Per Diem Pay Example

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.

Still curious about a couple of things.

1 - Whether the admin fees show up as part of the per diem pay (gonna have to ask someone that works for a company that has them)? Can you TAKE THE ADMIN FEES (if they don't show up in your GROSS PER DIEM PAY) as an additional deduction?

2 - Even if you are paid a portion of your salary as Per Diem, are you REQUIRED BY THE IRS - to itemize? Some folks that have no "homestead", cannot take the "Standard Daily Rate For Transportation Workers" as a deduction. DO you STILL have to show the PD pay as a reimbursed expense - or can you just IGNORE IT and not include it AT ALL on your 1040? As in take the standard single/married deduction and skip itemizing ALLTOGETHER.

3 - In reference to #2 above - if you CANNOT TAKE the "Standard Daily TW Deduction", can the IRS claim that the "expense reimbursement" that you are paid as PD Pay is ACTUALLY TAXABLE INCOME? (this question for SteakEater).

4 - We've gotten "mixed reports" from members here, claiming their PD pay is NOT STATED ANYWHERE in their W-2's. Does the company HAVE TO REPORT THIS to the taxpayer/driver?

Really appreciate your stepping in here Taxman. I was getting ready to "leverage" my OOIDA membership, to try and get a Trucking Tax Professional to either come on here to answer questions - or compile a list of questions to try and get answers to.

You've already cleared up the lingering one I had - about how to "properly take" the "Standard Daily TW Rate", and adjust that by deducting the "advance reimbursement", and calculating the 80% of the difference.

I almost have a complete/comprehensive understanding of how this works now. We might have to put out heads together - and write a "board article".

My FB profile is listed in my board profile - you can contact me there if you FB.

Rick

Point of order: not all companies keep part of drivers' per diem for themselves. I get 42.5 cpm , and of the 10 cpm per diem Interstate deducts, I get back the full 10 cpm as my per diem pay.

3 - In reference to #2 above - if you CANNOT TAKE the "Standard Daily TW Deduction", can the IRS claim that the "expense reimbursement" that you are paid as PD Pay is ACTUALLY TAXABLE INCOME? (this question for SteakEater).

And if it's taxable income it would appear I would not only be liable for unpaid taxes and interest (and possibly fines), I'll also have been cheated of the increased social security / unemployment insurance contributions the company SHOULD have made.

http://www.journalofaccountancy.com/news/2015/mar/truck-driver-has-no-tax-home-201511936.html

And if it's taxable income it would appear I would not only be liable for unpaid taxes and interest (and possibly fines), I'll also have been cheated of the increased social security / unemployment insurance contributions the company SHOULD have made.

http://www.journalofaccountancy.com/news/2015/mar/truck-driver-has-no-tax-home-201511936.html

The KEY POINT in that article:

A long-haul truck driver who spent most of the time on the road and had no other home did not have a tax home that would allow him to deduct his unreimbursed travel expenses because he was not away from home, the Tax Court held.

In the case of YOUR PER DIEM PAY - it is a REIMBURSED EXPENSE. You would NOT BE claiming the "Standard Transportation Workers Daily Allowance" as a deduction, if you didn't have a "verifiable tax home".

Notice his other deductions WERE ALLOWED (Truck Stop Power/Etc.).

The KEY HERE, is to establish a TAX HOME - where you keep some of your personal belongings and PAY RENT (no matter how small). If you say, RENTED A ROOM from a friend/relative for a couple hundred a month, and kept some stuff there - used that address for taxes, VOTER REG and drivers license - you could probably squeak by, depending on how much of a hardazz the auditor was.

I'm thinking the guy in the article was an O/O, not a company driver. $19K in PD deduction is going to be PRETTY HIGH - likely why it GOT FLAGGED. It looks like he took the deduction for 365 DAYS - which means he was NEVER HOME. IRS is going to look at that. Had he taken, say 300 days worth of deduction - he probably wouldn't have gotten FLAGGED AT ALL. You HAVE TO TAKE HOME TIME AT HOME - in order to qualify for the deduction.

Waiting on a "judgment call" from Taxman - but I believe that getting PAID PER DIEM as a "reimbursed expense", but not taking the STANDARD PER DIEM DEDUCTION on your tax return - would be just fine for a "homeless trucker". I can't see a company putting those of us that "elect to be homeless" in a jackpot owing the IRS on $10K worth of "reimbursed income", but not being able to take the deduction to OFFSET IT.

Keep in mind - if you CAN TAKE the deduction (as in have a verifiable tax home) - YOU SHOULD. If you get PER DIEM PAY, you can still REDUCE your taxable income by another few thousand OVER what the difference between what you were REIMBURSED, versus what the TOTAL DEDUCTION IS. The difference between those getting PAID per diem, and those not - is that the rate of 80% (or $50.40 per day) applies to the ENTIRE DEDUCTION. Those getting per diem, SUBTRACT the amount they were PAID UP FRONT (reimbursed) from the TOTAL DAILY RATE (of $63 per day), then take 80% of WHAT'S LEFT as a deduction (meaning the advance is 100% non-tax-liable - and the only 80%/$50.40 is deductible further down the line on your return).

Rick

The KEY HERE, is to establish a TAX HOME - where you keep some of your personal belongings and PAY RENT (no matter how small). If you say, RENTED A ROOM from a friend/relative for a couple hundred a month, and kept some stuff there - used that address for taxes, VOTER REG and drivers license - you could probably squeak by, depending on how much of a hardazz the auditor was.

Rick,

With all due respect (and I do respect your contributions to this discussion) a rented room from a family member for a below market rental rate would clearly be interpreted as an attempt at fraud / tax evasion to any hardazz auditor, all of whom are expected to justify their time in any audit, which means they strive to justify audits by disallowing exactly this type of thing.

Here are two additional articles I found, but I'm reluctant to post the links because they look to be opinion only, but they appear to be consistent with the IRS rules :

http://www.truckmaster.com/blogs/trucking-software/efficiencies-ts/per-diem-to-pay-or-not-to-pay

http://www.overdriveonline.com/when-the-road-is-home/

The more I look at the per diem issue, it's pretty apparent that trucking company's are not allowed to pay per diem to "homeless" truckers as those particular truckers are not incurring deductible expenses to be reimbursed for. I imagine that, if push came to shove the company would claim ignorance of an individual truckers homelessness and not be on the hook for any significant penalties.

Bottom line : Homeless truckers who are taking per diem pay and not paying taxes on it are liable for unpaid income taxes, fines and penalties if they get caught. The odds of getting caught are probably pretty small, but if audited, it's not the company who will have problems.

The more I look at the per diem issue, it's pretty apparent that trucking company's are not allowed to pay per diem to "homeless" truckers as those particular truckers are not incurring deductible expenses to be reimbursed for. I imagine that, if push came to shove the company would claim ignorance of an individual truckers homelessness and not be on the hook for any significant penalties.

Bottom line : Homeless truckers who are taking per diem pay and not paying taxes on it are liable for unpaid income taxes, fines and penalties if they get caught. The odds of getting caught are probably pretty small, but if audited, it's not the company who will have problems.

Nothing is "pretty apparent" when a company has a mandatory Per Diem pay plan. They probably care not, whether or not you have a "legitimate tax home". If they pay "forced Per Diem", you get paid Per Diem.

I always thought the way companies did Per Diem was a little "sketchy", and they benefit from it way more than the driver does. But if this practice were "illegal", they'd have already been nailed for it by the IRS.

I get the feeling, when the vultures (lawyers) get finished suing all these companies for wage practices around leasing contracts, they'll get around to suing for the Per Diem "issues" (because there are some there - not necessarily against IRS regs though). Based solely on YOUR ASSERTION - since homeless truckers cannot legally take THE DEDUCTION, they shouldn't be FORCED to be paid on a Per Diem basis.

Here's the rub though, and we've gone through this before.

Plenty of people that get paid per diem, DO NOT TAKE THE DEDUCTION on their returns (via a schedule A or 2106). They simply file with the reduced gross taxable wages, and that's that. That portion of pay, doesn't get reported to the IRS as "taxable income" - the company themselves takes it as an expense.

So as long as you aren't "declaring the Per Diem deduction" on your return, you (technically) aren't going to even be looked at, as far as having a "home base". You have to TAKE THE DEDUCTION, in order to be scrutinized for it.

In the example you posted earlier - the driver got busted, because he took a deduction on his return, that way exceeded what someone that went home 3-4 days a month would take.

The truck driver, who resided in Missouri, spent 358 days in 2009 on the road.

You cannot have a home - and spend 358 days on the road - and take a deduction for that 358 days. Kind of obvious, and that's what got his return "red flagged". Had he taken 320 days, they'd have never even looked twice at his return.

Rick

Rick,

I think this is getting pretty far out into the weeds for most people.

My point has nothing to do with wether or not a homeless trucker takes the deduction. My point is per diem pay is money the homeless driver is receiving for "expenses" that are not legitimately eligible for reimbursment thus the per diem should be more appropriately classified as compensation.

Rick,

I think this is getting pretty far out into the weeds for most people.

My point has nothing to do with whether or not a homeless trucker takes the deduction. My point is per diem pay is money the homeless driver is receiving for "expenses" that are not legitimately eligible for reimbursement thus the per diem should be more appropriately classified as compensation.

I'm with ya there. Waiting for Taxman to chime in here.

Per the article you linked on the truckmaster.com site - I would suspect if the driver claimed to not have a tax home - then the company would be FORCED TO NOT PAY HIM on a Per Diem basis (per IRS Rules).

Unfortunately - the "homeless driver", if he is UNAWARE of the IRS Rules and doesn't insist the company NOT PAY ON A PER DIEM BASIS - is going to get a BIG SURPRISE, if he ever gets jammed in an audit.

Going to be interesting to see how this would play out, with a company that forces PD pay on a driver that is not legally entitled to be paid in this manner.

This brings up (yet) another "interesting point" in the ongoing discussion here on Per Diem Pay. I'd think most folks are either going to "let it slide by" and hope they don't get caught - or try to establish a "legitimate tax home" - so they can take advantage of both the pay and the deduction.

Rick