Help understanding Per diem

In theory, it should about come out even. The extra you get all year is about what you'd not pay after figuring out your standard deductions when you file your taxes. So, you'd get a little more each week, but get back less on an income tax rebate at the the end of the year. One is supposed to offset the other. But it doesn't always work that way. Only way to know is show their pay package to your accountant and go from there. I prefer the company just withhold what they are supposed to according to the W4 I filled out and let me worry about my tax situation myself. And if they insist on the per diem thing, stop calling it "pay". It isnt. If anything it is a weekly pre-bate on your taxes is all. But that statement is only true in how it applies to income taxes only. You still have the issues with SSI and such. SSI is based on how much you earned. So you aren't doing yourself any favors by having your earnings numbers artificially decreased.

 

And don't forget that per diem pay through the company comes at a cost.
At Swift, they will shift 10 cents per mile to per diem pay (if you sign up for it) - so you are not taxed on that amount.
But they only pay you 8.5 cents per mile back on your paycheck. The rest is an administrative fee.

You might have an advantage if you are paying child support and they re-evaluate it often, since that is based on taxable income.
Or maybe if the IRS or someone else has a hold on you.
Other than that, it is only to the advantage of the company.

 

Lets say you worked 300 days, earning $60,000.

No company per diem:
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.



If company pays $45,000 as salary, $15,000 as per diem:
Social Security & Medicare tax: $3,443 (lower because they don't tax the $15,000 if it is taken out before payroll)
Federal income tax: $5,341 (lower because you can now also claim standard deduction)
You clear: $51,216

If you needed workers comp, you would get paid: $519/week



This assumes your company does not charge an "administrative fee" for per diem. If they do, they are screwing you.

 

There is the part that gets people confused. You can claim a standard deduction when you file your taxes whether your company does this per diem thing or not. No thanks. I'll give up that $700 + or - and take care of my tax issues myself. They are screwing you anyway if they do per diem....it's just worse if they charge an administration fee on top. The only year I have ever had to pay more money when I filed my taxes was the only year I worked for a company that did the per diem thing. Coincidence? I think not. I didn't pay much that year....like 80 bucks. But still.

 

As a company driver, paid on W2, you can only claim per diem on form 2106 & the schedule A. You cannot itemize (schedule A) and also claim the standard deduction.

Form 2106:


Schedule A:

 

The way I've understood it, per diem is never a good thing if you want to finance anything. It's not counted as taxable income, so your loan application won't be an accurate representation of your actual income.

 

I've never seen a mortgage application ask for "taxable income" or AGI or MAGI. They all ask for income.

Here is the Freddie Mac form: http://www.freddiemac.com/uniform/pdf/form65.pdf

The loan officer may ask for tax returns or other supporting documents, but not always. If they do ask, and if they mention the difference in AGI vs stated income, just explain that per diem is a tax deduction without an associated expense (just like the standard deduction).

I'm not saying that no one has ever been turned down, but I suspect in most of those cases there were other factors (bad credit, small down payment, expensive house, etc). Recent discussion: http://www.thetruckersreport.com/tr.../claiming-meal-deduction.312644/#post-5236020

 

I figure it this way, and never have used the per diem feature.

If a wall-street listed corporation says it's a good idea for one of the ants to use a function they provide, it's probably more for their benefit than it is for mine. Stock market listed corporations do not do ANYTHING unless they make money on that item.

So I do what Nancy Reagan recommended - I "just say no."

 

Per diem as a function of mileage pay is generally a bad plan if you spend a lot of nights on the road, especially layover nights and low mile weeks.

When taking it on your tax return, you can deduct every night away regardless of miles driven.

Cost of paycheck per diem needs to be considered as well. If you take the standard deduction and don't itemize, then mileage per diem might be a better choice, but NOT if the company charges two cents a mile to do it. At least that's what my tax guy told me when I drove for Schneider and they had a $.02 per mile charge for per diem.

 

I believe what you mean is that it gives you an $11,000-$14,000 deduction on your taxes, not savings, which could equate to $3-4,000 + or - a few in actual cash savings.