IRS per diem rate going up by $3 next month

In an email to FreightWaves, Steve Pletcher and Kelli Block, partners at Scopelitis, Garvin, Light, Hanson & Feary, said that “in practice, many motor carriers effectively adopt the IRS meal and incidental expense rate as their per diem rate, which makes a certain amount of sense because that is the amount the IRS has effectively deemed it reasonable for certain transportation workers to incur in meal and incidental expenses while traveling away from home on business.”

The increase may seem small. But if it is taken for 200 days on the road by an independent owner-operator, that works out to $600 of tax-free compensation because the per diem is viewed by the IRS as expense reimbursement. That type of compensation is not taxable. Depending on a driver’s tax rate, $600 could be seen as equaling $900 to $1,000 of taxable compensation.

The Scopelitis attorneys said the $3 increase is the same size as the one that went into effect in the 2018-19 tax year. However, that increase came after just two years, as opposed to the three years for this increase.

Troy Hogan, a partner with the transportation advisory firm of Katz, Sapper & Miller, said the per diem rate is not just a factor for independent owner-operators. He said employee drivers who are paid a linehaul rate will usually get an expense fee per mile.

However, Hogan added that the daily amount of the per-mile payment to employee drivers generally is capped at the IRS allowable rate for the per diem. 

In a presentation Hogan made to an American Trucking Associations meeting along with Pletcher on the per diem, he noted that in order to qualify a driver needs to be on the road for a significant period of time during a working day: “must be away from tax home longer than an ordinary work day,” according to the presentation. 

But that doesn’t mean it’s a 24-hour rule. They must be “away long enough that they cannot reasonably be expected to complete the trip without sleep or rest.”

Given that under most circumstances the per diem is not taxable — the presentation makes clear that the question can sometimes be a bit complicated — “paying employee drivers with per diems can be an effective way to increase driver pay while protecting company profits,” it said.

If a company pays an employee a reimbursement tied to expenses that exceeds the $69 per diem rate, it creates risks, Pletcher and Block said in their email. If payments exceeding $69 occur, they said, “then the IRS may very well disqualify the entire per diem plan.”

“In our experience, most motor carriers have found it more administratively practicable to simply set a cap that is at or below the IRS rate (and back that amount up with some evidence demonstrating it is reasonable to anticipate drivers incur at least that amount of meal and incidental expenses while working away from home overnight),” they wrote.

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