Deduction priority
Deduction priority is the order a payroll system applies deductions when an employee’s wages cannot cover every one of them.
The order decides which obligations are withheld in full, which are reduced, and which go unpaid. The shortfall is either dropped or carried forward to a later payroll as arrears. Deduction arrears are amounts an employee owed on a scheduled deduction that payroll could not fully withhold. They arise when earnings run short, leave is unpaid, enrollment is late or retroactive, or a prior period was under-deducted. Priority is configuration, not alphabetical order or the date a deduction was added, so it belongs in setup before the first payroll.
What decides which deduction comes out first?
Legal orders generally come out ahead of voluntary deductions, because a garnishmentGarnishment. Garnishment is a legal order requiring an employer to withhold part of an employee’s wages and send it to a creditor, court, or agency.Click to open the term or income withholding order is not an employee election. Payroll applies deductions in priority order until the money runs out. State law can reorder parts of the sequence and protect a minimum amount of pay, so confirm your state’s treatment.
- 01
Child support first. Among legal orders, child support usually takes the first position.
- 02
Other legal orders next. Federal tax levies, creditor garnishments, and student loan wage garnishments follow the rules for each and the order they were served.
- 03
Voluntary deductions last. Retirement deferrals, benefit premiums, union dues, and loan repayments follow your configured sequence.
- 04
Resolve the shortfall. A deduction set to arrears carries its unpaid balance forward; one without arrears behavior misses the period and never catches up.
- 42 U.S.C. §666, Requirement of statutorily prescribed procedures to improve effectiveness of child support enforcement
- U.S. Department of Labor, Fact Sheet #30: Wage Garnishment Protections of the Consumer Credit Protection Act (CCPA)
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.