No. The treatment of per diem as a portion of an employee’s wages is not considered an improper “wage reclassification” if a motor carrier complies with the IRS regulations for substantiated per diem. The IRS first introduced per diem (per day) allowances in Revenue Procedure 90-60 - a simplified method of substantiating employee business expenses - in accordance with the Family Support Act of 1988. The first published guidance for the transportation industry was issued in 1991 where according to the IRS a driver's weekly compensation, earned on a cents-per-mile basis, may be reduced by amounts designated as per diem for meals and incidental expenses for each day away from home overnight [TAM 9146003]. However, the Special Transportation Industry substantiated per diem 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] [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][iv]
- Established that all amounts paid under a per diem 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.
- Well-known motor carriers that utilize substantiated per diem include Averitt Express, EPES Transport System, TMC Transportation, G&P Trucking, Transport America and Big G Express.
- Substantiates the “time, date, and place” for each day of travel. Here is how the IRS-compliant Per Diem Plus FLEETS handles this requirement:
The Internal Revenue Code gives the IRS Commissioner discretionary authority to issue regulations, such as revenue rulings and procedures. These Revenue Procedures and Notices are updated annually, but the relevant per diem provisions have remained substantially the same since 2011 [See Rev. Proc. 2011-47 ].
What is a Per Diem Program?
A per diem program is a plan that enables up to $66 per night away from home to be disbursed to OTR drivers, as opposed to having drivers turn in receipts for direct expenses. It reduces administrative burden, while providing additional cash to drivers on a pre-tax basis. To qualify, companies must have an accountable plan, 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.
• A driver 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.
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.
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 their drivers.
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 a 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.
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 2019 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.
[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.