Employee was given a cash advance. Employee quit before advance was fully repaid (still owes $900). Efforts to collect have failed. How do I account for the unpaid balance owing? Employee was a W2 employee so I believe that this should be reported as "Income". How do I book this?
To close out the advance you need to add it as net to wages and W2. You also have to gross it up to record not only employee taxes but also your share of taxes and of course you will have to submit those same taxes. Rough figures you will owe FICA and FWT, Stare, Local, SUI, FUTA of anywhere from $150-$200 on this $900 but bright side you get an expense for gross payroll.
It would be cheaper to leave it as an open debt to you, file civil case at local magistrate, get judgment, verify judgment so it goes on their credit and then write it off.