cpm on diem

Or you can open a savings account, and just put some aside for the eventuality of the tax man's visit.

 

And hope that the taxes due aren't enough to trigger the underpayment penalty.

 

Not a problem, as long as you send a check with your return.

 

Not entirely true. At least by my understanding.

Introduction

If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have underpaid your estimated tax and may have to pay a penalty.



You may understand this chapter better if you can refer to copies of your latest federal income tax returns. No penalty. Generally, you will not have to pay a penalty for 2010 if any of the following apply.

• The total of your withholding and timely estimated tax payments was at least as much as your 2009 tax. (See Special rules for certain individuals on this page for higher income taxpayers and farmers and fishermen.)
• The tax balance due on your 2010 return is no more than 10% of your total 2010 tax, and you paid all required estimated tax payments on time.
• Your total 2010 tax (defined on page 49) minus your withholding is less than $1,000.
• You did not have a tax liability for 2009.
• You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000.

General Rule

In general, you may owe a penalty for 2010 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of:

1. 90% of your 2010 tax, or
2. 100% of your 2009 tax. (Your 2009 tax return must cover a 12-month period.)

Your 2010 tax, for this purpose, is defined under Total tax for 2010 on page 49.

Special rules for certain individuals. There are special rules for farmers and fishermen and certain higher income taxpayers.

http://www.irs.gov/publications/p505/ch04.html#en_US_2011_publink1000207500


The way I read this is that if your underpayment is more than 10% of the taxes due, you might be hit with an underpayment penalty.

 

"May," "might," maybe... if you send what you owe with the return - unless the underpayment is a huge amount - they won't bother. We generally don't make enough, and what you are quoting is for the self employed receiving a 1099. In this case, the taxpayer is an employee receiving a W2 - the underpayment penalties go to the employer.

 

You aren't reading that the same way I am then. I'm not gonna derail the thread by posting personal experience with it. Let's just say that W-2 employees can and have had to pay such penalties. It doesn't fall on the employer.

I'm not interested in arguing about it. Our current tax code sucks.

 

No argument with that!

Its just that the employer is responsible for witholding a W2 employee's taxes. If the employer doesn't withold for the employee properly... he's responsible for those penalties.

Ultimately, the tax must be paid. If the employee sends a check for the required amount with his return, then he will not be penalized for the employer's fault.

 

Technically, it wouldn't be considered the employers fault anyway. When paying regular employees (W-2 employees, not contractors receiving a 1099) federal income tax is deducted based on various tables in the Circular E guide distributed by the IRS. The employee only picks how many deductions he will take and his filing status - single, married, etc.

This works fine IF all wages are being taken into account. The way this company is withholding taxes, not ALL wages earned are included in the W-4 deduction specification. Per diem wages are paid AFTER tax deductions, the same way that reimbursements for wash-outs, scale fees, etc., are paid to the employee on their check. If a driver made $650 in a week for X-miles driven, then I would expect more than $12-20 in federal income tax to be deducted for that week, especially if the driver is claiming single/unmarried with ZERO dependents - the maximum tax would be deducted from that employees check.

It is not up to the employer to deduct a different amount of tax based on the W-4 specifications - that burden falls on the employee to figure how many dependents he'll be claiming and how many deductions he wants from his check. Claiming more deductions/dependents means fewer tax $$ deducted from weekly pay, so hopefully a bigger refund at the end of the year. The theory in this was that more deductions per pay period means few taxes withheld, and more $$ in your pocket each week.

However, because the per diem pay is being treated the same as wages earned through a 1099, then any excess taxes that were not withheld will be due by April 15th, regardless of how early the 1040 tax return if filed.

I agree that opening a savings account to plan for a EOY tax payment would be a good choice, but what about those who are barely making ends meet with what they're bringing home each week?

This per diem pay just doesn't seem like a good deal for the driver, but only for the company who has to pay fewer taxes and smaller amounts into SS and FICA. If this is becoming an industry standard (like E-logs and slower governed trucks), then I'll urge my guy to seek local driving jobs that pay by the hour.

Nunu62

 

Sure it is the employer's fault. If he's not withholding per the W4 (they are required by law to do so,) or if they are not making those payments to the IRS (they are required by laws to do so) then it's their problem. Its also the case that the IRS is cracking-down on this problem, so your guy's employer is actually setting himself up for IRS scrutiny.

There are both positives and negatives to per diem payments. The positive side for the employee is that they receive that money untaxed... and are not required to pay tax on it. For a low-income person without the ability to itemize their deductions, its the only way they can take advantage of the per-diem deduction. It lowers their AGI - which decreases the tax owed, but it also lowers any benefits obtained by reporting a higher AGI - Social Security, workman's comp, the ability to borrow on a loan (assuming you can find a fat-cat banker that would actually loan ANYONE money!)

 

Thanks for that info Ironpony. Since this is the first time he's had to deal with any sort of per diem income, we're just trying to look ahead so he's not caught off-guard next April. I guess we should find an accountant who specializes or is knowledgeable of the trucking/driver business.

Thanks for all the input here. It has been very helpful.

Nunu62