Per diem Question

As much as I generally love going over numbers like in your other post, I don't have the patience for it today.

You don't pay taxes on the per diem because it is a expense not income. It depends from what point your looking at it.

If your a driver that does not have per diem paid by the company, you get to itemize and deduct that expense from your income tax. It is a expense that you incurred through your the nature of your employment so you don't pay tax on it. Of course itemization exempts you from adding on the standardized deduction.

If your a O/O you take the per diem allowance out as a business expense in your schedule C so you can avoid self-employment taxes on it. You then take advantage of the full amount of the standardized personal deduction.

The driver that gets the company reimbursed per-diem is usually, (almost always) being screwed. The company is basically buying (or stealing) that deductible expense, and its associated tax deduction, for CPM on the daily dollar. Then charging an accounting fee for the privilege of taking the tax deduction that the driver had coming to them. In order for the IRS to allow the truck driver's expense to be deducted by the company, the truck driver has to accept less in reimbursement then what the IRS would allow as a deduction on the driver's personal tax return. Since is always indeed less, they consider that money a reimbursement for an expense, not income.

 

The short version of that long post is, if you don't have enough deductions available to itemize your way above and beyond the $6300 standard deduction––let's say partly because you only drove part of the year (and partly because you don't have any mortgage payments, etc. etc. etc.)––and you received $6200 in per diem pay from your employer, if you do not report that per diem as income on your tax return, then you're effectively going to receive a $12,500 federal income tax deduction off your gross income.

On the other hand if that $6200 were instead paid to you as earned (taxable) income, then the only deduction you're entitled to take off your gross income is the $6300 standard one.

That $12,500 vs. $6300 disparity worries me, because even though theoretically your meal expenses were the same in both scenarios, the per diem scenario somehow entitles you to nearly twice as big a tax break? I strongly doubt it.

 

The phrase "per diem" is used by different people to mean different things. The amount of your actual expenses, over & above what company per diem paid, can be deducted as Unreimbursed Expenses.

As I understand it you can deduct your actual expenses (proven by receipts) or the standard IRS amount (no receipts required, but logs should be kept).

If your company-paid per diem is less than IRS-allowed per diem I THINK you can deduct the difference. IRS Publication 463 covers this topic & Form 2106 is how you file the amount.

 

Sure enough it was precisely this either-or aspect of the M&IE (standard meal) and standard deductions that prompted the assumption that the driver cannot take the former because he/she doesn't have enough deductions available to itemize––thus he/she must take the latter (standard). This is what makes my question interesting: how do you square that $12,500 vs. $6300 discrepancy given the same meal expenses? With regard to that specific question the either-or aspect of M&IE vs. standard doesn't explain anything.

 

Oh I think I see where you were coming from now. You somehow equated (in some or other sense that lacks rigor) the $6200 in per diem pay in my per diem scenario, with the M&IE deduction. Once you do that little conversion––voila!––you get to apply the simple rule that everyone knows about, that you can't "stack" the M&IE deduction on top of the standard deduction.

The gist of that is of course true, but I would have preferred the following, more direct statement of it: the $6200 in per diem pay in my per diem scenario must be reported as income to the IRS. (Yes folks, per diem pay is sometimes taxable income...or at least, must be reported as such to the IRS.)

 

Understood, the issue is that I am not sure how much company paid per Diem I received.

 

The more I think about it the more I like your answer. In the context of my question, per diem pay and the M&IE deduction can be regarded as one and the same: if you take the standard deduction, then you aren't allowed to deduct for meals period, whether it be done (a) through a direct application of the M&IE deduction, or (b) by not reporting per diem pay as income.

Thus anytime you take the standard deduction, you must report all of your per diem pay as income. It's as simple as that.

 

So now the question is, how do you report per diem as income on your tax return? You can't simply add it to the box 1 amount on your W-2 (that amount better match what the IRS received from your employer, or some alarms might go off).

There must be zillions of American truck drivers out there who take the standard deduction but don't report their per diem pay as income because they think it's nontaxable. Fair's fair: make the tax code as complicated as possible, and things like that are sure to happen.