What New Truck Drivers Need To Know About Per Diem Pay:
"Per Diem", as it relates to how trucking companies pay their drivers, is a portion of their salary paid to the driver un-taxed, technically as a meal and expense reimbursement.
Drivers who don't get paid per diem would normally take a standard daily meal deduction when doing their taxes (currently $63/day, $68 per day for travel outside of the Continental U.S., effective Oct. 1, 2016).
To take the Standard Meal Deduction, drivers will need to figure out how many days they spent on the road in the previous year.
Short-term, gettting paid per diem gives drivers larger paychecks by not taxing a part of it. Long-term, it reduces their gross income, and tax liability, as it does not technically count as income.
Getting paid per diem reduces gross income, and therefore could reduce any tax return that a driver may be expecting come tax season. It's important for each driver to decide which system is the best fit for their needs. Please note that many companies paying per diem will NOT give drivers a choice whether or not to participate, but it's generally something that they would address before hire.
What Is Per Diem Pay For Truck Drivers?
Per Diem (definition): Literally translated, is Latin for "per day". An allowance or payment made for each day.
The most common method trucking companies use to pay per diem is to pay the driver a lower official cents-per-mile (CPM) rate, with a portion of their pay included in their paychecks untaxed, as a separate line-item.
Per diem pay technically labels part of your salary as a "meal and incidental expenses" reimbursement rather than taxable income. It is not counted as part of your gross income.
Without per diem pay, most drivers would normally take the IRS's "standard meal deduction" (currently $63/day, $68 per day for travel outside of the Continental U.S., effective Oct. 1, 2016) when filing their yearly taxes. We highly recommend consulting with a tax professional regarding per diem specifics, as guidelines and regulations are constantly changing.
For tax purposes, the IRS will also allow you to deduct 80% of your unreimbursed DOT per diem allowance, if you are subject to hours-of-service limitations.
"To figure your unreimbursed DOT per diem, simply subtract your employer's reimbursement (if any) from the DOT rates shown above and multiply by the number of full days you were on the road. Then, add in any partial days you may have had."
If you are getting paid per diem - that payment is 100% tax free. You would calculate the $63 per day X how many days you were out. Subtract the total amount of per diem payments, then 80% of the remainder (the $63 per day MINUS PD payments) would be your deduction.
What Are The IRS Qualifications To Be Eligible For Per Diem Deductions?
The IRS established special criteria for transportation workers in regards to the "standard meal allowance" that drivers can take on their taxes:
- You must work in the transportation industry whose job keeps you away from home on a regular basis, long enough to sleep away from home, as a requirement.
- Your job directly involves moving people or goods by airplane, barge, bus, ship, train, or truck.
- Furthermore, you must be away from home longer than the hours in a normal day's work. If your day starts and ends near where you live, you are not generally eligible for a per diem deduction.
- If your per diem pay exceeds the IRS allowance, you will be responsible for paying taxes on the overage amount. Again, please consult with a tax professional if you are unsure about per diem and IRS regulations.
Pros And Cons Of Truck Drivers Per Diem Pay:
- In the short-term, it puts more money per paycheck into the drivers pocket.
- Reduces the amount of taxes that the driver pays.
- Generally, in terms of dollar amounts, and taking into account the standard meal deduction, most drivers will take home nearly the exact same amount after taxes whether they get per diem or not.
- Lower actual rate of pay.
- Many employers will charge an "administrative fee" to the driver, which can add up over time.
- It reduces gross income for the driver, potentially affecting other aspects of his/her life, such as loans based on income/ability to repay, etc. Banks tend to examine gross-income numbers as part of the loan/credit process. That goes for anything that is based on a driver's taxable income, really, like unemployment insurance, workers comp., etc.
- Companies will typically pay drivers a reduced cents-per-mile rate if they participate in per diem pay, using the difference for "administrative costs" and any other expenses they might incur running the per diem program.
Official IRS Publication 463 (2014), Travel, Entertainment, Gift, and Car Expenses:
Information about truck drivers per diem deduction, and travel and meal expenses, can be found in IRS Publication 463