Per Diem Programs and Info

For many years now, many companies have structured a per-diem pay plan, often forced upon the drivers, without them being honest about how it can hurt you, but almost exclusively helps the company at tax time.

Most of these plans take 6 to 8 cents per mile of your pay, set it aside, and add it back to your pay after taxes have been deducted from the rest. That all sounds great because you are not paying taxes on roughly a fourth to a fifth of your pay...right? Wrong. For illustration purposes, lets say you are a driver who is making 35 cents per mile, with 8 cents per-diem pay being taken off the top. If you are a driver that runs an average of 120,000 miles per year, we're talking about $9600.00 a year in income.

When you fill out a loan application, the income amount you can claim is the 27 cents per mile you are taxed on. Per-diem pay is considered a claim by the company that they are reimbursing you for expenses that you incur on your job. Who's paying for those expenses? You are. Think about that for a minute and see how it relates later.

In addition to this, for the purposes of determining your income by the Government for Social Security and/or Disability that you may come to be entitled to at some point in your future, that 8 cents per mile is not part of your income, and therefore reduces with each paycheck, the amount you would otherwise be entitled to. Over a span of 20 years, the Government will not recognize $192,000.00 of income that you earned, because it is essentially "off the books".

The immediate savings for the company each week is their required 7.8% (I think this is correct) match in Social Security taxes that should be paid on the unreported income amounts that are disguised as reimbursements.

It gets worse.

Drivers of commerical vehicles are allowed to deduct from their income taxes, 70% of $41.00 per day from January 1, 2005 through September 30, 2005. On October 1, 2005, the standard meal deduction went to $52.00 per day with a 70% deduction rate for 2005. This can be filed on form 2106 (if you file short form tax returns) and it can significantly reduce your income tax burden. If you average 252 days on the road each year, the meal deduction comes to $10,992.00 for 2005, and a write off of $7,694.00 at 70%.

Well...guess what? You no longer get to claim this. The company reimbursed you for your meal expenses. Reimbursements paid by the company are claimed by the company in box #14 on your W-2. The IRS knows it as well. Take a meal deduction claim, and you could land in hot water. If you are audited, the IRS could actually make you claim $1906.00 in additional INCOME because the company has reported to them, and is claiming to have paid for your meals in excess of the standard deduction amount.

The final blow? The company takes the full deduction instead, off their taxes of course, because they are "paying for your meals and incidental expenses".

So where is the advantage to the employee? There is none. You could actually wind up in a position of paying MORE in taxes, on LESS income, than you would have previously. Drivers need to resist this practice, and if you are being paid this way, understand that you are getting screwed in just about every way possible.

I know...so what else is new?