Cash Flow CornerNews

Ending the confusion over per diem

There has been some confusion surrounding per diem for truck drivers. Under the new tax law, owner-operators will still be able to deduct per diem, but company drivers have lost that deduction. ( Photo: Shutterstock )

For years, truck drivers have collected a per diem for meals when on the road. Whether you were a company driver or owner-operator, you could take the daily per diem of $63 and deduct it off your taxes, if you itemized. In the last few weeks, there has been a lot of confusion in the driver community regarding the per diem, which has been eliminated for company drivers under the new Republican tax plan.

The confusion has arisen over whether owner-operators could continue to use the per diem or not, and what can company drivers do with this seemingly large taxable expense that has just been dumped in their laps.

“The [company] driver lost the ability to deduct the per diem,” explains Kevin Rutherford, owner of Let’s Truck who advises drivers on tax preparation. “For the owner-operator, nothing changes.”

According to Rutherford, owner-operators (and leased drivers) will be able to continue using the per diem and deducting it on their taxes through Schedule C or on their corporate return. For a driver on the road 250 days a year, that’s $15,750 of potential deductions. Combined with other business expense deductions, and the new 20% deduction on pass-through corporations (if your business is structured this way), there are still plenty of tax benefits.

For company drivers, though, the situation is a bit cloudier. They have lost that $63 deduction, but individual (or married) tax filers receive the larger standard deductions ($12,000 for individuals, $24,000 for married filing jointly) now available. Will those deductions be enough to offset the loss of the per diem? That depends on the individual tax situation of each driver.

It could become an important driver benefit issue moving forward, Rutherford says, as carriers could still offer the $63 as a pre-tax benefit, if they choose.

Avery Vise, vice president of trucking research at FTR Transportation Intelligence, said in a conference call last week that it remains to be seen what fleets will do. “Carriers that do not offer per-diem pay might encounter driver dissatisfaction once [drivers] understand what has happened,” he said. “How that plays out is something to watch, particularly when it comes to recruiting and retention.”

Rutherford thinks it’s likely that carriers will begin to offer it as an incentive to both attract and keep drivers. In a recent blog post on the Let’s Truck website, Rutherford explains. He highlighted the text from the tax bill that he believes is relevant. It reads: “Under the provision, business expenses incurred by an employee are not deductible, other than expenses that are deductible in determining adjusted gross income (that is, above-the-line deductions).”

He outlines a potential scenario under the old law and the new tax law to show the difference the per diem makes on taxes. In 2016, a driver on the road for 300 days would be eligible for about $15,120 ($63/ day times 300 days adjusted to 80% = $15,120) as a per-diem itemized deduction. That means they would not have taken the standard deduction ($12,000 for married or $6,000 single filing status) but would have $15,120 as “tax-free” income.

Under the new tax plan, and if a carrier provides per-diem to drivers on a pre-tax basis, the driver would receive $18,900 essentially tax free for the per diem. In addition to the new standard deduction amounts of $24,000 for married and $12,000 for singles, it would mean a driver would receive as much as $42,900 tax free for a married driver filing a joint return.

Using some basic numbers (each individual tax situation is different and these numbers are for illustrative purposes only, he advised), tax consultant Mark Sullivan provided Let’s Truck with an example of a driver that receives per diem and one that doesn’t.

For the driver that does not receive per diem, making an average salary of $50,400 and taking a standard deduction of $24,000, he would have taxable income of $26,400 and pay taxes of $6,643. That would be a $737 savings over their 2017 taxes based on itemized deductions of $12,592 and exemptions of $8,100.

When comparing that to an employee driver who receives paid per diem of $15,750, it doesn’t compare. This driver, using the same numbers, would have taxable income, after the $24,000 standard deduction, of just $10,650 and a total tax bill of $3,735, resulting in a $3,645 savings over their 2017 taxes.

Some carriers already pay per diem for their drivers, but the potentially large tax savings for drivers may make those fleets even more attractive going forward, and forcing more carriers to offer per diem as a part of their benefit packages.

Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.

Tags
Show More

Brian Straight

Brian Straight covers general transportation news and leads the editorial team as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and fleetowner.com. Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler.

15 Comments

  1. So the single person gets screwed because what I have read most of it was based on people that are married and not single. Not everyone is married so basically the single person gets screwed and if your company does not offer you per diem as a company driver you probably will get screwed to.

  2. Trucking companies can still pay per diem to the W-2 drivers. It’s just the drivers that can’t take it as a deduction on their tax return if they were not paid per diem form the company.

  3. This statement is wrong, "For the driver that does not receive per diem, making an average salary of $50,400 and taking a standard deduction of $24,000, he would have taxable income of $26,400 and pay taxes of $6,643…"
    A driver with a taxable income of $26,400 is in a 12% bracket and would not be paying $6,643, but rather $2787.00

  4. I had a company driver can not claim the per diem on my tax’s but the company I work for can pay me that way with no tax consequences on my behal?

  5. This is some what misleading. You have failed to inform drivers that per diem is NOT income. If a driver earns 30000 in mileage pay and 15000 in per diem their income is reported as 30000, not 45000. It has a profound affect on their ability to barrow money for say a mortgage or qualify for revolving credit. It also royally screws them out of contributions to their SSI account, since the employer only contributes based on the 30000. I bothers me that bean counters and carriers push per diem and never mention the down side!

  6. All I see is a mass exodus of truck drivers leaving the field unless they amend this ! I mean quick !!!

  7. An otr driver should be bringing in about double of that $50000. No wonder these companies can’t get and keep drivers.

  8. From what I’m seeing no driver, be it company or owner operator, will loose this per diem. My company dies not pay this to drivers, it’s up to us to take that write off at years end. Nor do they plan on changing this policy. So next year I’ll be claiming my per diem even thou I’m company.

  9. As a married company driver with only 1 income I am pissed spouse can’t work and I make just enough she doesn’t qualify for disability through social security and she has been permanently disabled for life and at a young age F you Trunp

  10. This tax law really screwed the company drivers. How many drivers are no longer married after getting into trucking. May as well call it quits.

  11. Very idiotic article. If you itemize you include way more than the per diem. Misleading at best how you described "tax savings". Sad how "tax consultant" Mark Sullivan thinks truck drivers are just simpletons…

  12. Per diem is going to short change drivers when they apply for mortgages. Banks will not take per diem into account as income as they will see it as expense reimbursement. Older drivers will also lose out on Social Security benefits, because their income will be reported as less, also.
    For the younger driver, this may not hurt as much as long as he is not buying a house, getting a loan, or trying to have a credit card with much credit.
    For older drivers, whom most likely would buy a home to retire in, and be getting close to social security, it will suck. Especially if they are relying on social security to support them in their retirement.
    This new law will take away even more incentives for anyone to be a truck driver. Think the driver shortage is bad now, just wait…

  13. Per Diem is a win-win for companies. They save on taxes big time, and when they collect "administrative fees" on their drivers, they are ripping them off. There is nothing to administer once they have made the changes to their software.

Close