Question on Per Diem ? Paying it back

Yes it makes sense. The advantage is not breaking IRS rules.

Contrary to what many if not most CPAs would prefer you believe, it isn't necessary to be an expert to understand IRS publications. The one that covers per diem is Publication 463, which you can get here:

https://www.irs.gov/pub/irs-pdf/p463.pdf

All the minutiae might not keep you on the edge of your chair, but it's fully understandable English that anyone with a high school diploma can figure out by reading carefully.

 

Page 6 and 12 cover the transportation worker.

If the company pays you M&IE then keep track of it and how much you would be able take per yourself. Then simply subtract what you were given from what you could have used in your taxes. The amount left over is what you still can claim.

As far as he claiming it is income, it is before taxable income....

Still lost as to why it is taxable income to himself... it is before taxable income.

So all he has to do is keep his taxable income (what he pays himself) separate from what the company pays him for M&IE.

 

When I did 2001 as a company driver, I did not let FFE pay me perdiem which worked out to a few cents a mile extra, a pittance versus the then rate of 45 dollars a day.

Tax time came around we itemized the entire 306 days out away from home times 45 dollars a day that worked out to 13770 you throw against your taxes and wipe them out. Any overage you get back. You do have to keep your logs 7 years against a audit for each year you claim it for yourself.

Because we generally added 100 to federal and 75 to state each payroll over and beyond required tax deductions for net pay our taxes do not exist only a refund that sometimes approach 5 figures and form a foundation for a new trucking years worth of savings to solve problems in very bad famine weeks.

 

A small problem arises when "what you could have used in your taxes" is zero (because your itemized deductions are insufficient to beat the standard deduction).

Something I've wondered about, but don't know for sure the answer to, is if

M = the amount the standard meal deduction allows you to deduct,
W = wages,
P = per diem pay you received, and
M – P > 0,

can you safely omit any and all mention of P on your tax return and simply deduct M – P from W? (It seems to me the answer is yes because you're not cheating the IRS out of any money they're owed.)

This year I can't beat the standard deduction by itemizing so I'll be reporting per diem pay as earned income on my tax return. The standard deduction will subsequently wipe it out.

I think a lot of drivers incorrectly view per diem pay as nontaxable income. It's not---it only becomes so when you wipe it out with a deduction (either standard-meal, or standard).

 

M&IE is not income. The IRS allows you a standard daily rate of $63 US and $68 Canada.

Now you are allowed 80% for full days and 80%(75%) for partial days.

You are out 300 days.

280 are full ($63*80%)*280 = $14112.00
20 are Partial (($63*80%)*75%)*20 = $756.00

Total $14868.00 is what you are allowed for M&IE.

Now if you paid yourself $12000.00 from the company, then you are still allowed $2868 to claim.

I have to go back and find my tax forms, but I claimed what was the difference and it went on Sch C or C-EZ.

Now, if you use Turbo Tax... you have to figure a little differently.

You take the Partial days - 20*75% = 15 full days.

You then add 280+15 = 295 and put this number on Turbo Tax. Now Turbo Tax will multiply automatically by 80%.

<<>>

If the company pays you M&IE it is done before taxes and is not taxed. But, they will never pay you the full amount or go over. If they go over they are dropped out of the IRS program. If you are an O/O paying yourself from your company, then still this is not deemed taxable income. It is part of what you are allowed. Just do not go over the limits of what is allowed.

What you claim for M&IE is subtracted from your gross income.

 

Finally found the section in IRS Publication 463 (https://www.irs.gov/pub/irs-pdf/p463.pdf) that backs up what you're saying. (This is good news to me because it means I don't have to report my per diem pay as taxable income after all...thanks!)

Here's the section ("Per Diem and Car Allowances" on p. 31):

"If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply.

1. Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business.

2. The allowance is similar in form to and not more than the federal rate (defined later).

3. You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1) within a reasonable period of time.

4. You aren’t related to your employer (as defined next). If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement."

 

One good thing about per diem is that the driver is put into a LOWER income tax bracket, along with paying LESS taxes into Social Security and Medicare.

The driver can take a lot of his or her per diem and INVEST it in various funding accounts: stocks, bonds, or perhaps put the extra money into the company 401(K) plan.

This is a winning situation for the company also, because it reduces their payroll taxes; as far as Social Security, Medicare, Unemployment Compensation, and Workman's Compensation is concerned.

God bless every American and their families! God bless the U.S.A.!


Agnes N. Lum (born 5/21/1956 - Honolulu Hawaii), international model - mid 1970's to early 1980's

 

This economy does not allow investing. Much. Previously we purchased a particular stock from a energy company that makes electricity for several states. The price would be 5 dollars and change a share. Waiting a few months yeilds a new share price of 32 some odd dollars. We did that several times to generate 5 to 7 thousand dollars in the net difference for profit. We invested short term strictly to generate money based on a higher share price of stock. Not as a income source from dividends.

I can see alot of that going on in the markets today. Im not favorable towards the markets much anymore for the time being because cash money is getting precious to many people in many levels of life ranging from me the citizen all the way to the City council which just bought a 3/45 million dollar fire truck based on new taxes and a 5 year plan to pay it off and so on through to the corperations such as CSX which just endured a activist problem at a very high level forced to fire 20% of it's management to source money freely to cover the losses incurred during the activist stock problem. Someone sells and some one is buying. But somewhere in the situation money is not there to consummate the deal. It has to come from somewhere existing.

Trucking made a small mistake in 2015 by purchasing or leasing new equiptment to keep up with expected big increases in traffic. Only to see it was a mirage that went back to a lower traffic level. The Cass Index on the entire USA transportation matrix from Air, Sea, Land nationwide shows approx one in every 10 heavy trucks sitting for want of loads to haul. If these tractors are paid for wonderful. But no drivers for them and no loads to haul. So they sit.

NY Harbor is full of gasoline, there is no room to put gasoline coming into the harbor so it gets reloaded onto tramp steamers (I think they use a different much more modern and accurate term but bear with me...) to ship the gasoline exporting to the Caribbean at a price sufficiently high enough to cause a profit for traders who own the fuel. Refineries are still in winter maintenance and overhaul at the moment. When they come back up and start burning in the spring prices might drop for gasoline unless something else comes along to cause a artificial increase in pricing such as a Iranian war. That will raise the prices so fast when the Persian Gulf is closed to 20% of all the world for war purposes.

I can go on, but at the moment I feel deeply suspicious of the market. I don't believe people, ordinary people are buying right now. So whatever it is they are trying to show has to be artificial at this time.

 

Scratch my previous comment for now (the one where I thought I found the justification for what you say in what the IRS says). Here's why.

Let's suppose you only drove part of the year and were only on the road enough days to bring your 80%––80%(75%)––$63/day––$68 Canada calculation to "Total $6200.00 is what you are allowed for M&IE." To keep things simple let's also suppose you're a company driver and your company happened to pay you exactly $6200.00 in per diem for that year.

According to what I think you're saying––that when "the company pays you M&IE it is done before taxes and is not taxed"––there is no scenario in which you need to report that $6200 as income on your federal income tax return.

That's what it sounds like to me anyway––lovely and simple. Any driver would like the sound of it, and I'm one of them. I really like the sound of that.

Unfortunately things that sound too good to be true usually aren't; upon closer inspection this one doesn't appear to be. Here's why.

Supposing you file single, should you choose not to itemize, you're automatically allowed to deduct the standard deduction of $6300 from your wages––period end of sentence.

So, even though you were only on the road enough days to get $6200 out of the standard meal deduction, according to your rules––whereby that $6200 per diem payment was "before taxes and is not taxed"––you've now essentially weaseled yourself a $12,500 deduction on your federal return by driving only half the year!

If that $6200.00 in per diem were instead paid as wages that you then had to apply the standard meal deduction to to get your tax break, and you didn't have any other itemized deductions available like mortgage, etc., you'd still be stuck with that mundane $6300 standard deduction, except in this case that extra $6200 is no longer "tax-free" money––that's all you get to deduct: just $6300.

Based on this, don't you think the IRS would have a problem with the $12,500 if you got audited?

To be honest I actually don't know for sure what the situation is. Maybe you're still right, in which case the scenario described above depicts a loophole in the tax code that the p. 31 section about Per Diem and Car Allowances in Pub 463 provides for taxpayers that don't have a lot of deductions available to them. If so, then for those taxpayers anyway, the weasel is legal...per diem pay isn't such a bad deal if you only drive half the year and you can't beat the standard deduction by itemizing.

By the way, the scenario I described above isn't the least bit unrealistic. In fact it comes very close to exactly matching my 2016 situation. (Please tell me I get to deduct that $12,500! It would actually be more like $11,000 in my case, but still, that's pretty good...in fact it'd probably put me in a 0% bracket!)