Legislators pass severance pay, withholding, reporting changes

(Note: Changes took effect Sept. 1, 2007)

Severance Pay [TFC §158.214]

“Severance pay” is income paid on termination of employment in addition to the employee’s usual earnings from the employer. Under TFC §158.214, an employer receiving an order or writ of withholding shall withhold from any severance pay owed an obligor an amount equal to the amount the employer would have withheld under the order or writ if the severance pay had been paid as the obligor’s usual earnings as a current employee. To calculate the amount to withhold, the employer must first determine how many months of earnings the severance pay equals.

For example, if the gross severance pay is $10,000 and the employee’s gross income is $4,000 per month, the severance package equals two and a half times the employee’s monthly earnings. Therefore, the employer should withhold 2.5 times the obligation amount specified in the income withholding order(s). The total amount withheld, including the employer’s fee, cannot exceed the 50% state disposable income withholding limitation.

If the employee has more than one income withholding order, severance pay must be applied to each case. As with multiple cases, the current support obligation must first be met and any remaining monies applied to the arrears equally.

Withholding from Lump Sum Payments [TFC §158.215]

A “lump-sum payment” is income in the form of a bonus, commission, or an amount paid in lieu of vacation or other leave time. The term does not include an employee’s usual earnings or an amount paid as severance pay.

An employer who received an administrative writ of withholding for child support arrearages on a case from a IV-D agency, which in Texas is the Child Support Division of the Office of the Attorney General (OAG), may not make a lump-sum payment to the obligor in the amount of $500 or more without first notifying the OAG to determine how much should be applied to the arrearages.

An employer may not make the lump-sum payment before the earlier of 10 days after the employer notified the OAG of the lump-sum or the date the employer received authorization from the OAG to make the payment according to the authorization’s terms.

The employer may not make the lump-sum payment until the employer receives confirmation from the OAG or until the 10th day after the date the employer made the notification.

The employer needs to provide the following information for the OAG to comply with the 10-day requirement: employee's full name, social security number, and OAG case number; amount of the bonus (if known); company’s name, address, FEIN, contact person, and phone number.

A Notice of Intent to Distribute Lump Sum Payments form and an Excel template are available for download on the home page of this Web site under “Helpful Information, Download Forms.” FAX the appropriate information to 1-888-272-5122.

OAG will research the list provided by the employer and respond as to which cases should have monies withheld. Employers will be required to withhold 50% of the bonus amount’s disposable earnings up to the amount of the current arrears. See below for examples of how to determine the amount to withhold.

If the employee has more than one income withholding order, then the amount withheld must be equally applied to each case. As with multiple cases, the current support obligation must first be met and any remaining monies applied to the arrears equally.

If you have any questions, please contact the Employer Call Center at 1-800-850-6442.

New Hire Penalty [TFC §234.105]

A penalty for failing to report employee information is now authorized in Chapter 234. An employer who knowingly fails to report employee information may be liable for a civil penalty not to exceed $25 for each occurrence in which an employer fails to report an employee or $500 for each occurrence in which the employer conspired with the employee not to submit a required report or supplied a false or incomplete report.

Employers should report their newly hired or rehired employees within 20 calendar days to the State Directory of New Hires, which in Texas is operated by the Child Support Division of the Office of the Attorney General.

At a minimum, the employer should report the following information: company’s name, mailing address, payroll address (if different from mailing address), and FEIN; employee’s name, address, and social security number.

Information may be submitted in any of the following ways:

• online: http://employer.oag.state.tx.us  
• phone: 1-800-850-6442
• FAX: 1-800-732-5015
• mail:

    Texas Employer New Hire Reporting Program
    Operations Center
    P.O. Box 149224
    Austin, Texas 78714-9224