Our tax expert responds to a common question we receive from fleets.
Substantiated per diem provides the largest benefit to a motor carrier over the cent-per-mile method, since the savings 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 TMS software, telematics and ELD's fleets adopted cent-per-mile per diem for reimbursable employee travel expenses because it was easy to calculate using trip sheets. However, there is no correlation between the miles a driver travels and meal breaks.
So why do drivers prefer substantiated special trucker per diem? 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 and simplify tax compliance for fleets by relying on nights away from home instead of miles traveled, which is a more accurate reflection of anticipated meal expenses.
The most beneficial aspect to a motor carrier is that:
- Substantiated method yields on average 37% 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 $2,694 per driver in income and employment taxes and workers compensation.
- A fleet employing 5 OTR drivers would save about $3,620 more with substantiated per diem than cent-per-mile.
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 of tax-free per diem under the substantiated method, but only $12,750 under a cent-per-mile method.
- Substantiated method yields on average 45% more per diem than cent-per-mile and 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 income and payroll taxes over cent-per-mile.
Both substantiated and cent-per-mile per diem must comply with the IRS substantiation by adequate records rules which state, "a motor carrier must maintain log books (ELD back-ups), trip sheets, or similar record, 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, while a fleet must retain driver log 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. 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. However, a motor carrier that adopts the substantiated per diem method utilized by Per Diem Plus FLEETS will realize the most benefit for the fleet and their drivers.
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.