Comments By Taxman

If you think it boils down to managing the benefits just right, and getting your taxes done just right, you guys are missing the big picture.

OTOH, if you just ignore that part, you're leaving money on the table for no good reason. Taking a few hours on a day off to figure out how the system works and set your benefits and pay structure up to optimize it doesn't have to interfere with becoming the top driver in your company. In some ways it's a moving target, but mostly it's a 'set it and forget it' deal. It's not like anybody here doesn't have free time, the fact that we're hanging out on an internet discussion forum means we've got time to waste.

Now, if I tell a recruiter "hey, I'm going to make less than $24k working for you this year, and I need to maximize my 401k contribution, so I need to be in the 401k from day one and I don't want any silly 50% or 75% limitations on my elective deferrals", that might get in the way of me ever being hired, let alone becoming a top driver there. Or it might help me find that one company that's incredibly flexible in areas that I want that flexibility.

Does not matter what company you drive for, your 1st year income will be less than the 50K

Any possibility of picking up extra income by calling up the bar, "Hey, I'll be in town Friday afternoon and leaving Sunday night. Any chance I can work Friday and Saturday nights?"

This is in response to something Rick S brought up, concerning a company that pays "42 cents", but in actuality pays 32 cents, plus 10 cents Per Diem, which is actually 8 cents Per Diem because they charge the driver 2 cents to take it out of their pay.

Here are my assumptions: 125,000 miles per year Michigan resident, pays 4.25% state income tax with $4k exemption and no deductions, pays $200 for ad valorem registration on his car, pays $100 for tax prep, pays $1000 in unreimbursed employee expenses plus has 336 days of travel away from home. Donates $1000 to charity. Does not have medical expenses exceeding 10% of income, does not own real estate, does not contribute to any retirement plan. Does not pay local/city income tax. Withholds $5k Federal, $2k State.

Scenario One: Employer pays him 42 cents a mile, or $52,500. Net Pay $41,484 after $7k income tax, 3255 social security, 761 medicare. Gets 1222 federal refund, owes $61 state. Net pay and refunds $42,645. Contributed $6,510 to his social security old age and disability insurance.

Scenario Two: Employer pays him 32 cents a mile plus 8 cents Per Diem, or $50,000 total, $40k wages and $10k per diem. Net Pay $40,040 after $7k income tax, 2480 social security, 580 medicare. Gets 1935 federal refund and 470 state. Net pay and refunds $42,445. Contributed $4960 to his social security old age and disability insurance. He lost $200, and his social security account lost $1550, to his employer's Per Diem plan.

Scenario Three: Employer pays 32 cents plus 10 cents, or $52,500. Net Pay $42,540. Refunds $1,635 and $470. Total pay and refunds $44,645. Contributed $4960 to social security. Compared to scenario one, he put $2000 more in his pocket and $1550 less in social security.

Moral to the story: If the classify part of your pay as Per Diem, you gain, but it's not a massive gain. They save more on payroll taxes than you'll ever save on income taxes. If they give you a $2500 pay cut and call it an "administrative fee", you just got a $2500 pay cut, and that is not a good thing.

Scenario Four: Now let's assume they pay you 42 cents a mile, but call $63 a day of it Per Diem. I have no idea if this is legal, in effect they're giving you a $63 pay cut for every day you spend on the road. Wages $52,500 minus $21,168 = 31,332 Net pay 31,332-5000-2000-1943-454+21,168=43,103 You take the standard deduction because your $63/day was fully reimbursed by your employer. Refunds 2,317 and 838. Pay and refunds 46,258. $3886 went into your social security account. Compared to scenario one, you have 3,613 more in your pocket and contributed $2,624 less to social security. If you put $2600 in an IRA you're probably better off for retirement than scenario one and you still have an extra $1013 in your checking account.

I think this topic Rick brought up deserves to be a thread of its own.

I'll run some numbers and go through it as an example in a new thread.

Which brings up these questions.

I find it "kinda shady", that a company can claim a portion of "salary", as reimbursed expenses. It must be "somewhat legal", because the IRS hasn't stopped the practice (and no one HAS SUED).

In effect, they're reclassifying part of your pay as reimbursement of accountable expenses. If I were running their payroll, I'd want the employee contracts to read something like "Pay will be $0.30 per mile, plus per diem allowance of $0.10 per mile". Then it's right up front, they're only paying you wages of 30 cents per mile. The good news is it's coming to you 100% tax free, instead of you including it in taxable income and only getting to deduct 80% of it.

(edit to my last message) I just noticed that it looks like the 2 cent fee is coming out of your per diem, not your wages. Is box 12, code L on your W-2 $0.08 per mile or $0.10 per mile?

Take that times 48 weeks (assuming 4 weeks total of home time in a year) - and you have $10,080 paid as per diem (at .08 cpm). 48 weeks (336 days) of "standard transportation per diem deduction", comes out to a $16,934 deduction ($50.40 X 336). And I'm rounding here, just to make the numbers easier.

1 - does per diem pay (even though the company classifies it as reimbursement) have to be declared as income (to be deducted later)? Members here have said it doesn't show up on their W-2's - how/where DOES IT show up (or is it supposed to show up?).

2 - can you take the FULL PER DIEM DEDUCTION (in this case, $16,934) or only THE DIFFERENCE between what was already paid as "reimbursed expense" (portion of cpm pay $ 10,080) or $6,854?

3- Can the "administrative charge" be added to/deducted also?

I find it "kinda shady", that a company can claim a portion of "salary", as reimbursed expenses. It must be "somewhat legal", because the IRS hasn't stopped the practice (and no one HAS SUED).

Rick

1: The Per Diem doesn't get reported in Box 1 wages on your W2, which is good, except when you're proving income on a loan application. It also doesn't get reported in Box 3 wages, which is good and bad, you and your employer save on Old Age and Disability Insurance taxes (6.2% of wages for you, 6.2% for your employer, but OTOH reducing your taxable earned income reduces your future Social Security benefits. It should be reported on line 12, code L, Substantiated Employee Business Expense Reimbursement (nontaxable).

2: The reimbursement gets deducted from your expenses, and the 80% factors in at the end:

Business Meals Expense = 336*63=21,168 (Form 2106, Line 5, column B)

Reimbursed by employer = 10,080 (Form 2106, Line 7B)

Unreimbursed employee business expense = line5-line7 = 11,088 (2106, Line 8B)

80% = 8,870 (2106, line 9B) (flows to Schedule A, line 21)

3: That's going to depend on if it's reported on your W2, and where. If it's not a reduction for Box 1 wages, it's probably an unreimbursed expense on Form 2106. If it reduces Box 1 wages, it came out pre-tax and there's nothing left to deduct.

I don't have a professional opinion on whether it's proper, but I wouldn't like it if I were the one paying it. Others here can tell you if it's standard in the industry. I know Lease-Operators who pay 2% for use of their carrier's corporate credit card. That seems crazy to me, I'd be glad to pay THEM 1% if they put all their fuel and meals on MY company cards.

https://www.irs.gov/pub/irs-pdf/f2106.pdf

Small carrier, two trucks, three drivers, two drivers didn't have logs, one of them didn't know what a log was, vehicles had multiple equipment violations, and a driver fell asleep and killed two people while running without a log or a medical card.

Yep, that'll get you in big trouble.

There are certain types of clothing that at least for me, is required; high quality reflective vest, safety yellow ANSI shirt (with reflective bands), and ANSI II rain/winter jacket. I don't buy cheap stuff, so it lasts but if not for the job I wouldn't own any of those items.

I wouldn't hesitate to claim all those as employee expense items. In fact, I think I did write off that vest and/or shirt for a client last month.

But the only dog I ever recall writing off lived at the storage yard and did not go home with its owner.

Standard disclaimer, this is not professional advice, I am not your tax accountant...

Personally I always took the standard deduction for meals, which is way more than I ever actually spent out there, which means no CPA, no receipts, no itemization for meals and such.

^ This.

Of course, always remember that tax free reimbursements have to be subtracted from employee expenses before you deduct them.

Per Diem allowance is $63 per day, IIRC, for meals and incidentals for 48 state OTR drivers. One might think showers are included in the 'incidentals' that are already included in the $63 daily rate, but IIRC in recent years incidentals have only included tips and fees paid to service workers like porters and waiters, so I'd claim the showers as travel expenses over and above the $63. It's an 80% deduction, but that beats the 50% deductibility of meals for 'normal' people.

Lodging is actual cost, within reason, or you can take the Per Diem allowance for lodging. (I'd have to look that up)

If you're a W2 employee, all of your unreimbursed work expenses, including work boots, license fees, union dues, the percentage of work use for cell phones (for example, if your cell phone bill is $50 a month and you use it 50% for work and 50% for personal, you deduct $300) are what we call 2% miscellaneous deductions. Claiming your dog/dog food/veterinary costs for security would be pushing the envelope harder than I'd be willing to do on a return that I sign. Work clothes are another area where many taxpayers want to go farther than the rules really allow. If you could wear them in your daily activities, even if you don't, they're just clothes. Company logos go a long way towards making them 'work clothes'. For example, my suits/ties/wingtip shoes are not 'work clothes', even though I never wear them anywhere else, I could wear them to church/restaurants/whatever if I wanted to.

You put unreimbursed employee expenses on form 2106, and they flow through to schedule A, where 2% of Adjusted Gross Income is subtracted and the remainder is an itemized deduction.

You're generally better off taking a tax free reimbursement from your employer, even if they reduce your taxable wages by a corresponding amount, than you are taking the 2% deduction, especially if you don't have mortgage/property tax and would not be itemizing deductions if not for your trucking expenses.

For example, let's say you make 60k a year and spend 254 days away from home. Your M&I deduction is 80% of 16,002, or 12,802, but you have to reduce it by 2% of income, so you only deduct 11,602. (this is a simplification, where M&I are your only unreimbursed employee expense, in real life you would also have steel toe boots, tire chains, padlocks, cell phone...)

Didn't the bible mention something about Jesus turning water into Wine?

It wasn't written in English, and there is argument over whether the proper translation is grape juice or fermented grape juice / wine. I have no opinion on the subject, biblical text translation is way out of my league.