Author: Michael Ritzema, President of Superior Trucking Payroll Service
What is Per Diem?
Per Diem is Latin for “by the day.” In the federal tax world, it represents the expense that an employee would need to work out of location for work. Expenses like food. Every employee working out of location is entitled to up to $66.00, 80% of which can be written off for income tax purposes.
Breakdown for the Employer
For every day that your driver spends working away from home $66.00 of their earnings for the day can count as per diem and won’t be taxed like their normal income. For example, let’s say you have a driver making 42 cents per mile and for a week they drive 2500 miles in five days. They would have made $1050.00, $330.00 of which would be classified as per diem. For a trucking company in Michigan that would mean you would save $44.39 in taxes for that one employee, in one week.
Breakdown for the Employee
The savings for the employee is even better. For our Michigan driver from earlier they would have seen an extra $84.49 if the he took per diem.
Downsides
Because there is less income being taxed your driver would have a lower unemployment payment should they need that. They would also pay a little less into social security so their payout for social security would be less. However, if they invested even half the savings they gain from per diem into a retirement fund, they would see a much greater return in investment then from what they would have gotten from social security.
Of course, a driver might not be convinced so we suggest allowing drivers to opt out of per diem if they choose. We’d never want to lose an good truck driver over per diem.
Benefits
As the employer, you’ll save over $2300.00 per driver per year in workers compensation insurance premium and payroll taxes as shown above. That’s already enough reason to pay per diem.
Your company will also benefit from improved driver retention as the take home pay for them just went up almost $4400.00 per year.
Does your truck driver qualify for Per Diem?
The IRS requirements is that the driver must be subject to DOT hours of service regulation and they must be around meals and incidental markets, i.e., places they could have bought food.
If they had to drive overnight then they certainly qualify. If they are drivers in one city or area that would be a harder call. If they worked a long day they could qualify, but you might have to consult a local professional to be sure.