'Per Diem Plan' Can someone explain this to me?

Per Diem, paid to an employee to reimburse them for expenses while traveling on the road, is a great thing. As it is being exploited and performed in trucking, it is nothing short of a ploy to further erode the wages received by the truck driver by Motor Carriers, both short and long term.

Why do I say this? Simply because when a normal worker receives per-diem pay, it is usually an augmentation to their normal wages. They truly are reimbursing, or paying a worker something in the form of reimbursement for their travel expenses.

What the trucking community has discovered, is a loop-hole in the IRS code, that allows them to give the appearance of reimbursing an employee for their expenses, and they get to take tax credit for it at the same time.

Let's simplify things and say you are a driver that is hired at .40cpm. The Carrier you work for has a mandatory per-diem compensation policy in place, of 10cpm set aside from taxes and added in after all else is considered. So, you're settlement sheet will list your mileage, and that will be multiplied by .30 cents per mile, and that is essentially your gross pay per week. This is what your payroll taxes are based on. They add the 10 cents per mile in after all is settled, and by all appearances, this is paid to you for your travel expenses. You're still getting your .40cpm, and you're saving on some of your payroll taxes each week...right? So, while it's a little wierd, all is still okay and this is a good thing...right? It's not. You definitely save on payroll taxes per week. But what are the adverse effects, and how does this hurt you?

Let's do this on a 3,000 mile week. At .40cpm, your gross pay would be $1,200.00 for the week. At .30cpm your gross pay is $900.00 for the week. By all pertanent standards, your gross pay is and always will be $900.00 per week. The amount you pay into Social Security is based on that lowered amount, your status for future SS or SSDI disability benefits, should you ever need them, will be based on that lowered amount of gross pay, and what could even hurt you more, is the fact that when you apply for a loan or mortgage, your gross pay will be on that lower amount as well.

Remember, that other $300.00 per week is not wages. It is a reimbursement. No one other than the company or yourself knows, or will consider it "income", except for the one entity that can make your life miserable. More on that below.

The company is claiming that they are paying for your road expenses. But...are they paying for them? Of course not. You still pay for every meal out there on the road, and all the other personal expenses you incurr, and your advances are still taken out of your check....right? But the reality of the situation is that the company is taking that $300.00 out of your check, and giving it back to you as a "reimbursement". They are not paying for a thing, or reimbursing you for a thing either, and yet the company gets to take a tax deduction for that money you have worked for, and the expenses that you have been paying for.

Has anyone who has been sold on this great per-diem plan ever been told that before? No one has yet told me that they have been. And let's not forget that the one-half contribution that your employer is required to pay on your behalf into Social Security is also reduced because they are basing your pay on .30cpm, rather than .40cpm. This further erodes your future benefits, that may well be very important to you in your twilight years.

As of September, 2005, US DOT transportation workers that travel in the course of their jobs, are allowed to deduct 70% of $46.00 per day for each day you are on the road and do not return home. The rule of thumb is that if you eat two meals away from your home, that day qualifies as a deductible day. So, let's say that in the course of racking up those 3,000 mile weeks for 51 weeks of the year (surely you take a week off for vacation each year), you work a five day week each and every of those weeks. That's 255 days out there on the road.

255 days on the road at $46.00 a day means that you are allowed to claim $11,730 in expenses, under the standard meal allowance. You get to deduct 70% of that from your income amount, which comes to $8,211.00. This is claimed on form 2106 that is filed with your tax return.

But wait a minute. The company is claiming on paper that you were reimbursed for your expenses at the tune of $300.00 a week, so LEGALLY, you are required to include that "reimbursement" on your form 2106, if you play fair and square with the IRS. And guess what? You're now in a bad situation. Why? Because the company claims to have reimbursed you $15,300.00 for your meals and incidental expenses, and no taxes were taken out of that amount. Your form 2106 must now reflect the fact that you were OVER reimbursed $7,089.00. That difference now becomes TAXABLE income, and if you have not had taxes taken out to cover this difference, you're going to be writing a check to the IRS to cover the difference for the taxes on that income. So where's the savings for the employee, if he holds to the letter of the IRS code? There is none.

Has any company representative ever told you that, when they are touting this immense "tax saving opportunity" that they are offering you, or in most cases, shoving down your throat? It most certainly is a tax saving opportunity. They just forget to mention what party actually get's to legally realize the savings.

I am keenly aware that most companies do not report this on the W-2 form handed to the drivers each year, and drivers will take their meal deductions on form 2106, but if the company were audited by the IRS, or the driver is personally audited, and this has not been reported clearly on form 2106, you're in a heap of trouble, and the company has all the proof that their claim is legitimate. It's duly noted on every one of your check stubs as "Per-Diem".

You as the employee have no defense whatsoever to offer an IRS agent who discovers the differences if they are not claimed properly.

 

Turbo, I was just about to ask you to post this again.But I see you have all ready done it!!
I read a post were you had addressed this issue before.But I could'nt find it.



Thanks,
Donnalou

 

It's getting harder to find stuff from the past, so I often retype them these days....because we are growing so fast....

I've been planning to organize this stuff for some time, and to have it handy, but time is not on my side these days either...

Thanks for the vote of confidence....

 

so basiclly this plan just allows you to claim less income in regards to social security?

 

It's basically a plan that will allow the company you work for, to take advantage of the tax system, reaping deductions from their tax bills that are in their favor, while at the same time CHEATING you out of your future Social Security benefits.

The employee realizes no meaningful tax advantage, unless they do not claim the per-diem on the tax return that they file. Then they risk immense penalties and interest, not to mention the tax involved in the unreported per-diem income.

 

thanks, i'm an an orentation right now where they're trying to talk us into a .10 cent deduction that gets us an 8.5 cent per-diem, i'm quietly telling everyone in the class exactly what you said so they don't get scammed.

-Drifter

 

There will always be Social Security. Politicians use the program all the time, and hype the fact that it is unsound and may not be salvageable, but the fact is, it represents around a 26% of the Federal Budget, and it is one of the few legitimate uses of taxpayer funds. This country would go into revolt if it was eliminated.

There is no true advantage to you in allowing the company to claim that they are paying you for your road expenses, although for many, they have no choice in the matter. Any realized short term benefit will absolutely be reduced long term.

Let's put this into dollars and cents. Using the pay figures in my earlier thread, here's how it will play out approximately both long and short term;

Per week, if you have a wife and a couple of kids, and if you live in a state where an income tax is assessed workers, that $300.00 set aside without being taxed will save you approximately $54.00 a week in payroll taxes.

That means you will net around $2,754.00 more over the course of the year in spendable dollars.

The income tax difference, as of this past year, with the additional income claimed and a full meal deduction factored in, would cost you $1531.00 in additional income taxes. So your true immediate short term savings are $1223.00 a year, or $23.98 a week.

22 years down the road, and using today's income levels of $45,900 and assuming it held out until you retired, VERSUS your actual income of what would be $61,200, will reduce your Social Security benefits by $200.00 a month EXACTLY, according to the benefit calculator on the government website. That's $2,400 per year less you will receive in those retirement years.

An argument can be made, and justifiably so, that if one were to take that $24.00 a week, and invest it privately into a Roth or other private investment account, that it would bear much more than what will be received through Social Security benefits, but how many people will actually do that?

If statistics hold true, only around 39% of Americans are taking ANY responsibility for their future by investing on their own, and this includes those with 401K's. 60% of Americans are not set to withstand weeks, let alone months without income coming in.

Of course, all of the above is based on one making a consistent and maximum income, and running 3,000 miles week in and week out. We all know that this will not be the case.

 

OK, this per diem that the company deducts from your pretaxes. I assume the company only pays quarterly the taxes due on each employe. That is money of yours that you didn't get paid. I think the company just leaves that money in the bank, and makes interest on it. Yes?:smt001

 

a question

if Werner were to pay me starting out 28 cents per mile, and their website says they pay 12 cents a mile per-diem. that 12 cents will come OUT OF my 28 cents, or just a portion of that number?