If H.R. 1 “Tax Cuts and Job Act” becomes law OTR employee truck drivers will no longer be allowed a tax deduction for unreimbursed business expense, which includes “meal expenses that take place during or incident to any period subject to the Department of Transportation’s “hours of service” limits”[i]. As a result, drivers will be required to choose between participating in company-paid per diem plan or cover the cost of their travel-related expenses from after-tax income. Unfortunately, Congress’s “one size fits all” approach overlooked a significant fact: The trucking industry is unique in that it does not utilize the well-established business practice of truly reimbursing for travel-related and other business expenses of employee drivers[ii]. Will Congress now require trucking companies to overhaul their per diem programs to follow business norms?
Company-Paid Per Diem Truck Driver Weekly Income Ex 1
For over 30 years fleets have utilized a unique reimbursement method for drivers whereby traveled-related expenses (i.e. meals) are deducted from a driver’s gross wages, reclassified as a pre-tax deduction and then added back into wages as non-taxable “per diem” reimbursement – all without changing the gross pay of the driver[iii]. The attractiveness of this per diem method is obvious: At $0.10 CPM a fleet can artificially boost driver take home pay by $40/week or $0.017 CPM without raising labor costs.
Company-Paid Per Diem Truck Driver Weekly Income Ex 2
What if a fleet uses the IRS’ Special Transportation Industry rate? At $63 per day a fleet can add $47/week or $0.02 CPM to driver take home pay without raising labor costs.
Maybe it is time for Congress to create a “one size fits all” employee business expense reimbursement rule.
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 a Revenue Officer with the Internal Revenue Service in New York, NY, St. Louis, MO and Washington, DC. He has over a decade of experience advising transportation industry clients in 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.
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[i] See Internal Revenue Service Notice 2016-58
[ii] Cents-per-mile is the prevailing trucking industry method for calculating company-paid per diem. Drivers subject to DOT Hours of Service regulations are prohibited from using this method.
[iii] 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.