Legal Question in Tax Law in Florida

Re: Tax on Promissory Note?

I'm afraid that you're a little confused about this, and the bottom line is that your employer is correct.

You borrowed money, agreeing to repay it with interest. You earn money on your job just as you always did, and you owe tax on that income so your employer properly withholds the taxes from your wages as he is required to do. Then a portion of your net income is paid to your employer instead of being paid to you, exactly as though you got your full net wages and then wrote a check to your employer. The taxes withheld on your wages are properly computed without reference to the loan repayment.

If the interest you are paying to your employer is deductible (as is interest you pay on your home mortgage), you can deduct that interest on your tax return. You will probably find, however, that the interest is not deductible -- most "personal" interest is not deductible. So your employer is right, and your analogy to the interest you pay on your mortgage is not really on point.