Wage Assignment

Wage Assignment

A wage assignment is an agreement that directs an employer to withhold a portion of an employee’s paycheck and send it directly to a creditor to repay a debt. It can be voluntary (initiated by the employee or written into a loan contract) or arise from specific agreements such as child support arrangements.

Key takeaways

• Wage assignments take money directly from paychecks to satisfy debts.
• They are generally voluntary and governed by state law; rules and limits vary by state.
• Wage garnishment is different: it’s involuntary and usually requires a court order.

How wage assignments work

When a wage assignment is in effect, the employer adjusts payroll to withhold the agreed amount and notes the deduction on the employee’s pay stub. Wage assignments are commonly used to collect unpaid obligations that have been outstanding for some time, though employees may also request voluntary withholdings (for example, for union dues or retirement contributions).

Lenders sometimes include wage-assignment clauses in loan agreements (particularly payday lenders) to increase the likelihood of repayment if a borrower defaults.

Voluntary vs. involuntary

• Voluntary wage assignment: The employee signs an agreement allowing an employer to send a portion of wages to a creditor. Some contracts include clauses that convert to a wage assignment upon default.
• Involuntary wage garnishment: Requires a court order or statutory authority and is used for things like child support, certain tax debts, and defaulted federal student loans.

Some states permit voluntary arrangements for child support, requiring both parents’ agreement and, in many cases, agency approval.

State rules and typical limits

State law determines whether wage assignments are allowed, how they must be executed, and limits on the amount that can be withheld. Common features include:
* Caps on the percentage of disposable income that may be assigned—many states limit assignments to roughly 15–25% of disposable (take-home) pay.
* Procedural requirements such as signatures from the employee and employer, and periodic renewal of the agreement.
Examples:
* West Virginia caps assignments at 25% of take-home pay and requires signatures and annual renewal.
* Illinois restricts when a lender may use wage assignment (e.g., not until a debt is a specified number of days in default) and limits duration in some cases.

Always check the law in your state for precise rules.

How long and how much

• Duration: Because most wage assignments are voluntary, their duration depends on the agreement terms or the underlying loan contract. State rules may also limit duration.
• Amount: Typical limits range from about 15% to 25% of disposable income, but state law controls exact percentages and calculations.

Risks, consumer protections, and what to do

Wage assignments can be a practical way to repay debt automatically, but they can also be abused if borrowers sign away protections in fine print. To protect yourself:
* Read loan agreements carefully for wage-assignment clauses before signing.
* Review your state’s statutes or consult a consumer- or employment-law resource to understand limits and formalities.
* If you’re struggling with debt, consider contacting a reputable credit counseling agency or seeking legal advice to explore alternatives before entering a wage assignment.
* Keep documentation of any voluntary agreement and verify with your employer that deductions are processed correctly.

Wage assignment vs. wage garnishment

• Wage assignment: Generally voluntary; created by agreement between employee and creditor (or written into loan terms).
• Wage garnishment: Involuntary; imposed by court order or specific statutory authority (commonly for child support, tax debt, or certain student loans).

Bottom line

A wage assignment directs part of your paycheck to a creditor and can simplify debt repayment, but it’s controlled by state law and can be included in loan contracts without clear notice. Before agreeing to a wage assignment, review the agreement terms, confirm applicable state protections and limits, and consider seeking professional debt counseling or legal advice if you have concerns.