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The good news: If the “Tax Cuts and Job Act” becomes law trucking companies are expected to enjoy a 15 percent reduction in income tax rates, while freight rates are projected to rise as much as 20 percent because of the ELD mandate.

The bad news: Tax reform will make the driver shortage worse.

  • Company (employee) OTR drivers who previously itemized deductions will not only experience a tax increase, but be forced to cover roughly $16,000 of meals and job-related expenses with after-tax income[i].
  • According to the Gordon Klemp with the National Transportation Institute (NTI) a major reason for driver shortage, “drivers on average are 52 years old, GDP is growing at 3%, unemployment is near 4%, for-hire driver pay has risen an anemic 6.3% since 2006 and many prospective drivers are opting for a gig-economy job like Uber driver [1].

To mitigate the tax increase on drivers fleets may be inclined to mandate employee participation in a traditional company-sponsored per diem plan that reclassifies a portion of a driver’s wages as a non-taxable per diem reimbursement[ii]. However, this option while convenient risks inciting a driver mutiny, since veteran drivers know company-paid per diem lowers Form W-2 wages, Social Security Administration contributions and impacts the ability to secure credit (i.e. mortgage or car loan). Optics are everything with drivers:

So, what can fleets do to mitigate the impending outrage from their drivers? Implement an IRS-compliant substantiated per diem plan or modify their current company-paid program as part of a pay raise that will preserve current wage base, but offset the elimination of lost tax deductions for unreimbursed employee business expenses[iii]. A rising economy along with reduced tax rates should make possible a driver pay increase of 4 cents to 7 cents according to NTI, which also helps remedy some of the reasons for the driver shortage referenced above.

Trucking companies stand to benefit greatly if H.R. 1 “Tax Cuts and Job Act” becomes law, but OTR employee truck drivers will not be so fortunate. 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.   Mr. Sullivan 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 2017 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.

 

[1] Transport Topics, “Driver Pay Looking Up”, Burney Simpson (12/4/17)

[2] The foregoing discussion utilizes the Senate’s version of “Tax Cuts and Job Act”

[i] 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.

[ii] Drivers who declined company-paid per diem had the option to claim unreimbursed business expenses at the end of the year as an itemized deduction on Schedule A.

[iii] In accordance with IRS Revenue Procedure 2011-47 Sec 4.04 (superseded most recently by Notice 2016-58) covers meals and incidental expenses only.

[iv] OTR drivers are away from on average of 250 nights per year [250 x $63 = $15,750].

[v] Reg. Section 1.274-5(c)(2)(iii)

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