Cash advances allow you to front money to an employee ahead of their regular payday, with automatic repayment deducted from future pay runs. This is commonly used for emergency situations, travel expenses, or other cases where an employee needs funds before their next scheduled paycheck.
What's covered in this guide?
How cash advances work
A cash advance is a loan from the employer to the employee. The key things to understand:
The advance is issued on a pay stub as a separate line item during a pay run.
Repayment happens automatically through deductions on future pay stubs until the full amount is repaid.
Only one active cash advance per employee is allowed at a time. A new advance cannot be issued until the previous one is fully repaid.
Tax Treatment
Cash advances have specific tax implications that differ from regular earnings:
When the advance is issued, the amount is not subject to income tax, Social Security, Medicare, or any other payroll taxes. This is because a cash advance is a loan, not earned income. The employee has not yet performed work to earn this money — it is being fronted to them.
Repayment deductions are post-tax. When the advance is repaid through future pay stubs, the deduction is taken from the employee's net pay — after all taxes have been calculated. This means the repayment does not reduce the employee's taxable gross wages on those future pay stubs. The employee is taxed on their full gross earnings as normal, and the cash advance repayment is deducted afterward.
In short: the money is not taxed when it goes out, and the repayment does not reduce taxes when it comes back. The employee's tax obligations remain the same as if no cash advance had been issued.
Issuing a cash advance
Cash advances are added directly to an employee's pay stub during a pay run.
Prerequisites
The pay run must be in Draft status.
The employee must not have an existing active cash advance that is still being repaid.
Steps
Navigate to the pay run and open the employee's pay stub.
Scroll to the Cash Advances section.
Click the Add button.
Fill in the following fields:
Amount — The total cash advance amount to issue to the employee.
Reason (optional) — A note explaining why the advance is being issued (e.g., "Emergency travel expenses").
Deduction per Pay Stub — The amount that will be automatically deducted from each future pay stub to repay the advance. For example, if you issue a $600 advance and set this to $200, the employee will have $200 deducted from each of their next 3 pay stubs.
Account — The payroll account (general ledger account) to record the advance against.
5. Post the pay run as normal.
The cash advance amount will be included in the employee's payment for that pay run but will not affect their tax withholdings.
How Repayment Works
Once the pay run containing the cash advance is posted, repayment begins automatically:
A "Cash Advance" deduction is created and applied to the employee's future pay stubs.
Each pay stub will include a deduction for the amount you specified in the Deduction per Pay Stub field.
Repayment continues across as many pay periods as needed until the full advance amount is recovered.
Once the total repaid equals the original advance amount, the deduction stops automatically.
Example
Pay Period | Gross Pay | Taxes | Cash Advance Deduction | Net Pay |
Pay Run 1 (advance issued) | $2,000 | $400 | +$500 (advance paid out) | $2,100 |
Pay Run 2 | $2,000 | $400 | -$250 (repayment) | $1,350 |
Pay Run 3 | $2,000 | $400 | -$250 (repayment) | $1,350 |
Pay Run 4 | $2,000 | $400 | $0 (fully repaid) | $1,600 |
Notice that taxes remain at $400 in every pay period. The cash advance does not affect tax calculations in any period — neither when issued nor when repaid.
Adjusting or canceling a cash advance
Before the pay run is posted
If the pay run is still in Draft status, you can edit the cash advance details (amount, deduction per pay stub, reason, or account) or delete it entirely from the pay stub.
After the pay run is posted
Once posted, the advance has been issued and repayment is in progress. If you need to change the deduction per pay stub amount, you can adjust the deduction on the employee's user profile under Payroll -> Payroll Details -> Deductions. You can also change the amount on future pay stubs during the draft phase.
Employee View
Employees can view their pay stubs through the mobile app or employee portal. During repayment, the cash advance deduction appears in the Deductions section of their pay stub, listed as "Cash Advance" with the repayment amount for that period.
Employees cannot request cash advances themselves — they must be created by an admin on the pay stub.
Important reminders
One at a time. An employee can only have one active cash advance. You must wait for the current advance to be fully repaid before issuing another.
Post-tax deductions. Repayment deductions reduce the employee's take-home pay but do not reduce their taxable income. Make sure the deduction per pay stub amount is reasonable relative to the employee's net pay to avoid issues.
No impact on tax forms. Because cash advances are not taxable income, they do not appear on the employee's W-2 or affect year-end tax reporting.
General ledger. Cash advances are recorded against the payroll account you select when creating the advance. Ensure you have the correct account configured for tracking outstanding advances.