In general, under both the Senate and House tax reform proposals company OTR drivers that previously claimed itemized deductions for unreimbursed expenses will likely experience a tax increase[1]. However, employee drivers may minimize or eliminate the projected tax increase by enrolling in a company-paid per diem plan[2].
Disclaimer: I would advocate that the trucking industry should adopt the well-established business practice of reimbursing employee drivers for travel-related meals and incidental expenses[i]. However, prudence demands formulation of tax mitigation strategies based on the current law and established business methods and not how I believe they should be.
For over 30 years fleets have utilized a unique, IRS-approved 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[ii]. The largest drawback to company-paid per diem is that it lowers A) wages recorded on Form W-2 Wage and Income Statement B) Social Security Administration contributions and C) may affect the ability to secure a mortgage or other loan, workers compensation and 401(k) contributions.
The following is designed to assist OTR employee truck drivers in determining if participating in company-paid per diem plan will prove beneficial solely from a tax mitigation perspective.
Example[3] – Single Driver: OTR driver Tim earned $50,000 in 2017. He filed his tax return as single and claimed itemized deductions of $21,038, which included $14,868 of net per diem, $4,840 for cell phone, tools, GPS unit, etc. and $1,893 of state income taxes. If he does not receive company-paid per diem his tax bill will increase $1,094 but save $256 under a CPM per diem plan and $796 under daily rate per diem.
What would the impact be if Tim was married? If he does not receive company-paid per diem his tax bill will increase $535 but save $729 under a CPM per diem plan and $1,219 under daily rate per diem.
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 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”. 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 to tax reform overlooked the negative impact on drivers.
Per Diem Plus®, a proprietary software application, which provides automatic per diem, expense tracking and reporting to transportation professionals.
This article was written by Mark W. Sullivan, EA, Tax Counsel for Per Diem Plus, 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, St. Louis, MO and Washington, D.C. offices of the Internal Revenue Service. He has over a decade of experience advising transportation industry clients in per diem issues. Questions? Contact Mr. Sullivan at marks@perdiemplus.com.
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] 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”.
[2] In accordance with IRS Revenue Procedure 2011-47 Sec 4.04 (superseded most recently by Notice 2016-58) covers meals and incidental expenses only.
[3] The foregoing discussion utilizes the Senate’s version of “Tax Cuts and Job Act”
[i] 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.
[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.
