Help understanding Per diem

Ok, using the example I gave in post 13 -- you work 300 days, earning $60,000.

No company per diem:

What you pay/get:
Medicare & Social Security tax: $4,590
Federal income tax: $5,844
You clear: $49,566
If you got hurt and needed worker's comp, you would be paid up to: $692/week.

What a company pays:
$60,000 salary
$4,590 SS/Medicare tax
~$6,000 worker's comp insurance
------
$70,590



If company pays $45,000 as salary, $15,000 as per diem:

What you get/pay:
Social Security & Medicare tax: $3,443
Federal income tax: $5,341
You clear: $51,216
If you needed workers comp, you would get paid: $519/week

What a company pays:
$45,000 salary
$15,000 expense reimbursement
$3,443 SS/Medicare tax
~$4,500 worker's comp insurance
-------
$67,943



So you save ~$2,000 and the company saves $2,500.

You are muddling things.

Without company per diem, you can either take the standard deduction, or you can claim per diem. You cannot do both.

With company per diem, you don't need to itemize to claim per diem because you've already been paid it tax-free as an expense reimbursement. You are now free to take the standard deduction (while still benefiting from the tax savings of per diem)

 

One more agreement on having a CPA do your taxes. Mine ran the numbers for me and determined that the fee was eating up all the gain, so zero benefit to me.

I was told by the company that the fee was a federal requirement. I'm not sure, but I think they were lying because other companies have different fees or even no fee.

 

I would check your income tax numbers in your example. I don't know how you came up with them but they appear wrong.

Lets try a more real example. A single fellow driving for a Mega like Swift. Swift is good because we can use Moosetek's number of 1.5 cent 'accounting' cost. I thought it was 2 cent but I will use his.

Take a single driver no dependents running 100,000 with a 40cpm average pay rate and 330 days on the road.

income:
$40,000 gross income = 100,000 x $.40
-$3060 Fica payroll tax = ($40,000 x 7.65%)
-$2603 income tax – from tax table of [$20,424 taxable income ] = (40,000 - $59 per diem allowance x 80% truckers portion x 330 days out- $4,000 single exemption)
$34,337 net income

With Swift like per diem. 30cpm + 8.5cpm per diem(tax free) + 1.5cpm("accounting fee") Same single driver. 100,000 miles a year 330days out.

$38,500 gross income = $30,000 taxed + $8,500 untaxed = (100,000miles x $.30cpm + 100,000 x .$.085cpm per diem[untaxed])
-$2295 fica payroll tax = ($30,000 x 7.65%)
-$2498 – from tax table of [$19,700 taxable income] = ($30,000 - $6,300 standard deduction - $4,000 single exemption)
$33,707 net income

That is a net loss of $630 for per diem with $1,500 going to the trucking company for 'accounting purposes.' On top of that bonus to the trucking company, they will pay less in payroll taxes and move that per diem amount to a company expense and take a hardy tax break.

That is how most per diem companies handle it, with a 'accounting fee.' They often present the idea to the driver while they still have the notion of the big trucking numbers the recruiter gave them. When you account for the realities in trucking, the actual pay-off for per diem not only disappears but becomes a liability. At the companies that offer per-diem, most drivers do not make $60,000 a year. Most drivers stay out for months at a time. Most of the said companies charge an "accounting fee." Why, because they know they can. Many truckers are smitten with the idea of cheating the government out of taxes. Most will not do the simple math to calculate out all the variables.

Per diem will negatively affect your Social Security, unemployment compensation, your disability if you need it, your 401k if the company offers a match, and your ability to get a loan.

 

Again, we're not talking about slimy companies that charge an admin fee (let alone one that pays just $40,000 for 330 days on the road).

The numbers I used were quick estimates, but here they are broken down:


No company per diem:
$60,000 salary
$4,590 FICA
$14,880 per diem (62x300x.80)
$4,000 personal exemption
$41,120 taxable income
$6,074 fed income tax ($5,156.25 plus 25% of the amount over $37,450)
------
$49,336 take home


Company pays $45,120 salary, $14,880 expense reimbursement:
$60,000 gross
$3,452 FICA
$4,000 personal exemption
$6,300 standard deduction
$34,820 taxable income
$4,762 fed income tax ($922.50 plus 15% of the amount over $9,225)
------
$51,786 take home



$2,450 take-home advantage to the company paying per diem w/o admin fee.

 

Most of the companies that run the per-diem racket do. Many hide the fact in the contract and never let the driver know.

I use those numbers because that is what you are likely to find in the per-diem companies. 40k a year is the median driver wage now and the CPM per-diem driver is most likely to be on the lower end of the income scale with higher wage drivers making hourly wages. Overestimating wages is the accounting tricks used get new drivers roped into this per diem scam. After talking with the the recruiter, the new driver recruit is sure he is at the higher end of the wage scale and therefore the per-diem looks like a good deal. It isn't a good deal for him.

One of the big problems with your second estimate is the per-diem scam often takes a percentage of the commission pay that falls short of the deduction allowed the itemizing. This shortfall is necessary for the transaction to be allowed by the IRS. It is unlikely the CPM that goes to the per-diem will equal the size of the tax-deduction allowed by itemization. That fact alone will severely reduce the benefit greatly for a driver. Your estimated benefit is unlikely to happen in any respect.

These trucking company accountants that run these scams have run the numbers all ways an have unlimited paid time to do so. They know exactly the average wages, average miles run in the company, and how much they can charge for the 'accounting fee' and still make the driver feel like he is getting a benefit. They know what the recruiter has convinced the prospective driver of what his earnings will be and have maximized their cut in the situation. My numbers are far more realistic in this case. For all but a few exceptions, per-diem is a loss to the driver in all aspects.

 

Just wanted to add one more thing. If the driver knows they are going to claim per diem on their tax return, but doesn't want to wait until tax refund time to get the benefit they can simply make an adjustment to their W4 so less tax is withheld.

This way the driver takes home roughly the same as if he was on the company plan.

 

When I challenged someone at Schneider about the fee, they told me it was a federal tax requirement. I was suspicious, but knew I couldn't get them to change anyway.

I was in a situation at the time where I had almost zero deductions and mileage per diem would have been nice if not for the fee. Fortunately my tax advisor figured this out for me in advance and saved me the heartache.

If anyone can shed some light on this fee structure it would be interesting.

 

Any company with elogs has zero excuse for using some BS "estimate" for per diem. 80% of $63 per full day away from home (not 62 as I said earlier), or 60% for each partial day.

It is in the company's own interest to pay the maximum per diem allowed, any (elog) company that doesn't is patently incompetent which would suggest there will be plenty of other issues.

 

Agreed ... but, here's that other issue. If you paid drivers $352.80 a week tax free, just for being out, how many of those are going to be content to just sit in the truck, collect the per diem, not bother to actually pull a load or just do enough to keep their job?

You don't think that way, I don't think that way. But there are too many that do.