Congress’s “one size fits all” approach to tax reform overlooked the most important asset to fleets: Drivers. While trucking companies rightfully stand to benefit with the passage of the “Tax Cuts and Job Act” employee drivers will not be so fortunate: Congress eliminated the tax deductibility of unreimbursed employee business expenses. Company (employee) OTR drivers who previously itemized deductions will be forced to cover almost $18,000 of meals and job-related expenses with after-tax income. Faced with the prospect of lower wages, and many prospective drivers are opting for a gig-economy, the driver shortage will get worse unless fleets take proactive steps that mitigate the negative financial impact on drivers.
As the table below highlights drivers lost a lot more than just the deduction for meals per diem that will significantly erode driver take-home pay.
Implementing an IRS-compliant substantiated per diem plan is a simple, cost-effective fleet solution that will preserve driver take-home pay and offset the elimination of lost tax deductions for unreimbursed employee business expenses[i]. The IRS allows a maximum of $63 per day for travel in the USA [$68 for Canada], but a fleet can opt for a lower amount, i.e. $45 per day, so long as it is paid at or below the applicable federal per diem rate, a flat rate or stated schedule[ii]. A fleet is also required to substantiate the “date, place and amount” of each per diem event through retention of adequate records like ELD backups or Per Diem Plus mobile app platform for no less than 3 years.
Example A – Single Driver
OTR driver Tim earned $50,400 in 2017. He filed his tax return as single and claimed itemized deductions which included $16,695 of per diem, $1,000 for cell phone, miscellaneous tools and supplies. Because of the “Tax Cuts and Jobs Act” his taxes will decrease about $73, but he will incur almost $18,000 of out-of-pocket, unreimbursed expenses. What if the fleet implemented an accountable per diem plan where per diem is treated as a pre-tax deduction that is added back as a non-taxable reimbursement in the driver’s settlement?
- Under a $63 per diem plan he would save $2,076 in taxes over 2017
Example B – Married Driver
OTR driver Tim earned $50,400 in 2017. He filed a joint tax return with his wife and claimed itemized deductions which included $16,695 of per diem, $1,000 for cell phone, miscellaneous tools and supplies. Because of the “Tax Cuts and Jobs Act” his taxes will decrease by about $632, but he will still incur almost $18,000 of out-of-pocket, unreimbursed expenses. What if the fleet implemented an accountable per diem plan?
- Under a $63 per diem plan he would save $2,448 in taxes over 2017
How does a fleet convince drivers who previously itemized deductions to claim per diem and unreimbursed business expenses to participate in a company-paid per diem program? Optics are everything with drivers: show them the numbers.
Trucking companies stand to benefit greatly now that H.R. 1 “Tax Cuts and Job Act” has become law, but OTR employee truck drivers will not be so fortunate. As a result, the driver shortage will get worse unless fleets take proactive steps that can mitigate the negative impact on drivers. Unfortunately, Congress’s “one size fits all” approach to tax reform overlooked the most important asset to fleets: Drivers.
This article was written by Mark W. Sullivan, EA, who has been providing taxpayer advocacy, consulting, and litigation services since 1998. Prior to starting a private practice, 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. He has over a decade of experience advising transportation industry clients with respect to per diem issues.
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.
Copyright 2018 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.
 Under H.R. 1 “Tax Cuts and Job Act” OTR employee truck drivers will no longer be allowed a tax deduction for unreimbursed business expenses, which includes “meal expenses that take place during or incident to any period subject to the Department of Transportation’s “hours of service” limits” and other job-related expenses.
 All amounts paid under the arrangement are treated as paid under an accountable plan and are excluded from income and wages.
 Rev. Proc 2011-47 § 4.03: This amount is deemed substantiated for purposes of 1.274-5T(b)(2)(i) and (c), provided the employee substantiates the elements of “time, place, and business purpose of the travel” for each day or partial day in accordance with those regulations.
 OTR drivers are away from on average of 265 nights per year [265 x $63 = $16,695].
[i] In accordance with IRS Revenue Procedure 2011-47 Sec 4.04 (superseded most recently by Notice 2017-54) covers meals and incidental expenses only.
[ii] Rev. Proc. 2011-473.03. Flat rate or stated schedule
(1) In general. Except as provided in section 3.03(2) of this revenue procedure, an allowance is paid at a
flat rate or stated schedule if it is provided on a uniform and objective basis for the expenses described in
section 3.01(1) of this revenue procedure. The allowance may be paid for the number of days away from
home performing services as an employee or on any other basis that is consistently applied and in
accordance with reasonable business practice.
[iii] Reg. Section 1.274-5(c)(2)(iii)