Instructions for submitting the ASFE payment will be indicated on the withholding order. The ASFE payment may be paid via the Child Support Bureau's online payment system or sent electronically by electronic fund transfer (EFT). The ASFE payment can also be mailed via check with a copy of the withholding order attached and sent to:
Indiana State Central Collection Unit - ASFE
P.O. Box 6271
Indianapolis, IN 46206-6271
Note: This address is different from the address for regular child support payments,
Are there penalties for non-compliance or attempting to evade the requirement of this law?
Yes. The employer is liable for any amount it fails to withhold and submit pursuant to any child support withholding order. An affected applicant or employee may recover up to $5,000.00 from the employer in a civil action if the employer refuses to employ, discharges, or otherwise disciplines him or her because of the withholding requirement. The applicant or employee has a right to seek any form of legal redress that may be available to him or her because of the refusal to employ, discharge from employment, or disciplinary action.
What is the National Medical Support Notice (NMSN)?
The NMSN is a notice sent to employers from the child support enforcement agency. The NMSN is ordering you as an employer to enroll your employee’s child(ren) in your employer-provided health insurance coverage pursuant to a Qualified Medical Support Order (QMSO).
Its purpose is to ensure that children receive health care coverage when it is available and required as part of a child support order. It is designed to simplify the work of employers and plan administrators by providing uniform documents requesting health care coverage.
The NMSN/QMSO is divided into Part A and Part B. Part A is a Notice to Withhold for Health Care Coverage, the Employer's Response, and Instructions. Part B is a Medical Support Notice to the Plan Administrator, the Plan Administrator Response, and Instructions.
Payments deducted from an employee's pay pursuant to enrollment in health insurance pursuant to a NMSN/QMSO, are subject to Consumer Credit Protection Act (CCPA) limits. It is at this point that the employer may determine that the premium and ongoing child support exceed the Consumer Credit Protection Act (CCPA) limits under the state priority for withholding. If so, the employer will notify the child support enforcement agency, using the "Employer Response".
The employer completes Part A if the employee is not eligible for health insurance, if the employee has been terminated, or if there is not enough disposable income to cover the health care premiums. If the employee is not eligible or is no longer employed, the employer returns the completed Part A to the child support agency and discards Part B.
If the employer determines that the employee is eligible, the employer forwards Part B to the Plan Administrator. The Plan Administrator completes Part B and returns it to the child support enforcement agency. The Plan Administrator may enroll the child in existing coverage or notify the child support agency of options for the custodial parent to choose from. Once the child is enrolled in a plan, the plan administrator will notify the employer of the proper premium deduction. The Plan Administrator may take whatever steps are necessary to enroll the child(ren) pursuant to the order to enroll.
Does an employee's bankruptcy status affect his/her obligation to pay child support?
No. Child support obligations are not dischargeable through a bankruptcy proceeding. In the event you receive a letter from a bankruptcy trustee, call the county where the child support order was issued and provide them with the information included in the letter. Local Child Support Contact List If you have any questions, please contact the Employer Maintenance Unit at (800) 292-0403 or (317) 232-0327.