How do I record employee loan forgiveness

Hi, @9130349659890896!

In QuickBooks Online, we'll have to set up a liability account where we can record the loan.  This account tracks what you owe.

These are the steps that will walk you through the process:

1. Select Settings ⚙, and then Chart of Accounts.
2. From the upper left, select New.
3. Set the Account Type to either Other Current Assets or Current Assets.
   Note:
   • Create an Other Current Asset if the loan is to be repaid within the current fiscal year.
   • Create an Other Asset if the loan will be repaid after the current fiscal year.
4. Choose Loans to Others in the Detail Type drop-down.
5. Add a recognizable name like "Customer Loan-Lastname".
6. Select Save and close without entering an opening balance.

You can also read these articles for more details: How do I prepare for Paycheck Protection Program loan forgiveness?

I'm always here to lend a helping hand if you have any other questions. Wishing you continued business success now and in the future.

Yes, the loans are recorded.  My question pertains to loan forgiveness.  If an employee is terminated while he/she has an outstanding loan, how do we record that in QB?

Yes, the loan is recorded correctly.  My question pertains to loan forgiveness.  If an employee is terminated while he/she has a loan on the books, how do we record that in QB?

Thanks for clarifying, @9130349659890896. As an additional insight, you can write off the uncollectible loan made to a terminated employee. 

Declaring unpaid loans as a bad debt will clear your accounts receivable and reduce your net profit by its amount. 

You can use journal entries in recording this. However, I recommend consulting your accountant for guidance with the posting accounts. 

Hee's how: 

1. Select + New in the left menu, then select Journal entry. 
2. Fill in the fields to create your journal entry.
3. Select Save and close.

You can also visit our QuickBooks Live Bookkeeping to get a dedicated expert. 

 As always, reach out to us here in the Community whenever you need help. Take care!

I do appreciate your assistance.  You are correct that this will take the receivable off the books.  Back to my original question.... and possibly rewording the question will be best:

There is an existing employee loan on our books.  This balance will be written off due to the employee being terminated.  The IRS requires that this balance be shown as income to the employee, and we are required to pay tax on that employee income.  How do I record this in quickbooks to show as income to the employee?  We have QBO Advanced and also do payroll through QB.

Thanks for following up with the Community, 9130349659890896.
 

To properly determine how your terminated employee's loan can be entered as income, I'd recommend working with an accounting professional. If you're in need of one, there's an awesome tool on our website called Find an Accountant. All ProAdvisors listed there are QuickBooks-certified and able to provide helpful insights for driving your business's success.
 

Here's how it works:

1. Visit our Find an Accountant webpage.
2. In the Find an expert in section, choose what you're looking for, then use your search field to enter a City or ZIP code.
3. Hit Search.
   
4. Browse through the results and find one that works best for your business. You can click each ProAdvisor's profile to learn more information about their services.
   

Once you've found an accounting professional, they can be contacted through their Send a message form:

1. Use your available text box to introduce yourself. Be sure to include details about the services you're looking for.
   
2. Enter the appropriate info in the Your name, Your email, and Your phone number (optional) fields.
   
3. Select Send message.
   

I've additionally included a few detailed resources about working with QuickBooks Online Payroll that may come in handy moving forward:

• Supported pay types & deductions explained
• Paycheck Protection Program loan forgiveness
• Rules for rehiring employees for PPP loan forgiveness

Please don't hesitate in sending a reply if there's any questions. Have a lovely day!

I'd like a better answer to this question.  I have a couple to record and I don't want to show it as BAD DEBT just FORGIVEN.  Do I create another account that says LOAN FORGIVENESS?   Will the IRS accept that?

Quickbooks Payroll

This falls short of explaining how we record this income through Quickbooks Payroll to hit the W2 and pay/file the appropriate taxes.

Our accountant is advising we record and report this forgiven debt as income. Our previous Payroll provider was able to do this and obviously, more than one user is needing this. What is the process to record this as income through quickbooks payroll?

Thank you.   

I need to make the same entry for an employee as of 12/31....did you ever find the resolution to this issue? Thank you! 

Welcome to the Community, @RS241.

I'll help you record the terminated employee loan balance.

You have the option to write off the uncollectible loan made to a terminated employee. Declaring unpaid loans as a bad debt will clear your accounts receivable and reduce your net profit by the amount of the loan.

I recommend creating a Journal entry. It's also best to consult an accountant to avoid messing your books if you're unsure of the accounts to use.

1. Go to + New.
2. Click Journal entry.
3. On the first line, select an account from the Account field. Depending on if you need to debit or credit the account, enter the amount in the correct column.
4. On the next line, select the other account you're moving money to or from. Depending on if you entered a debit or credit on the first line, enter the same amount in the opposite column.
5. Check the amounts - you should have the same amount in the Credit column on one line and the Debit column on the other. It means the accounts are in balance.
6. Enter information in the memo section so you know why you made the journal entry.
7. Select Save and new or Save and close.

For future reference, read this payroll year-end guide: Year-end checklist for QuickBooks Online Payroll.

Don't hesitate to click the reply button below if you have questions about managing employee loan balance in QuickBooks Online. I'm always here to help. Have a great day.

This does not help me - the amount of the forgiveness needs to be included in the employee's W-2. Please advise how to move from current asset to employee w2 as taxable wages.

Hi RS241,

Thank you for posting here in the Community. I'm here to help you include the loan forgiveness in Form W-2 of your QuickBooks.

The data reflecting on Form W-2s depends on your payroll transactions, like the paychecks in QuickBooks. Since you need to include loan forgiveness, you should perform the adjustments on your prior payroll. 

You'll need to contact our Payroll Support Team for further assistance regarding the form. They'll be able to lend a hand with the information you need to include related to loan forgiveness.

Our Customer Support Team for QuickBooks Online Payroll - Core, Premium is available from 6 AM - 6 PM PT (Monday - Friday). For QuickBooks Full Service Payroll, QuickBooks Online Payroll Elite/Premium, any time, any day.

Here's how:

1. Click the Help tab in the upper-right corner.
2. Go to the Assistant tab.
3. Click Get help from a human.
4. Choose Chat with us or Have us call you.

You may see boxes 1, 3, and 5 have different amounts in each or are different compared to your employee pay stubs and wonder if this is wrong. I've attached a link you can use to learn about things that affect the amounts in Boxes 1, 3, and 5 on the W-2s in QuickBooks: Understand why W-2 box amounts are different.

Comment below if you have additional questions or concerns about Form W-2 in QuickBooks. We're always here to help. Take care always.