Have Tax Questions? Ask a Tax Expert for Answers ASAP
Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.
Create a final paycheck and compute the NET amount owed after taxes. Then, add to the paycheck a deduction item that goes to reduce the amount of the employee loan in the same amount of the net. This will bring the final paycheck to zero net due.
The remaining balance of the employee loan will be written off. You will need to do a general journal entry to reduce the remaining employee loan balance and increase an expese called "Bad Debt expense"