Per diem or no per diem

If your running 48-states, then you are currently entitled to deduct from your taxes 80% of $59.00 ($47.20) per day for every day you are away from home overnight. It is NOT income, but merely just a tax break against what you have actually earned. This amount does not change regardless of what your carrier does. As a result, because it does not change, if your carrier pays you a portion of this up front, then that portion they paid, will have to be deducted from what you can claim at the end of the year. Although it may seem like a higher paycheck, It is NOT EARNED INCOME. You didn't actually earn any of it. It is simply a 'Tax Break' from the actual pay you did earn, that is being sent to you directly, making your paycheck look fatter than it actually is. Here is an axample...

Assuming your taxes are normally 28% of your income, looking at a single week where you were out 5 days...

That weeks base pay: $1000
Taxes owed before per-diem: ($1000 * .28 ) = $280
Company pays you NO per-diem...
Paycheck: ($1000 - $280) = $720 you got paid that week.

At end of year, you claim those 5 days per-diem for that week (5 days @ $47.20): $236 ...
You get back $236 on your taxes for that week at end of year, wich means that you actually collected...

($720 + $236) = $956 in total pay, but looking back at your paystub, it only shows $720 because you didn't get the rest until the end of the year.

In the end, you actually got $956 for that week. $720 up front, and $236 more (because you owed less taxes) at the end of year.

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Same scenerio, company pays you per-diem pay...

That weeks base pay: $1000
Taxes owed before per-diem: ($1000 * .28 ) = $280
($1000 - $280) = $720 you earned.

Company pays you Per-diem (5 days @ $47.20): $236
Paycheck: ($720 + $236) = $956 you got paid that week, showing on your paystub as the same $720 for earned pay, plus now $236 for per-diem.

Your weeks paycheck is higher, but only because the per-diem you can claim has already been given to you.

At the end of the year tho,...you have earned the exact same amunt of money for that week.


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Same scenerio again, company lowers your pay, claiming some of it is per-diem pay (a lot of companies do this)...

That weeks total pay ($764 + $236 per-diem) = $1000

Taxes owed : ($764 * .28 ) = $213.92

Paycheck: ($1000 - $213.92) = $786.08 <==you can see that at first, it looks like you earned MORE than if they gave you no per-diem by them doing this BUT...

At end of year, you cannot claim those 5 days per-diem for that week ...

You only ever earn $786.08 by the time the year is up and nothing more,...meaning you actually earned and got paid LESS money for the year.

A 'Slight of Hand' per-say with your money that most people never see because they are so focused on just that weeks pay and not what they will get by the end of the year.

Does this mess clear things up a bit?,...Rawze

 

This infuriates me to no end.
"We'll pay you .35 cpm. But .10 of it is per diem and we take .02 to cover our costs/we pay too much in taxes/insert lame excuse here.
Per diem lowers you recorded gross at the end of the year because you are taxed on that lower amount and you have less going into social security. The only one who comes ouy clean is the company. It should be illegal for them to force per diem on a driver

 

This issue has been covered several times in this forum. I'll only say it like this, if a company wants to pay me 30% per diem rather than earned income I would welcome it with open arms. If you're concerned about how this affects your social insecurity then you have other issues since for most of us there will b no social insecurity and oh.........if you are really concerned about retirement, take the money that the company gives you in per diem and stick it in a mutual fund. 15 years of that will provide more money for retirement than a lifetime of social insecurity will.

 

Keep track of what the company pays you in per diem which is broken down on your pay stubs.

Figure out at end of year how many days away from home.
Figure out how much is regular per diem for the year.
subtract from the total what the company has taken out.
you will be able to subtract this amount from your taxes.

Using the example above (47.20/day).

Drove 300 days OTR (300 * 47.20 = 14,160.00)
Company paid you (10,000 per diem)
14160.00 - 10000 = $4160 you can still claim.

Please note. Companies usually break your per diem down by trip, not by days and it will not be the full 80% the IRS allows.

The day you go on home time and the day you leave home time you are allowed 75%.

Your earned income will be less, so any loans you wish to take out it will affect the $ they see.

Social Security also will see the "less" income and will base your retirement off this. From what I understand they look at the last 10 years of earned income before retirement.

 

if you love your company and want to do whats best for them take the per diem, however if you think of yourself first dont do it its that simple.

 

But any company that charges you to pay you, you should start looking for another job immediately! How crazy is it for them to say that they have to deduct from your pay so that they can save on their matching taxes? Definitely a sign of abusing drivers.

 

Most companies underpay potential per diem because there are heavy fines for overpaying it. If the carrier doesn't pay per diem you can claim it yourself at the end of the year. This gives you deductions making itemizing worthwhile. Then you can add other items that are deductible but would total less than the standard deduction without adding per diem.

 

Not sure about the heavy fine thing,..never looked into it.

IT is worth mentioning tho, that if your company underpays you per-diem, then you are entitled to the rest (what has still not been claimed) at the end of the year as a tax deduction. That means that even if your carrier doesn't pay you all of it, you can still get the rest.

 

You may not get the rest if it isn't as much as the standard deduction to make it worth itemizing.