For years, truck drivers have collected a per diem for meals when on the road. Whether you were a company driver or owner-operator, you could take the daily per diem of $63 and deduct it off your taxes, if you itemized. In the last few weeks, there has been a lot of confusion in the driver community regarding the per diem, which has been eliminated for company drivers under the new Republican tax plan.
The confusion has arisen over whether owner-operators could continue to use the per diem or not, and what can company drivers do with this seemingly large taxable expense that has just been dumped in their laps.
“The [company] driver lost the ability to deduct the per diem,” explains Kevin Rutherford, owner of Let’s Truck who advises drivers on tax preparation. “For the owner-operator, nothing changes.”
According to Rutherford, owner-operators (and leased drivers) will be able to continue using the per diem and deducting it on their taxes through Schedule C or on their corporate return. For a driver on the road 250 days a year, that’s $15,750 of potential deductions. Combined with other business expense deductions, and the new 20% deduction on pass-through corporations (if your business is structured this way), there are still plenty of tax benefits.
For company drivers, though, the situation is a bit cloudier. They have lost that $63 deduction, but individual (or married) tax filers receive the larger standard deductions ($12,000 for individuals, $24,000 for married filing jointly) now available. Will those deductions be enough to offset the loss of the per diem? That depends on the individual tax situation of each driver.
It could become an important driver benefit issue moving forward, Rutherford says, as carriers could still offer the $63 as a pre-tax benefit, if they choose.
Avery Vise, vice president of trucking research at FTR Transportation Intelligence, said in a conference call last week that it remains to be seen what fleets will do. “Carriers that do not offer per-diem pay might encounter driver dissatisfaction once [drivers] understand what has happened,” he said. “How that plays out is something to watch, particularly when it comes to recruiting and retention.”
Rutherford thinks it’s likely that carriers will begin to offer it as an incentive to both attract and keep drivers. In a recent blog post on the Let’s Truck website, Rutherford explains. He highlighted the text from the tax bill that he believes is relevant. It reads: “Under the provision, business expenses incurred by an employee are not deductible, other than expenses that are deductible in determining adjusted gross income (that is, above-the-line deductions).”
He outlines a potential scenario under the old law and the new tax law to show the difference the per diem makes on taxes. In 2016, a driver on the road for 300 days would be eligible for about $15,120 ($63/ day times 300 days adjusted to 80% = $15,120) as a per-diem itemized deduction. That means they would not have taken the standard deduction ($12,000 for married or $6,000 single filing status) but would have $15,120 as “tax-free” income.
Under the new tax plan, and if a carrier provides per-diem to drivers on a pre-tax basis, the driver would receive $18,900 essentially tax free for the per diem. In addition to the new standard deduction amounts of $24,000 for married and $12,000 for singles, it would mean a driver would receive as much as $42,900 tax free for a married driver filing a joint return.
Using some basic numbers (each individual tax situation is different and these numbers are for illustrative purposes only, he advised), tax consultant Mark Sullivan provided Let’s Truck with an example of a driver that receives per diem and one that doesn’t.
For the driver that does not receive per diem, making an average salary of $50,400 and taking a standard deduction of $24,000, he would have taxable income of $26,400 and pay taxes of $6,643. That would be a $737 savings over their 2017 taxes based on itemized deductions of $12,592 and exemptions of $8,100.
When comparing that to an employee driver who receives paid per diem of $15,750, it doesn’t compare. This driver, using the same numbers, would have taxable income, after the $24,000 standard deduction, of just $10,650 and a total tax bill of $3,735, resulting in a $3,645 savings over their 2017 taxes.
Some carriers already pay per diem for their drivers, but the potentially large tax savings for drivers may make those fleets even more attractive going forward, and forcing more carriers to offer per diem as a part of their benefit packages.
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