Fundamental Payroll Certification (FPC) Practice Exam

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In the context of payroll, what is garnishment?

Voluntary deduction for retirement savings
A tax incentive for employees
A legal process to transfer wages to creditors
An involuntary savings plan for employees

The correct answer is: A legal process to transfer wages to creditors

Garnishment refers to a legal process through which a portion of an individual's earnings is withheld to pay off a debt owed to creditors. This typically happens when a court order is issued, allowing creditors to claim a portion of an employee's wages directly from their employer. The process generally applies to various debts, including child support, student loans, and tax obligations, among others. In this context, it is important to distinguish garnishment from other financial deductions. Voluntary deductions for retirement savings represent employee choices to save and invest for future retirement. A tax incentive, on the other hand, provides benefits to employees related to their income taxes rather than addressing debt obligations. Lastly, an involuntary savings plan suggests a mechanism that is not directly associated with repaying debts and does not involve legal proceedings. Therefore, the correct definition of garnishment highlights its role as a method for creditors to collect debts through a court-sanctioned process.