If Health Insurance is Mandatory…Is it a Mandatory Deduction (for Garnishments)?

The Affordable Care Act has been in full swing for a couple of years now.  However, there appears to still be one more question that needs to be answered.  If health insurance is mandatory then does it now qualify as a mandatory deduction under garnishment rules? Both payroll professionals and employees have been tackling with this question so let’s see what the actual law requires.  The Consumer Credit Protection Act (CCPA) is the governing law when it comes to deducting for garnishments.  It is enforced by the federal Department of Labor. It states that the employer must take the gross wages and minus out all “mandated deductions” to arrive at the disposable pay. The garnishment percentage (such as 25% for a creditor garnishment) is then taken from this amount.  It states clearly that mandated deductions include taxes such as federal and state income tax, FICA taxes, local taxes, and mandated pension plans such as PERS (Public Employee Retirement System).  401(k)s etc. do not count.  So if I am required as an employee to have health insurance is that now mandated.  The answer is easy…NO.  The DOL has been asked by the APA Government Affairs Manager, Bill Dunn, if they planned to change the definition of mandated deductions to include health insurance.  The answer was no they are not.  Although it is mandated that a taxpayer have health insurance it is not mandated that they have the employer’s insurance. They could buy it through the open exchange and by-pass the employer altogether. So as far as the CCPA is concerned health insurance does not reduce the disposable income.

However, always remember that the states can always do less than the CCPA. It is possible that the state may permit the health insurance as a mandated deduction. Many state legislatures are looking at legislation that will adjust their requirements. It would appear on the garnishment you receive if the state permits the deduction.  You should also be aware that state tax levies might also permit the health insurance deduction. For example, Colorado and Virginia have added the deduction from state tax levies.

So to recap…the federal CCPA is not adding health insurance as a mandated deduction for garnishments.  However, the state legislature may or may not pass legislation to permit it as a mandated deduction, you need to check on each state requirements by reading the garnishment.

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