Do home loan lenders understand how trucker per diem works, that is the question.
Background: An employee truck driver was recently denied a zero-down VA home loan. The reasoning? Because he claimed per diem on his taxes at the end of the year and his income was too low for the VA loan. But if he did not claim per diem for two years they could use his wage statements as pure income. The loan officer’s position was,“You claimed it, therefore you spent it. So it's not available as part of your income."
I cannot help but wonder if this loan officer has ever actually prepared or even filed a U.S. individual income tax return. It is obvious he/she knows nothing about U.S. income taxes let alone how taxable income is computed.
Loan Officer Education - Taxes 101: Every taxpayer claims either itemized deductions or the standard deduction on their income tax return. Additionally, taxpayers are allowed to claim one $4,000 personal exemption for each dependent in the household. Per diem is an itemized deduction, not unlike mortgage interest, charitable deductions and medical expenses. Itemized or standard deduction and personal exemptions are subtracted from adjusted gross income to calculate taxable income. The taxes owed to Uncle Sam are calculated from this figure.
Conclusion: The home loan lender clearly does not know that taxable income is always lower than adjusted gross income as a function of the Form 1040.
Discussion: For the sake of argument let us assume the driver participated in a company-paid per diem program that was reported in Box 14 of the Form W-2. Would the loan officer be correct? Maybe. In the below example the driver’s Form W-2 would show income of $41,625, which is $9,000 less than what would be reported if he did not receive company-paid per diem and will likely be noticed by a lender.
Conclusion: At the end of the day either itemized or the standard deduction, along with the dependency exemptions, will always result in a lower taxable income than adjusted gross income.
This article was written by Mark W. Sullivan, EA, Director at D R Sullivan & Company, CPA PC, an accounting firm that has been providing taxpayer advocacy, consulting, and litigation services since 1998. The firm has nearly a decade of experience advising large fleets and telematics providers on IRS substantiated per diem and is tax counsel for Per Diem Plus, an automated per diem and expense tracking Android app.
Please remember that everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult your own tax or accounting professional.
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