Per Diem explained in detail, please?

Discussion in 'Questions From New Drivers' started by Alaska76, Jul 25, 2014.

  1. Alaska76

    Alaska76 Road Train Member

    Jan 20, 2014
    Inland Empire, WA
    Apologies if this has been asked and answered, but I have not seen the full explanation.

    How, exactly, is per diem a benefit to a driver, or is it?

    Why would one take per diem?

    Does it have tax benefits?

    Why is it mandatory in some instances?

    I have no understanding of it per se, as detailed an explanation as possible is greatly appreciated, thank you!
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  3. CondoCruiser

    CondoCruiser The Legend

    Apr 18, 2010
    Companies are monkey see monkey do. These larger companies pinching $5 off a driver amounts to serious money across the board. Leases are a good example. Then came per diem. None of this stuff existed before the turn of the century. One company sees another that come up with a gimmick they will all eventually do it.

    The gov't has always allowed per diem for workers that travel. Work a prevailing wage job and those companies give you tax free travel expenses on top of your paycheck. Some smart trucking accountant come up with a way to twist the per diem around with truckers and the rest followed. In stead of giving you travel pay they just say part of your paycheck is your per diem. If one does the math the tax savings on your own money you earned boils down to $7 a day. I don't know about you but I can't eat in restaurants and pay travel expenses with $7. These drivers hiring lets say 36 cpm and they opt in on per diem, they don't tell you until later, but all of a sudden you only make 28 cpm and they give you 8 cpm per diem. Yet the Joe beside you that opted out still makes 36 cpm.

    This money you earned that is tax free takes away from your gross income. Companies have to pay a Social Security match on top of what you pay. They also have to pay a percentage of gross on workers comp and unemployment. They also offer an employee a certain match on their 401K which is based on percentage. Lowering the appearance of one's gross saves a company some serious money.Take a large company like Swift or Schneider for example and they are saving millions by playing this game.

    Many drivers like per diem because they think of less taxes, bigger payday. They don't think of the other ramifications. You can claim per diem tax time anyways and have that larger gross which benefits you in the long run. Think long term and not the quick fix.

    Take a loan out. What is the one of the first things they ask you? How much do you make? Get hurt and your benefits will decrease about 12%. Your 401K match will be smaller.

    It's one's choice whether they want to save about $40 a week or get a bigger tax return. I think it's smarter to opt out of per diem. If one gets too big of a return they can always modify how many dependents they claim on their W-4. Just because a single person has no kids doesn't mean they can't claim 2-3 dependents to lower what is withheld on taxes to get that tax return to -0-. That's the smart way to increase your paycheck and lessen the shock of tax time.

    I'm a perfect example. My last company forced us to take per diem. I had a short and long term disability policy that paid $1500 a month. The insurance salesperson in orientation said truckers have no problem receiving the full amount because what they make. Well I became disabled and it come down to it the insurance company said you only made $32K because the rest of the money the company hid is so called per diem income. I actually made $52K that last year. Since that happened my monthly benefit dropped from $1500 a month to $1354 a month. All because of per diem.

    It boils down to do you want $7 extra a day with decreased other benefits or do you want the bigger tax return with extended other benefits? It's just another way truck drivers are screwed just like overtime. Crowd A gets treated one way while crowd B gets treated another.

    A long time ago I worked on the road building water tanks. We got our normal paycheck then we got a second paycheck every week for per diem. Them checks I forget now but were like $400-500. Sure we had to use it towards food and motel but it more than paid for it. That's how per diem was designed and is suppose to work. It wasn't part of our normal check like trucking claims. We actually are not getting any extra money, only a small tax break on some of the money we earned.
  4. Alaska76

    Alaska76 Road Train Member

    Jan 20, 2014
    Inland Empire, WA
    Thank you, Condo Cruiser, excellent explanation! I have to agree that it is best avoided when employed as you describe. One more item to note on my "list".
    CondoCruiser Thanks this.
  5. skateboardman

    skateboardman Road Train Member

    Jan 14, 2012
    flatbed heaven
    you got it condo,, the per diem with the big companies is a con game, and the driver gets conned. funny thing is when ya try to explain that to some they think youre nuts, which is why the con works
    Last edited: Jul 25, 2014
    flood and CondoCruiser Thank this.
  6. kemosabi49

    kemosabi49 Trucker Forum STAFF Staff Member

    Jan 13, 2013
    SW Arkansas
    CondoCruiser's post is right on. You go to buy a home and find out you don't make enough on W-2 wages to qualify cause per-diem doesn't count. And you lower you Social Security wages too. You might think you are younger and don't worry about that, but what if something happens and you become disabled? Your benefit amount is determined by your income, so why take a chance on hurting yourself to save your company money with little benefit to yourself?
  7. Brandson

    Brandson Medium Load Member

    Dec 14, 2013
    At the end of the year, you get a per diem tax deduction as well. That has nothing to do with your company. You get $47.20 for each day on the road as a tax deduction. You're better off doing that than messing around with Company per diem. That term gets pretty confusing in this field...
  8. DGStrong71

    DGStrong71 Road Train Member

    Feb 22, 2013
    70° west
    I've been on PD as long as I've been driving and my paycheck averages $75 - $100 more per week. Also, there's no such thing as a PD tax and I've never paid any additional taxes at the end of the year. It also won't impact your ability to get loans since the only thing the banks check anyway is your credit score. I've even financed a brand new car before while unemployed.
    tow614 Thanks this.
  9. MysticHZ

    MysticHZ Road Train Member

    May 28, 2010
    Talk to a tax accountant ... you get nothing but half truths on this board ... Every individuals tax situation is unique. Just enough info here to easily screw you up.
    tow614 and double yellow Thank this.
  10. double yellow

    double yellow Road Train Member

    Aug 28, 2011
    State of Jefferson
    You also have to pay Social Security on that money -- and medicare. So both you and the company save ~7% on that 8cpm per diem. So while the Joe beside you can still claim per diem on his income tax return at the end of the year -- he is paying that 7% FICA on all 36cpm and you're only paying it on the 28cpm.

    Of the 36cpm you make, at the end of the year you take home 28.4cpm. Of the 36cpm Joe makes, at the end of the year he takes home 26.8cpm. So you take home 1.6cpm more than Joe (assuming a 20% income tax rate).

    Conway matched up to 3% -- I'll assume that is standard. So if you max out your 401K contribution, you get an extra 0.8cpm from the company towards your retirement while Joe gets an extra 1cpm -- difference of 0.2cpm...

    Even still, you're clearing 1.4cpm more than Joe. Your company would have to match up to 20% of your gross income for the contribution difference to equal your FICA savings -- I doubt any company offers that.

    Any reputable lender will see the per diem listed as "other income" in box 14 of your W2.

    This is true.

    You will also receive less Social Security when you retire -- assuming 1) Social security is still around when you retire and 2) you live long enough to reach whatever age congress has pushed SS back to.

    There is no free lunch. Opting for company per diem is not in the best interest of every driver, but it is in the best interest of many. If you're unable or unwilling to run your numbers and compare, consult a tax professional. Just don't take the word of anyone who thinks per diem is always bad (or anyone who thinks its always good)
    harlycharly55 and Alaska76 Thank this.
  11. Alaska76

    Alaska76 Road Train Member

    Jan 20, 2014
    Inland Empire, WA
    For those who mentioned it, I always have my taxes prepared by a CPA. I appreciate the comments.
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