Per Diem for Truck Drivers
February 17, 2021 Posted by Timothy Lutes
If you are a truck driver, you may know that many truck driving companies in the US often advertise that they offer truckers per diem pay. However, this can leave many truckers confused as to what it means. This is because per diem for truck drivers is a confusing term and is rarely explained.
Note that with ever-changing and complicated laws, it is hard to stay abreast of per diem regulations and laws. However, you should know what truck driver per diem is to earn as much money as you possibly can for your hard work as a truck driver.
Did you know that per diem for a trucker is one of the main benefits that many trucking companies in the US offer in order to lure in professional truck drivers? If you are a truck driver, particularly a new over-the-road driver, it can often be like getting used to a completely new way of life. If you are a trucker and looking to make the important move to owner, Nova Lines’ ‘Pathway to Ownership’ program can make it quick and simple.
One of the most noteworthy changes when becoming a trucker is that you’re often away from your home and need to buy all of your meals or snacks on the road. In order to help, many trucking companies provide their drivers with per diem so that they can get started. Meals, for example, are a common per diem expense for many truckers. In some cases, lodging or clothing may be acceptable, too, depending on your employer.
Did you know that the term per diem is a Latin phrase and means ‘by day’? In essence, it’s an alternative way of compensating you for your daily expenses, such as meals, while on the road. Keep in mind that the IRS does not technically tax per diem pay.
What is a Per Diem Program for Truckers?
We can define a per diem program as a company plan that enables $66 (maximum) a night away from your home to be disbursed to you if you are an OTR driver. The limit is $71 for drivers outside the continental US. This is opposed to having truckers turn in their receipts for various direct expenses, such as meals and lodging.
The benefit of these programs is that they lower the administrative burden and also provide additional cash to truck drivers as needed on a pre-tax basis. To be eligible, companies should have a formal accountable plan, including these requirements:
- There must be a business purpose for the travel
- Logs should be present showing that you have adequately accounted for the eligible amount of expenses within a reasonable time period
- Your company should test the amount regularly in order to ensure that truck drivers aren’t exceeding the specified allowable amount
- As an employee, you have to return any excess allowance or reimbursement within a reasonable time period or treat this overage as your compensation
It is worth noting that the driver getting the per diem has to be over the road, and this means out overnight, where you can’t reasonably be expected to complete your route without getting sufficient rest or sleep.
How does it work?
Keep in mind that companies can pay per diem to workers in one of 2 ways. For example, your company may reimburse you regularly for your various road expenses. It can do it by providing you with a daily allowance out of the wages. This is usually a tax-free advance. On the other hand, you may take a yearly tax deduction by the end of each year.
You should know that some people wait until the tax season to report all their per diem for the period. In this case, the IRS will record the exact amount that they earned during the year. After that, the IRS provides you with the aggregate amount of the earned per diem back. This is usually done as a tax refund.
In contrast, if you do not prefer the per diem, you may receive a similar standard meal allowance (daily). This is based on the standard per diem rate of $63 a day. Note that there is one important reason you may choose to receive per diem for your expenses. It is because the IRS allows truck drivers to deduct about 80 percent of their total expenses.
And if your company offers you the maximum truckers’ per diem of $63, you will only need to pay taxes on 20 percent of this amount.
What Type of Driver Usually Receives Per Diem Pay?
If you’re an independent contractor and report your income on Form 1099-MISC, you are eligible to claim the per diem for lodging and meals whenever you’re away from home. Note that the allowance enables only owner operators or self-employed drivers to get a standard amount on a daily basis when they are away from their home to cover meal expenses.
Advantages of Per Diem
With a per diem program, you get money for your meals upfront. This is because the per diem amount is usually paid out of your wages. In addition to receiving a timely reimbursement for your daily expenses, such as lodging, which tend to come along with frequently being on the road for long periods of time, there are many other benefits and advantages to getting per diem pay.
For example, per diem isn’t taxed. As a result, your take-home pay is often higher than if you didn’t count or consider your income as “per diem”.
Although the main benefit of per diem is receiving your payment right away, note that per diem pay also lowers the gross income amount that you report. This is great as it may increase your eligibility for student loans or public assistance because your claimed income is less.
Another benefit for drivers is that companies that pay their truck drivers per diem are usually responsible for managing taxes properly. As a result, you do not have to do it as a driver.
Drawbacks of Per Diem Pay
Keep in mind that there are some disadvantages and drawbacks to receiving per diem pay. As per diem pay tends to decrease your taxable income, you will be able to contribute less money to Social Security as well as Medicare and into your unemployment security.
Also, per diem pay is a non-taxable income that you receive in advance, and it shows a lower yearly salary to the IRS. Did you know that a low salary can decrease your chances of getting a loan?
If you receive per diem, the amount of total eligible worker’s compensation or unemployment benefits will be considerably less if there is a need to use these benefits. And per diem pay isn’t eligible for 401K employer contributions. However, you can easily make some arrangements in order to invest some of that additional take-home pay into various retirement accounts.
Per Diem Facts for Truck Drivers
You should know these facts regarding per diem pay. If you get per diem pay, it often means that the paycheck will be divided into two parts. These are your standard pay, which is considered taxable income, while the second is your per diem pay.
You have to know that per diem income for transportation workers, such as truckers, isn’t technically ‘untaxed income.’ Rather, it is a non-taxable reimbursement that you receive for meals and many other incidental travel expenses. From an income tax perspective, getting per diem income will reduce your gross income. This will reduce the amount of tax you owe to the IRS.
Also, remember that receiving per diem income means that you can’t take your “standard meal deduction” come tax season. The interesting thing is that most drivers in the US will take home about the same amount at the end of the year after taxes, whether or not they receive per diem pay.
Why Many Trucking Companies Use a Per Diem Program
It is worth noting that many trucking companies considerably benefit from paying per diem. This is simply because these companies are paying lower wages to their drivers. And if the wages are lower, they have to pay a smaller amount of payroll taxes to the US government.
Some trucking companies require truck drivers to take per diem. On the other hand, some encourage it. This is why as a truck driver, you should do your homework and then decide what is more suitable for you.
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Documentation is Important
Whether you are a self-employed trucker or work for a company, documentation is important. You should save receipts and other documentation for all of your per diem expenses, such as meals. This is because company accountants often require all reimbursement receipts. These receipts should prove the time, date, location, and items that you purchase for each expense.
And similarly, if you are a self-employed trucker, you need to have documentation. This will be helpful if the IRS requires more supporting evidence of your per diem expenses. You may also need this documentation if the IRS audits you. Note that using credit cards for your expenses is another great way to document all your purchases.
As you can see, there are some benefits and drawbacks of taking per diem pay. If you can easily afford your various road expenses without getting an advance on the wages and you can also wait until the end of every year in order to take per diem pay off your taxes, then you would be better off not taking per diem.
In the end, it often boils down to what you prefer as a professional truck driver. Before you take your per diem upfront, it is important to consider if you require money to manage your expenses on the road or have sufficient savings, and you can easily manage your expenses until you can start receiving regular paychecks in order to keep going.