Federal Taxes And Per Diem 2019

I was looking through the per diem threads and most are a year or more old. Now that drivers have been through a tax season with the changes made to the Federal tax code in 2017, I was wondering what trends, takeaways, lessons learned etc. drivers have. Because the changes had drastically different ramifications for O/Os vs. company drivers. Please start replies with O/O or Company Driver. As a future company driver I want to start planning now. Is the pre-tax per diem pay/reimbursement scheme mandatory at companies? Can you opt out? Is the standard $12K Federal tax deduction for singles and $24K for married covering personal road expenses? Any other tax planning advice welcome.

First of all I want to make it clear that everyone's tax situation is unique. I am going to use round numbers to simplify things. This is my situation:

Swift offers a per diem plan that pays $71.00 per day when you are at least 75 miles from your legal home. They deduct that pay from your mileage pay. It is not taxed, but it does count as earnings. Therefore it will not affect your ability to get a mortgage, car loan, etc. What it will affect is your gross WAGES, which will affect your Social Security wages. I won't go into the formula that SS uses to determine your benefits, its all available online. Ok, numbers, my situation:

Gross annual pay. $50,000

Per Diem. 330 days @ $71.00= $23,430

$50,000 - $23,430 = $26,570 in taxable income.

Standard deduction for single individual. $12,000

$26,570 - 12,000 = $14,570= MY taxable wages.

Also, MY Health benefits, 401k contributions, and HSA account contributions are all deducted pre-tax. Therefore I will effectively pay zero State and Federal income tax in 2019. The only thing I will pay is Social Security and Medicare tax on my taxable income of $26,570.

I hope this makes sense. Ask your Tax Preparer or accountant which would benefit your situation best.

Sorry, I am a Company Driver

Plain and simple per diem puts more take home in your pocket and lowers your taxable income. As a married person we got our 24K deduction as we don't have enough to deduct to beat that.

Nothing changed for O/Os. And we never recommend anyone with less than 3 to 5 years of OTR experience to consider owning or leasing a truck.

I have a question about the per diem At Schneider it’s $80 per day and company drivers are allowed to opt out if they wish. I assume that the per diem allows the company to contribute less to the employees SS account each paycheck. So who is getting the break here, the driver, the company or both? And thinking down the road, will the employees SS benefit after retirement be a smaller monthly amount because of per diem?

I'm a company driver. At West Side Transport they take 13 cpms untaxed of my pay for per diem then add it back in after taxes have been calculated/deducted from the rest of my pay. You choose to take it. It's not mandatory, but I do take it to reduce my taxable income.

. I assume that the per diem allows the company to contribute less to the employees SS account each paycheck.

That is a correct assumption. Employer and employee each contribute 7.65% towards SS and Medicare. That amount is paid on taxable income. Per diem lowers your taxable income.

So who is getting the break here, the driver, the company or both?

In my case both.

And thinking down the road, will the employees SS benefit after retirement be a smaller monthly amount because of per diem?

To some extent, yes. So much depends on your age, earnings over your lifetime. (Go to the SS website and learn how your monthly benefit at retirement is calculated. In my case, the extra money in tax savings, will far outweigh the extra 150-200 dollars per month I may be losing towards my SS benefit check in 9 years.

If you are under 50, especially in your 20's or 30's. You had better be saving your own money. Uncle Sam is not gonna take care of you. Social Security is going to have to be radically reformed in the very near future, probably by raising the retirement age considerably, and raising the employer/ employee contributions by a healthy amount as well. The baby boomers are retiring in droves and there are a lot less workers to make up the slack. Start MAXING OUT a 401k plan now. You will thank me, although you will probably need to stop by the cemetary to do it.

Social Security (FICA) and Medicare are calculated from your gross pay and are taken off the top before 401K or any other pre-tax considerations are made. https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-contributions-are-retirement-plan-contributions-subject-to-withholding-for-fica-medicare-or-federal-income-tax

My last job was a salary position and my pay only changed in April when we received a small raise. I looked at FICA and Medicare deductions on pay stubs after I made a large change in my 401K contribution (pre tax) during the middle of the year and the amount taken out of my check for FICA/Medicare did not change despite the fact my 401K contribution changed by 10%.

I don't think the per diem pre tax treatment has an impact on FICA/Medicare benefits, it only impacts taxable income.

I don't think the per diem pre tax treatment has an impact on FICA/Medicare benefits, it only impacts taxable income

Yes, It does. Per Diem lowers your taxable income. It can not be compared to a 401k. Completely different animal.

I don't think the per diem pre tax treatment has an impact on FICA/Medicare benefits, it only impacts taxable income

Yes, It does. Per Diem lowers your taxable income. It can not be compared to a 401k. Completely different animal.

Haven't been here in awhile - but I still read occasionally (other personal & health stuff going on).

I haven't really researched the changes in the new tax code - as it relates to per-diem and other non-reimbursed expenses for drivers - BUT - keep in mind the misnomer of per-diem as "tax free money".

It is UNTAXED MONEY - but still counts as GROSS INCOME for tax purposes.

In years prior to the recent changes - you could do the per-diem calculation, based on "current rate X days on away from home", and 80% of the difference was a DEDUCTION when you itemized. Inotherwords - you get to take 100% of the per-diem already paid, and 80% of the difference in the daily rate.

While this results in less "taxable income" for the driver (with regards to withholding and FICA/Med deductions) it saves the company MILLIONS in matching funds.

I'm not going to get into the age-old argument of "lending the .gov your $$ interest free", or whether or not SS/Med is still gonna be there when we eventually get old enough to use it.

But please DO NOT LABOR UNDER THE ILLUSION THAT PER DIEM IS TAX FREE $$. It still counts towards gross income on your tax return (appears as miscellaneous income on your W2), and must be claimed as income on your 1040.

With the changes in the tax code, and how companies are dealing with withholding in '18 - there are reports of people actually owing $$ on their taxes, or getting refunds that are less than in previous years. Having a gross income that may be more than your withholding covers, because of the additional untaxed income of per-diem, may (or may not) result in owing $$ to the IRS.

ASK YOUR TAX PROFESSIONAL to get the facts on this. Don't assume the increase in standard deduction will be enough to cover the untaxed income of per-diem.

Anyways. Nice to see that the board is still here - good to see some of my old friends still contribute (I still talk to Patrick C every once in awhile), and I may get back on to post more often as time/health allows.

Waves and regards to all.

Rick