Per Diem Question

transam sets aside $.12 nontaxable for per diem but doesnt lower your wage

 

When you file your taxes, form 2106 includes a section where you get to claim a specific dollar amount for each day you spend out on the road for meal expenses...in other words, a per diem deduction.

What some carriers have discovered is that by taking that deduction into consideration, they pay a "non-taxed" amount as per diem thereby reducing your taxable wages....saving themselves money on their half of the employment taxes. What you need to be aware of is that if the per diem they pay exceeds the per diem you are entitled to on form 2106, you must pay the taxes on the difference.

 

I've been trying to figure this out as well.

I just started with Roehl, as a good example. They offer drivers two pay plans -- the "premium pay plan" or the "tax advantage pay plan". Drivers opting for the "tax advantage pay plan" earn 1.5 cpm LESS than the premium plan, but ten cents of that mileage rate is classified as an expense reimbursement, which is supposedly "not subject to income tax". I'm wondering if it is still subject to annual income tax, meaning that the only difference is whether a driver pays income tax withholding now (each check), or later (when filing annually).

Good question 101. Will be watching and learning...

 

I'm a cynic by nature - so when first offered per- diem- first thought. If large corporation is pushing it--- it's in THEIR best interest. Bottom Line. They are savin FICA and SSI payments to the govt they would normally have to pay re: Ur wages. And you don't get to claim the full $45? A day your on the road. Also - pretending there will be SSI when you retire- you will not have paid in the full amount This is how our tax planner explained it to us. As a side note. Hubby and I did experiment. He did per diem for 6 months. I didn't. Extra money he brought home was negligible. And my refund was bigger.
If it's good for the Corporation- chances it's not good for you. But that's just my experience. Take it for what it is

 

the above poster already explained it.

any perdiem that EXCEEDS what your are allowed you have to pay taxes.

if you come in under. it's a tax write off.

in other words. be prepared to pay

 

Again, for each day out on the road you are allowed to claim a certain dollar amount as a "Meals and entertainment expenses" allowance on form 2106 (line 5). For 2011, that was $46 per day. On line 9, you multiply that amount by 80%...and that is the amount you get to deduct from your gross earnings for unreimbursed business expenses. In other words, if you spent 300 days on the road for the year, that would be $13,800 in M&IE and an $11,040 deduction.

So if your employer pays per diem, you would report that amount on line 7. If line 7 is more than line 5, you have to report the excess as income on form 1040 line 7....and you must pay the taxes on that "extra" pay. If line 7 is less than line 5, you multiply the difference by 80% and that is how much your AGI is reduced.

Going back to the 300 days on the road...if you drove 120,000 miles for the year, and your employer paid $0.10/mile of your wages as a per diem reimbursement, that would be $12,000 you had been paid as expense reimbursement. $13,800 - $12,000 = $1800....x 80% = $1440 you still get to deduct at tax time.

However, if you received $0.12/mile as per diem you'd have a different situation on your hands. 120,000 x $0.12 is $14,400 in "reimbursement" but you were only allowed $13,800 for M&IE....so the $600 difference gets reported as income on line 7 of form 1040 and you owe taxes on that money.

It isn't that the money "isn't subject to taxes"....they are just factoring in the deductions they know you are eligible to take.

One other thing to consider: If you are going to be taking out any loans and plan on using your W2 as proof of income, it would not be in your best interest to take the per diem....because by accepting a portion of your wages as "reimbursement", they are not being reported as wages...so your income appears to be less than what you are actually bringing home. Also, because the employment taxes are based on that lower wage, any social security or medicare benefits you might receive in the future will also reflect the lower wages you have been earning.

Personally, I'm not a fan of the per diem pay....the employer sees all of the benefits (lower employment taxes, etc.) while the employee gets screwed (lower reported wages = less likely to get that loan, lower benefit levels for social security, medicare, unemployment, workers comp, etc...basically anything which is based upon your wages will be lower).

 

Most carriers underpay . You should keep track of days you are eligible because when you file your taxes you can claim the difference between what they paid and what you were entitled to .

 

Thanks Bulldog, and team. Good explanation.