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Bonus and Lump Sum Payments

Published: April 4, 2012
Information About:
Employers
Topics:
Employer Responsibilities, Bonus/Lump Sum Reporting, Electronic Income Withholding Orders (e-IWO), Income/Wage Withholding
Types:
Guides/Publications/Reports
Tags:
Debt Inquiry

Bonus and Lump Sum Payments

Bonus and lump sum payments made to employees are considered income and may be garnished to collect past-due child support. Examples include severance, vacation payouts, insurance settlements, retirement incentives, commissions, stock options, lottery winnings, awards, and payments as a result of verdicts. Some states require employers doing business in their state to report bonus/lump sum payments before paying them to employees. Requirements vary among states, including the length of time employers must hold the payment to allow the state time to notify the employer about the amount to withhold. See State Lump Sum Contacts and Program Information for state-specific requirements.

When states notify employers to withhold from these payments, they may use the Income Withholding for Support (IWO) form, a lien/levy, or another state-specific form or process. It is important to remember that all employer-withheld payments must be sent to the State Disbursement Unit.

Withholding Calculations

The term 'earnings' means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.

If the lump sum payment is defined as earnings under the Consumer Credit Protection Act (CCPA), then the CCPA limits or state limits, if lower, apply. The withholding limits set by the CCPA are as follows:

  • 50% - Supports a second family, with no arrearage or less than 12 weeks in arrears
  • 55% - Supports a second family, and more than 12 weeks in arrears
  • 60% - Single, with no arrearage or less than 12 weeks in arrears
  • 65% - Single, and more than 12 weeks in arrears

    Note: A second family means there is a spouse and/or child for whom the employee has responsibility. "In arrears" means there is past due, unpaid support owed by the noncustodial parent.

See State Income Withholding Information for state-specific information.

If the type of bonus/lump sum payment does not fall within the CCPA definition of earnings, then 100% of the payment may be garnished up to the amount of past-due child support.

Two Ways to Report Lump Sum Payments Through OCSE

  1. Electronic Income Withholding for Support Order Process

    The Electronic Income Withholding for Support Order (e-IWO) process enables states and employers to exchange information about IWOs including employers notifying states about an upcoming bonus/lump sum payment. See Electronic Income Withholding for additional information about e-IWO.

  2. Debt Inquiry Service

    The Debt Inquiry Service (DIS) enables employers to provide information about employees who are eligible to receive a bonus, lump sum or other type of payout online using a web application. See Debt Inquiry Service for additional information about DIS.