PDP For Fleets - 3 Months Free

Tax Saving Tips For Owner Operators & Family-Run Trucking Businesses - Schedule C vs S-Corp Election

Pros & Cons: Schedule C vs S-Corp for Self-Employed Truckers is from "Making The IRS Work In Your Favor" presented by Mark W. Sullivan, EA at the CMC LIVE hosted by Kevin Rutherford and Let's Truck.

per diem plus owner operators
Per Diem Plus for Android & iOS

IRS Orders Immediate Stop To New Employee Retention Credit Claims (IRS Newswire, 9/14/23)

IRS Issues 2024 Trucker Per Diem Rates (9/25/23)


General rule of thumb

Pros & Cons: Schedule C vs S-Corp for Self-Employed Truckers general rule of thumb:

  • Net earnings below $65,000 - Schedule C sole-proprietorship
  • Net earnings in excess of $65,000 - LLC taxed as an S-Corporation

It is important to note that entity classifications like Limited Liability Company (LLC) and Limited Liability Partnership (LLP) are a function of state law and not federal. For federal purposes the entity type is a tax election.

Schedule C

Pros

  • One owner
  • No requirement to pay W-2 wages
  • Lower tax compliance costs
  • No quarterly employment taxes to remit
  • No unemployment taxes to pay
  • Simpler income tax return
  • Qualifies for 20% pass-through deduction applies to net income

Cons

  • Owner cannot take non-wages draws not subject to self-employment tax
  • All income is subject to self-employment tax
  • Higher income tax rates

Introducing Per Diem Plus Small Fleets, an affordable, customizable per diem solution for solo and team operators

S-Corporation

Pros

  • One owner
  • Owner can take non-wage draws not subject to self-employment tax
  • Only wages subject to self-employment tax
  • Lower income tax rates
  • Qualifies for 20% pass-through deduction applies to net income less wages

Cons

  • Owner must receive reasonable wages
  • Higher tax compliance costs
  • Quarterly employment taxes to remit
  • Annual unemployment taxes to pay
  • Form 1120S

What qualifies as "reasonable wages" has been a matter of debate for more than 100 years. However, in trucking a safe-haven would be to pay yourself a wage equal to that which an employee truck driver would be paid for doing the same job. Hint: Paying yourself $20,000 of wages as an OTR driver clocking 110,000 miles annually and $80,000 of draw would likely be classified as unreasonable.

The procedures for compensating yourself for your efforts in carrying on a trade or business will depend on the type of business structure you elect. Below are topics that frequently arise when new business owners ask the Internal Revenue Service questions about paying themselves.

Corporate officers

An officer of a corporation is generally an employee. However, an officer who performs no services or only minor services and who neither receives nor is entitled to receive any pay is not considered an employee. Refer to "Who Are Employees?" in Publication 15-A, Employer's Supplemental Tax Guide.

Partners

Partners are not employees and should not be issued a Form W-2, Wage and Tax Statement, in lieu of Form 1065, Schedule K-1, for distributions or guaranteed payments from the partnership. Refer to Tax Information for Partnerships page for more information.

Dividend distributions

Any distribution to shareholders from earnings and profits is generally a dividend. However, a distribution is not a taxable dividend if it is a return of capital to the shareholder. Most distributions are in money, but they may also be in stock or other property. For information on shareholder reporting of dividends and other distributions, refer to Publication 550, Investment Income and Expenses.

Form 1099-NEC or Form W-2

You cannot designate a worker, including yourself, as an employee or independent contractor solely by the issuance of Form W-2, Wage and Tax Statement or Form 1099-NEC, Nonemployee Compensation. It does not matter whether the person works full time or part time. You use Form 1099-NEC to report payments to others who are not your employees. You use Form W-2 to report wages, car allowance, and other compensation for employees.

Treating employees as nonemployees

You will be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold them because you treat an employee as a nonemployee, including yourself if you are a corporate officer, and you may be liable for a trust fund recovery penalty. Refer to Publication 15, Circular E, Employer's Tax Guide for details about the trust fund recovery penalty or Independent Contractor (Self-Employed) or Employee? for more information on employee classification.

Shareholder loan or officer's compensation?

A loan by a corporation to a corporate officer should include the characteristics of a loan made at arm's length. That is, there should be a contract with a stated interest rate, a specified length of time for repayment, and a consequence for failure to repay the loan. Collateral would also be an indication of a loan. A below-market loan is a loan which provides for no interest or interest at a rate below the federal rate that applies. If a corporation issues you, as a shareholder or an employee, a below-market loan, then depending on the substance of the transaction the lender's payment to the borrower is treated as a gift, dividend, contribution to capital, payment of wages, or other payment.

See "Below-market interest rate loans" under Employees' Pay / Kinds of Pay / Loans or Advances in Publication 535, Business Expenses for more information.

Reasonable compensation

Because an officer of a corporation is generally an employee with wages subject to withholding, corporate officers may question what is considered reasonable compensation for the efforts they contribute to conducting their trade or business. Wages paid to you as an officer of a corporation should generally be commensurate with your duties. Refer to "Employee's Pay, Tests for Deducting Pay" in Publication 535, Business Expenses for more information. Public libraries may have reference sources that provide averages of compensation paid for various types of services. The Internal Revenue Service may determine that adjustments must be made to the income and expenses of tax returns for both the corporation and an individual shareholder if the officer is underpaid for services provided.


Drivers, try Per Diem Plus absolutely free for 30 days!

Per Diem Plus Small Fleets requires users to complete the account setup HERE before using the app.


Per Diem Plus Software Platform

  • ELD-Integrated: Per Diem Plus API for Samsara
  • Native Android & iOS Mobile Apps: Per Diem Plus - Owner Operators and Per Diem Plus Small Fleets
  • Deep Link for Platform Science and Transflo Mobile
  • APK to distribute via MDM

Per Diem Plus Fleets is also available on the Truckstop Marketplace, Samsara App Marketplace and Platform Science Marketplace

About Per Diem Plus

Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app for iOS and Android that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA


Disclaimer: This article includes general tax information, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case. Please consult with a licensed tax professional.

Copyright 2020-2023 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Per Diem Plus daily trip tab screen
Per Diem Plus - Owner Operators

2021 TAX LAW UPDATE - READ ABOUT 100% DEDUCTION FOR PER DIEM


Are self-employed truckers eligible for the refundable tax credit available under the Families First Act?

Yes. As a self-employed trucker you cannot do your job via a ZOOM meeting, thus you are eligible for a refundable tax credit under the Families First Act (FFCRA). You may fund the "sick leave" or "family leave" tax credit by using a portion of the 2020 estimated tax payments that were supposed to be paid quarterly. The refundable credit will be claimed on your Form 1040, U.S. Individual Income Tax Return, for the 2020 tax year.


Specific Families First Act Provisions for Self-Employed Individuals


Who is an eligible self-employed individual for purposes of the Families First Act tax credit?

An eligible self-employed individual is defined as an individual who,

  1. Regularly carries on any trade or business, and
  2. Would be entitled to receive qualified sick leave wages or qualified family leave wages the individual were an employee.

Eligible self-employed individuals are allowed an income tax credit to offset their federal self-employment tax for any taxable year equal to their “qualified sick leave equivalent amount” or “qualified family leave equivalent amount.”

How is the Families First Act tax credit calculated?

The tax credit is calculated by multiplying the number of days you could not work (maximum of 10 days) between April 1 and December 31, 2020 by either:

  • "Sick Leave Equivalent" - $511 or 100 percent of average daily self-employment income, or
  • "Family Leave Equivalent" - $200 or 67 percent of average daily self-employment income

How is the “average daily self-employment income” for an eligible self-employed individual calculated?

Average daily self-employment income is an amount equal to the net earnings from self-employment for the taxable year divided by 260. A taxpayer’s net earnings from self-employment are based on the gross income that he or she derives from the taxpayer’s trade or business minus ordinary and necessary trade or business expenses.

Which credit do I qualify for, the “sick leave equivalent” or "family leave equivalent"?

Which type of "leave" you qualify for depends on the reason(s) you were unable to work. Those that were prohibited from working can claim up to $511/day but those who were home to care for a family member can only claim up to $200/day.

Quarantine / Isolation Orders - "Sick Leave Equivalent"

For an eligible self-employed individual who is unable to work or telework because the individual:

  1. Is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  2. Has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
  3. Is experiencing symptoms of COVID-19 and seeking a medical diagnosis,

the qualified sick leave equivalent amount is equal to the number of days during the taxable year that the individual cannot perform services in the applicable trade or business for one of the three above reasons, multiplied by the lesser of $511 or 100 percent of the “average daily self-employment income” of the individual for the taxable year.


Example: John was unable to drive due to state-mandated quarantine orders and the absence of loads for 8 days. He had $75,000 or an average of $288/day of self-employment income in 2020.

  • 8 days x $511 = $4,088
  • 8 days x $288 = $2,304

John can claim the lesser amount of $2,304 as refundable credit under FFCRA on his Form 1040, U.S. Individual Income Tax Return.


Caring for Sick Family Member - "Family Leave Equivalent"

For an eligible self-employed individual who is unable to work or telework because the individual:

  1. Is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  2. Is caring for a child if the child’s school or place of care has been closed, or child care provider is unavailable due to COVID-19 precautions; or
  3. Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor,

the qualified family leave equivalent amount is equal to the number of days during the taxable year that the individual cannot perform services in the applicable trade or business for one of the three above reasons, multiplied by the lesser of $200 or 67 percent of the “average daily self-employment income” of the individual for the taxable year.

Example: Mary was unable to drive for 10 days because she was home caring for her husband who had been exposed to COVID. She had $65,000 or an average of $250/day of self-employment income in 2020.

  • 10 days x $200 = $2,000
  • 10 days x $168 ($250 x 67%) = $1,680

Mary can claim the lesser amount of $1,680 as refundable credit under FFCRA on his Form 1040, U.S. Individual Income Tax Return.


How does a self-employed individual claim the credits for qualified sick leave equivalent amounts or qualified family leave equivalent amounts?

The refundable credits are claimed on the self-employed individual’s Form 1040, U.S. Individual Income Tax Return, tax return for the 2020 tax year. The Families First Act refundable tax credit is not surprisingly complicated, please consult with your tax advisor.

How should "sick" or "family" leave be substantiated?

Substantiate the days you were unable to work using either of the following methods:

  1. DOT logbook showing "Off Duty" status, or
  2. Per Diem Plus - Owner Operator showing "Not On Trip" status

About Per Diem Plus

The Per Diem Plus® - Owner Operators is the only IRS-compliant mobile application that provides automatic trucker per diem and travel-related expense tracking for drivers, motor carriers and owner operators. Per Diem Plus was designed, developed and is managed in the USA.

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA


Copyright 2020-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.

per diem plus owner operators mobile app
Per Diem Plus - Owner Operators

Can an Owner-Operator claim trucker per diem under the related party rule if they own more than 10% of the company?

The 10% ownership - related party rule and per diem creates much confusion. Under the related party rule an Owner-Operator can claim substantiated per diem even if they are the sole owner of the trucking company. However, the related-party restriction imposed by the IRS is frequently misunderstood by both drivers and tax practitioners alike. Based on the foregoing it does not apply to the trucking industry.

Related Party Rule

  • The 10% ownership - related party rule and per diem is found in IRS Rev. Proc 2011-47 section 6.07 - Limitations & Special Rules applies only to per diem that includes lodging, meals & incidental expenses under Section 4.01 and 5 (High-Low Method).
  • The related party rule does not apply to trucker per diem under Section 4.04 - Special Rules for Transportation Industry, which is a meals & incidentals expenses-only per diem.
  • Furthermore, it is section 4.04 that allows an Owner-Operator or a motor carrier that offers a company-sponsored per diem plan to deduct 80% of per diem. 
    • The tax deductibility of per diem is limited to 50% for the other substantiated per diem options governed by Section 4.01 and 5 of Rev. Proc. 2011-47.

TAX LAW UPDATE - READ ABOUT 100% DEDUCTION FOR PER DIEM

Per Diem Substantiation Method


Section 4.01 Per diem allowance:

  • If a payor pays a per diem allowance in lieu of reimbursing actual lodging, meal, and incidental expenses to be incurred by an employee for travel away from home,
  • The amount of the expenses that is deemed substantiated for each calendar day is equal to the lesser of the per diem allowance for that day or,
  • The amount computed at the federal per diem rate for the locality of travel for that day.

Special Rules for the Transportation Industry

Section 4.04 applies to:

  • A payor that pays a per diem allowance only for meal and incidental expenses for travel away from home to an employee in the transportation industry and computes the amount under section 4.02, or
  • An employee or self-employed individual (owner-operator) in the transportation industry who computes the deductible amount for meal and incidental expenses for travel away from home under section 4.03.

Limitations and Special Rules

Section 6.07 applies to:

  • Related parties.
  • Sections 4.01 and 5 of this revenue procedure do not apply if a payor and an employee are related within the meaning of 267(b), but for this purpose the percentage of ownership interest referred to in 267(b)(2) is 10 percent.

Try Per Diem Plus free for 30 days - no credit card required

Available as a $7.99 monthly subscription on Google Play and App Store.


About Per Diem Plus

The Per Diem Plus® - Owner Operators is the only IRS-compliant mobile application that provides automatic trucker per diem and travel-related expense tracking for drivers, motor carriers and owner operators. Per Diem Plus was designed, developed and is managed in the USA.

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA


Copyright 2020-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.

State Income Tax Considerations on Driver Per Diem

2019 state income tax rates

2021 TAX LAW UPDATE - READ ABOUT 100% DEDUCTION FOR PER DIEM


No per diem tax analysis would be complete without addressing the state income tax considerations on driver per diem. In our last blog post, No Driver Per Diem Yields Surprise Tax Bill, we showed you an example of a driver not receiving per diem.  In this article, we will show you the negative impact of living in a high-tax state.

Johnny Mills is an over-the-road company driver

  • Lives with his wife and 3 children in Connecticut - a high-tax state
  • Spent 295 nights away from home on the road in 2019
  • Averaged 2,700 miles/week, and
  • Had a banner year in earnings
  • His employer has terminals in 5 other states and uses the Per Diem Plus Fleets mobile app platform to administer their per diem plan

Since, Johnny elected not to enroll in the employer plan when he joined the company, he paid an extra $7,064 in federal income and payroll taxes. But how much extra state income tax did he pay? Would it make financial sense for him to move his family and transfer to one of the company's other terminals, like nearby Arizona?

High-Tax vs Low-Tax State Income Tax Considerations

No discussion on the benefits of per diem for truck drivers would be complete without considering state income taxes. State income taxes substantially impact a driver's overall income tax burden. Drivers in high-tax states like California, Connecticut or New York should consider the state tax savings of per diem. These savings are even more pronounced when compared to low-tax states like Arizona.

State Tax Savings: Enrolling in the company per diem plan would have saved Johnny $ 945 in Connecticut income tax for 2019.

State vs State Analysis: A Connecticut driver paid $4,718 of state income tax in 2019. An identical Arizona-based driver paid only $2,199 - a $2,519 difference.

State Tax Implications - No Per Diem vs. Per Diem

The Real Value of $1.00

The real value of a dollar (purchasing value) must be taken into consideration in order to make state-to-state comparisons. For example, $1.00 is only worth $0.92 cents in Connecticut but $1.04 in Arizona - a 11.5% difference.

  • The real dollar value reduces the $ 954 Connecticut tax savings to $ 836, meanwhile the $651 Arizona tax savings increase to $677.
  • Living in Connecticut reduced the value of Johnny's 2019 income of $126,550 by nearly 9% or $11,136.
  • If he lived in Arizona $126,550 of income increases by $5,062 of real dollar value to $131,612.
  • Johnny would realize about $16,198 in real value benefit by moving to a low-cost, low-tax state like Arizona from Connecticut.

Conclusion

No per diem tax analysis would be complete without addressing the state income tax considerations on driver per diem. Johnny Mills received an unpleasant surprise this tax season because he did not participate in his employer offered per diem plan - an additional $7,064 of federal and $ 945 in state income taxes. Living in high-cost, high-tax Connecticut further reduced the value of his earnings by over $11,136. However, if Johnny enrolls in the company per diem plan and moves his family to a low-cost, low-tax state like Arizona it would generate about $16,198 in real dollar value.


About Per Diem Plus FLEETS

Per Diem Plus FLEETS is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app for iOS and Android that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.


This article was written by Mark W. Sullivan EA, Tax Counsel for Per Diem Plus, who has over a decade of experience advising trucking companies on per diem issues. Prior to starting a private practice in 1998, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service.  Questions? Contact Mark W. Sullivan, EA.

Copyright 2020 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.

Reference:

https://taxfoundation.org/real-value-100-state-2019/

https://taxfoundation.org/state-individual-income-tax-rates-and-brackets-for-2020/

Billy Millis received an unpleasant surprise tax bill because his employer did not offer driver per diem.

Billy is an over-the-road company driver who lives in a high-tax state with his wife and 3 children. His previous employer administered their plan through Per Diem Plus FLEETS. Unfortunately, his new company doesn't offer per diem. He understood per diem saves a driver significant taxes and worried his tax refund would be much smaller.

  • He spent 304 nights away from home on the road in 2019,
  • Averaged 2700 miles/week,
  • Had a banner year in earnings.

TAX LAW UPDATE - READ ABOUT 100% DEDUCTION FOR PER DIEM

His accountant called with an unwelcome surprise

After quickly assembling his tax records for his accountant he received an unwelcome surprise:

  • Exceptional earnings moved him into the 22% federal income tax bracket.
  • His total tax burden was $7,064 higher due to his employer not offering per diem.
  • The 304 days away from home were equal to $19,486 of non-taxable per diem that was considered taxable income.
  • Had his employer offered per diem his tax savings would have been about $138 per week or 5.1 cents per mile additional tax free cash.

Per diem vs. no per diem

The table highlights the federal and state tax consequence of Billy's employer not having a driver per diem program.

no per diem vs. per diem tax analysis
Per Diem vs. No Per Diem Tax Analysis

No driver per diem yields an unpleasant surprise

Billy received an unpleasant surprise this tax season because his employer did not offer per diem

  • $7,064 higher tax bill
  • $19,486 worth of per diem being treated as taxable income
  • $138 per week in additional taxes

Fleets are missing a tax savings opportunity

Why does Billy's employer not have a per diem program? Like many trucking companies they incorrectly assume that a company-sponsored per diem program will cost them money. In fact, the table below shows the tax due on the 20% non-deductible portion of per diem is offset by the payroll tax savings. In addition, a CASE STUDY demonstrated a trucking company saved $3,000 per driver by imlementing the Per Diem Plus FLEETS. Billy's employer would actually have saved over a thousand dollars in taxes per driver.

fleet benefit of a per diem program
Fleet Benefit of a Per Diem Program

Fleets that adopt the Per Diem Plus FLEETS mobile platform will not only enhance driver retention and recruiting, but save many thousands of dollars in the process. 


About Per Diem Plus FLEETS

Per Diem Plus FLEETS is a proprietary mobile software application that was designed by truckers and built by tax pros. Furthrmore, it is the only IRS-compliant mobile app for iOS and Android that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.


This article was written by Mark W. Sullivan EA, Tax Counsel for Per Diem Plus, who has over a decade of experience advising trucking companies on per diem issues. Prior to starting a private practice in 1998, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service.  Questions? Contact Mark W. Sullivan, EA.

Copyright 2020 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Disclaimer: This article is for information purposes only and cannot be cited as precedence or relied upon in a tax dispute before the IRS.

Designed by drivers, built by tax pros

Driver per diem report and trip summary
PDP Fleets Driver Report

Is trucker per diem a wage reclassification?

No. The treatment of per diem as a portion of an employee’s wages is not considered an improper “wage reclassification”. The IRS first introduced per day allowances in Revenue Procedure 90-60 as a simplified method of substantiating employee business expenses. However, the first published guidance for the transportation industry was TAM 9146003 issued in 1991. According to the IRS:

  • A driver's weekly compensation,
  • Earned on a cents-per-mile basis,
  • May be reduced by specific amounts designated as per diem for meals and incidental expenses for each day away from home overnight (i.e. $66/day).
  • Is not considered a wage reclassification

What is the special transportation industry per diem?

The Special Transportation Industry substantiated method was introduced in 2000 to ease the burden on taxpayers, who would otherwise have to meet the extensive substantiation requirements in order to claim deductions for business related travel [See Rev. Proc. 2000-39, 2000-9 Sec. 4.04, Notice 2000-48], which among other things:

  • Established a method allowing a payor to treat a specific amount as paid or incurred for employee meals while traveling away from home for work instead of substantiating actual costs (no receipts required).
  • Set $40 as the nationwide federal meals and incidental expenses (M&IE) rate for transportation employees subject to DOT hours of service. [Increased to $66 in 2018 & $69 in 2022] [i]
  • Increased the tax-deductible percentage of employee travel expenses to 60%. [Raised to 80% in 2008] [ii]
  • Approved as a transportation industry standard prior to December 12, 1989 the treatment of a portion of a driver’s wages as per diem. [iii]
  • Required a fleet using the cent-per-mile method to include a process that;
    • tracks the amount of cents-per-mile M&IE allowance paid to a driver on a per diem basis,
    • includes a mechanism to determine when allowances exceed the amount of expenses that may be deemed substantiated, and
    • treat the excess allowance over $40 per day as wages for withholding or employment tax purposes. [Increased to $66 in 2018 & $69 in 2022][iv]
  • Established that all amounts paid under a expense reimbursement arrangement that meets the requirements of business connection, substantiation, and returning amounts in excess of expenses are treated as paid under an accountable plan and are excluded from income and wages.

The Internal Revenue Code gives the IRS Commissioner discretionary authority to issue regulations, such as revenue rulings and procedures. The Revenue Procedures and Notices are updated annually and the relevant per diem provisions have remained substantially the same since 2011 [See Rev. Proc. 2011-47 ].


Biden's IRS Is Coming For Your PayPal & Venmo Payments

IRS Issues 2024 Trucker Per Diem Rates (9/25/23)


What is a substantiated per diem program?

A substantiated per diem program reimburses drivers a fixed amount per day (i.e. $66) in place of a rate per mile for travel away from home. As a result, it eliminates the need for drivers to turn in receipts for actual meals and incidental expenses. Most importantly, it reduces a fleets administratives burden while providing additional cash to drivers on a pre-tax basis. However, companies must have an accountable plan to qualify, which would include these requirements [See KMS Transport Advisors (NAFC March 2019 newsletter]:

  • The travel must have a business purpose
  • There should be logs showing that you adequately account for the eligible amount within a reasonable period of time
  • The amount should be tested regularly to ensure that drivers are not exceeding the allowable amount
  • Employees must return any excess reimbursement or allowance within a reasonable period of time or treat the overage as compensation
  • Drivers receiving the per diem must be over the road, meaning out overnight, where they cannot reasonably be expected to complete a route without sufficient rest

Do any well-known fleets use the special trucker per diem method?

Well-known motor carriers that utilize the substantiated method include Averitt Express, EPES Transport System, TMC Transportation, G&P Trucking, Transport America and Big G Express, Danny Herman Trucking and Oakley Transport.

What documentation meets the IRS substantiation requirements?

Only Per Diem Plus FLEETS platform or DOT ELD backups with an itemized log listing "time, date & place" for each per diem event meet the IRS substantiation requirements.

PDP Fleets "time, date & place" substantiation

Conclusion

Thirty years of IRS guidance and legislative history specifically reference an employer paying a driver in the transportation industry under the substantiated method and, therefore, contemplate that some portion of a driver’s wages will be treated as per diem. While, both the substantiated and cent-per-mile per diem methods are IRS-compliant, neither method has been considered an improper wage reclassification for over 30 years. However, a motor carrier that adopts the substantiated per diem method that is built into Per Diem Plus FLEETS will realize the most benefit for both the fleet and their drivers.


Get in touch with the experts at Per Diem Plus today to discuss a smooth rollout for your system.


About Per Diem Plus FLEETS

Per Diem Plus FLEETS is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app for iOS and Android that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA


Copyright 2020-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Disclaimer: This article is for information purposes only and cannot be cited as precedence or relied upon in a tax dispute before the IRS. Additional information can be found at IRS.gov


[i] The 2019 per diem rate for travel in the USA is $66 and $49.50 for a partial day.

ii] The raised the deductible percentage of employee travel related expenses to 80% in 2008

iii] Federal Register-1989-12-12 Vol 54 Page 51038 pursuant to “Family Support Act of 1988”

[iv] Rev. Ruling 2006-56, 2006-2 CB 274

[i] Updated annually IRS Notice 2019-55, 2018-77, 2017-54, 2016-58, 2015-63, 2014-57, 2013-65, 2012-63, Rev. Proc. 2011-47, 2010-39, 2009-47, 2008-59, 2007-63, 2006-41, 2005-67, 2004-60, 2003-80, 2002-63 and 2001-47.

Designed by drivers, built by tax pros

driver per diem report and trip summary
Driver Report IRS "time, date & place" substantiation

Our tax expert responds to a common question we receive from drivers and fleets.

Substantiated per diem provides the largest benefit to both a driver and fleet over the old cent-per-mile method. Decades before the advent of TMS software, telematics and ELD's fleets adopted cent-per-mile per diem. Why? Because it was easy to calculate and substantiate using trip sheets[i]. However, there is no correlation between the miles a driver travels and frequency of meal breaks.

Under the cent-per-mile method a driver is paid only for miles driven and not nights away from home. Although, a driver may travel 500 miles one day they may only clock 200 miles the next. In the end, the distance traveled does not affect the need to eat 3 meals a day. 

The special transportation industry per diem

The IRS introduced the Special Transportation Industry substantiated per diem to simplify tax compliance for fleets by relying on days away from home instead of miles traveled. This method accurately reflects the number of meals a driver eats and resolved the problem that driver’s regularly travel away from home and stop during a single trip at localities with differing federal M&IE rates.

  • The most beneficial aspect to a driver is that substantiated method at $69/day yields on average 25% more per diem than cent-per-mile.
  • Substantiated per diem can be earned during a 34-hour restart and unforeseen delays like detention, breakdowns, or weather.
  • A typical driver will save an additional $2,300 - $3,600 in income and payroll taxes over cent-per-mile.
  • Well-known motor carriers that utilize substantiated per diem include Averitt Express, TMC Transportation, Transport America and EPES Transport System.
  • Fleets that implement the Per Diem Plus FLEETS platform will save about 27% or $1,000 more per driver in reduced payroll and income taxes and workers compensation than cent-per-mile.

Use our Fleet Per Diem Benefit Calculator to learn how much your fleet can save with Per Diem Plus Fleets.


[i] 1-274-5T(c) Rules of substantiation, Rev. Proc. 2011-47 § 4.02(5)


Subtantiated Per Diem vs. Cent-Per-Mile

Both the substantiated and cent-per-mile per diem methods are IRS-compliant. However, a motor carrier that adopts the substantiated per diem method that is built into Per Diem Plus FLEETS will realize the most benefit for both the fleet and their drivers.

Get in touch with the experts at Per Diem Plus today to discuss a smooth rollout for your system.

Per Diem Plus FLEETS is a configurable mobile application enterprise platform that automates administration of an IRS-compliant accountable per diem plan for truck drivers and fleets managers. No matter how big or small your company is, Per Diem Plus has a solution for you.



About Per Diem Plus FLEETS

Per Diem Plus FLEETS is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app for iOS and Android that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.


This article was written by Mark W. Sullivan EA, Tax Counsel for Per Diem Plus, who has over a decade of experience advising trucking companies on per diem issues. Prior to starting a private practice in 1998, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service. 

Questions? Contact Mark W. Sullivan, EA.

Disclaimer: This article is for information purposes only and cannot be cited as precedence or relied upon in a tax dispute before the IRS.

Copyright 2019-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Designed by drivers, built by tax pros

Driver per diem report and trip summary

Which per diem method saves a fleet more money? Substantiated per diem saves a motor carrier the most money, since the fleet benefits are directly proportional to total per diem paid to drivers.  So how did cent-per-mile per diem become so popular in the trucking industry? Decades before the advent of telematics fleets adopted cent-per-mile per diem for because it was easy to calculate.  However, there is no correlation between the miles a driver travels and meal breaks.

Which per diem method do drivers prefer?

Drivers prefer substantiated special trucker per diem. Why? They eat 3 meals a day regardless of whether they drive 200 or 600 miles. The IRS introduced the Special Transportation Industry substantiated per diem to remedy this issue. In addition it simplified tax compliance for fleets by relying on nights away from home instead of miles traveled. It is also a more accurate reflection of anticipated meal expenses for drivers.


The most beneficial aspect of substantiated per diem to a motor carrier is that: 

  •  Substantiated method yields on average 27% more per diem savings than cent-per-mile or $1 for every $8 of per diem paid to driver over cent-per-mile.
  • The average fleet saves about $3,700 per driver in income and employment taxes and workers compensation.
  • A fleet employing 5 OTR drivers would save about $5,112 more with substantiated per diem than a $0.11 cpm per diem plan.

Use our Fleet Per Diem Benefit Calculator to learn how much your fleet can save with Per Diem Plus Fleets.


Will adding a per diem program enhance driver recruiting?

Adding an accountable per diem program for employee drivers is a sure-fire way to enhance driver recruiting and retention. Consider the following:

  • The typical over-the-road (OTR) driver averages 127,500 miles annually and is away from home 280 nights a year.
  • A driver would receive $18,480 under the substantiated method, but only $12,750 under a cent-per-mile.
  • Substantiated method yields on average 45% more per diem than cent-per-mile.
  • Substantiated can be earned during a 34-hour restart and unforeseen delays like detention, breakdowns, or weather.
  • The average driver will save an additional $1,126 - $1,467 in taxes over cent-per-mile.
driver annual tax savings from per diem

Both substantiated and cent-per-mile per diem must comply with the IRS substantiation by adequate records rules. According to the IRS, "a motor carrier must maintain lrecords to establish "time, place and location" for each per diem event". The Per Diem Plus FLEETS platform satisfies this requirement since it is maintained in such manner that each recording of an element of an expenditure is made at or near the time of the expenditure.

Document retention rules:

  • Per Diem Plus FLEETS utilizes a 4-year retention policy.
  • A motor carrier must retain driver ELD data for a minimum of 3 years from the filing date of the corporate tax return.

The transportation industry has been unique in its treatment of driver per diem for over 30 years. The substantiated per diem method saves a motor carrier more money than cent-per-mile method. While, substantiated and cent-per-mile per diem methods are IRS-compliant, both require a motor carrier to comply with the adequate records and document retention rules. 

Get in touch with the experts at Per Diem Plus today to discuss a smooth rollout for your system.

Per Diem Plus FLEETS is a configurable mobile application enterprise platform that automates administration of an IRS-compliant accountable per diem plan for truck drivers and fleets managers. No matter how big or small your company is, Per Diem Plus has a solution for you.




About Per Diem Plus FLEETS

Per Diem Plus FLEETS is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app for iOS and Android that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups to substantiate away-from-home travel.


This article was written by Mark W. Sullivan EA, Tax Counsel for Per Diem Plus, who has over a decade of experience advising trucking companies on per diem issues. Prior to starting a private practice in 1998, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service.  Questions? Contact Mark W. Sullivan, EA.

Copyright 2019-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Disclaimer: This article is for information purposes only and cannot be cited as precedence or relied upon in a tax dispute before the IRS.

Designed by drivers, built by tax pros

Per Diem Plus Fleets

Our tax experts jotted down some common questions customers have asked us about trucker per diem rules for fleets.

What is per diem?

The term"per diem allowance" means a payment under a reimbursement or other expense allowance arrangement that is — (1)

  • Paid for ordinary and necessary business expenses incurred, or that the payor reasonably anticipates will be incurred, by an employee for meal and incidental expenses, for travel away from home performing services as an employee of the employer.
  • Paid at or below the applicable transportation industry per diem rate.  

Trucker per diem rules for fleets eliminate the need for proving actual costs for meals & incidental expenses incurred.


Related Articles:

Beware: Firms Promoting Illegal Trucker Per Diem Programs

IRS Orders Immediate Stop To New Employee Retention Claims

2024 Trucker Per Diem Rates Released


Under the 2017 Tax Cuts & Job Act can motor carriers still offer per diem to employee drivers?

Yes. Drivers that receive a non-taxable per diem reimbursement from their employer (trucking company) do so under IRC Sec 62(2)(a).

Which employee drivers qualify for per diem?

Under the trucker per diem rules for fleets a motor carrier can offer per diem only to drivers who are:

  • Subject to DOT HOS,
  • Who travel away from home overnight where sleep or rest is required, and
  • Do not start and end a trip at home on the same DOT HOS 14-hour work day.

Can all truck drivers receive per diem?

No. Drivers who start and end a trip at home on the same DOT HOS 14-hour work day cannot receive per diem. 

  • Per Diem Plus automatically detects truck driving trips that do not meet the IRS per diem requirements.
  • As of January 1, 2018 employee (company) drivers can no longer claim per diem on their Form 1040, US Income Tax Return, as an itemized deduction on Schedule A.

Will a motor carrier save money by implementing a company-paid per diem plan?

A fleet will save approximately $3,000 annually or $0.03/mile/driver as the payroll tax and worker compensation savings exceed the tax on the 20% nondeductible portion of per diem. 

Use our Fleet Per Diem Benefit Calculator to learn how much your fleet can save with Per Diem Plus Fleets.

Will a per diem plan raise driver pay?

Yes. On average driver pay will increase from $0.03 - $0.04/per mile.

What documentation is required to substantiate driver per diem?

A motor carrier must substantiate the “time, date, and place” for each day of travel.  Here is how the IRS-friendly Per Diem Plus FLEETS web services portal output report handles this requirement:

Driver per diem report and trip summary

What documentation meets the IRS substantiation requirements?

Only Per Diem Plus FLEETS platform or DOT ELD backups with an itemized log listing "time, date & place" for each per diem event. Per Diem Plus automatically records per diem for travel in the USA and Canada for solo and team drivers.

Is company-paid per diem taxable as income to an employee driver under an accountable fleet per diem plan?

No. Per diem is classified as a non-taxable reimbursement to an employee driver and is not reported under wages on Form W-2.

What are the current per diem rates for travel in the USA & Canada?

IRS increased per diem rates effective October 1, 2018 (Revised 10/01/2021)

USA $69 from $66

Canada $74 from $71

Can a driver receive per diem for partial days of travel?

Yes. A partial day is 75% of the per diem rate.

  • Partial per diem rate USA $51.75, Canada $55.50
  • Per Diem Plus will record 3/4 per diem when a driver departs their tax home AFTER noon or returns to their tax home BEFORE noon.
  • Per Diem Plus - Owner Operators and Fleets platform are the only telematics-based solutions that can calculate partial per diem. [See IRS Rev. Proc. 2011-47 Sec 6.04]

How much per diem can a fleet deduct on the corporate income tax return?

A fleet can deduct 80% of per diem on their income tax return. However, the payroll tax and worker compensation savings ordinarily exceed the tax on the nondeductible portion of per diem.

  • Congress increased the deductibility of per diem to 100% for tax years 2021 and 2022

What documentation is required to prove other expenses?

Paper or electronic receipts that identify what, when and the amount are required. Drivers can upload and store receipts on the Per Diem Plus FLEETS app.  Watch Run IRS Compliant Reports with Receipts video to see how easy drivers can send an itemized expense reports with receipts to payroll or accounting.

Can a fleet pay per diem for lodging?

No. There is no published guidance from IRS that allows a fleet to pay a lodging per diem.

A self-employed driver (owner operator) falls under the related party rules of IRC 267(b) & Rev. Proc 2011-47.6.07 and, therefore, cannot use per diem substantiation that includes a meals and lodging per diem.

How long should tax records be retained?

No less than 3 years from the filing date of an income tax return.  Per Diem Plus FLEETS customers have instant access to itemized per diem tax records for four years.

ELD backups used to substantiate "time, date and place" are considered tax records.

What published guidance has the IRS issued that explains trucker per diem?

Refer to IRS Revenue Procedure 2011-47.  Or, use the Per Diem Plus FLEETS platform that automates administration of a company-paid per diem plan and takes the guesswork out of tax-related record keeping.  Our How it Works video demonstrates just easy the app is to use.


Get in touch with the experts at Per Diem Plus today to discuss a smooth rollout for your system.

Per Diem Plus FLEETS is a configurable mobile application enterprise platform that automates administration of an IRS-compliant accountable per diem plan for truck drivers and fleets managers. No matter how big or small your company is, Per Diem Plus has a solution for you.


Per Diem Plus Software Platform

  • ELD-Integrated: Per Diem Plus API for Samsara
  • Native Android & iOS Mobile Apps: Per Diem Plus - Owner Operators and Per Diem Plus Small Fleets
  • Deep Link for Platform Science and Transflo Mobile
  • APK to distribute via MDM

Per Diem Plus Fleets is also available on the Truckstop Marketplace, Samsara App Marketplace and Platform Science Marketplace

About Per Diem Plus

Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile enabled solution that automatically tracks each qualifying day of travel in the USA & Canada for solo and team drivers and replaces ELD backups (logbooks) to substantiate away-from-home travel.


About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA

Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.

Copyright 2019-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Tax Saving Tips For Owner Operators & Family-Run Trucking Businesses - Home Office Deduction

The following excerpt on the home office deduction is from "Making The IRS Work In Your Favor" presented by Mark W. Sullivan, EA at the 2018 CMC LIVE hosted by Kevin Rutherford and Let's Truck.

per diem plus owner operators

The Home Office Deduction

Taxpayers are not entitled to claim the home office deduction unless the expenses are attributable to a portion of the home, or a separate structure, used exclusively on a regular basis for business purposes.  Here is what you need to know to take advantage of a great tax saving opportunity.

Who can claim the home office deduction?

Only self-employed individuals may claim the home office deduction.

  • Sole proprietorships claim it on Form 1040 Schedule C
  • S-corporations claim it as an office expense on Form 1120S

The IRS has two tough tests to meet:

  1. Statutory Administrative / Management Activities Test
  2. Comparative Analysis Test

Administrative / Management Activities Test

Portion of home used exclusively

  • Billing customers
  • Keeping books and records
  • There is no fixed office location

Introducing Per Diem Plus Small Fleets, an affordable, customizable per diem solution for solo and team operators

Comparative Analysis Test

  • Determining principal place of business
  • Importance of activities performed at home office
  • Time spent at location

(Refer to IRC Sec 280A(a), 280A(c), 280A(c)(1)(A))

Example:

Using a den to write legal briefs and tax opinions as well as for personal purposes does not meet the requirements to claim the home office deduction.
  • Fails the Comparative Analysis Test - Importance of activities performed at home office

Two options for calculating the home office deduction:

  1. Safe Harbor Method
  2. Allocable Portion of Home Method

Safe harbor method

  • Calculate percentage of home or structure used for business
  • $5 per square foot, up to maximum of 300 sq. ft. or $1500
  • Deduction cannot exceed business income

Allocation portion of home method

  • Calculate percentage of home or structure used for business
  • Multiply by total costs of maintaining home
  • Deduction cannot exceed business income

(Refer to IRC Sec 280A(c)(5)(A))


Drivers, try Per Diem Plus or Small Fleets absolutely free for 30 days!

PDP Small Fleets requires users to complete the account setup HERE before using the app.


About Per Diem Plus

Per Diem Plus was born over our 30 years of experience as agents and tax practitioners and a relentless pursuit to introduce efficiency to the time-consuming task of tax compliance for truck drivers, fleets and their accounting professionals. The Per Diem Plus® Fleets enterprise platform enables motor carriers to easily implement an IRS-compliant fleet per diem program in hours that is scalable and data plan-friendly. Per Diem Plus was designed, developed and is managed in the USA and is the only IRS-compliant mobile application that provides automatic trucker per diem for solo and team drivers traveling in the United States and Canada. For more information, contact us at info@perdiemplus.com or visit www.perdiemplus.com

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA



Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.

Copyright 2018-2023 Mark Sullivan Consulting, PLLC; Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram