We made a loan to an employee who hit hard times. This is interest free and he makes advance repayments each biweekly payroll. He would like to pay this off early, which is fine. This advance repayment is his only payroll deduction. I thought this was pre-tax. He seems to be concerned he is getting taxed twice? Can anyone she light on this?
@Sjones94 What is happening can depend on how you provided the loan originally, and how you set up the repayment item.
Can you describe those in more detail?
In any case, I believe advance repayments are normally set to be deducted from Net Pay; they should not be pre-tax, or it would lower their taxable wages by that amount.
Thank you - you are correct. We gave the employee a lump sum loan ACH transfer from our bank account - not thru payroll - and did not tax it. Each biweekly paycheck deduction is being taxed (I realized after I formed my question). So basically we gave him a loan and he is paying it back via payroll deduction. His paystub says Advance Repayment then I adjust that to short term loan in our Chart of Accounts.
I think what the employee is thinking is, they received a lump sum loan and counted that as income on that year's taxes and now they are also paying taxes on the advance repayment - this is where I am getting confused.
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