Per Diem: How to Track It and What It Means at Tax Time
Navigating per diem for carriers can leave even seasoned drivers confused and frustrated. Knowing what expenses are allowed and what needs to be documented on every haul may seem like more work than it’s worth, but understanding the system can help you keep more of your hard-earned money at tax time.
We sat down with expert Mark Sullivan, former IRS agent and now a tax counselor for Per Diem Plus to dive into the details. Mark clarifies the concept of trucker per diem and its IRS implications. He also highlights the unique aspects of per diem in the Special Transportation Industry and outlines the necessary documentation for reporting per diem.
What is Trucker Per Diem?
Carriers are provided with a daily non-taxable reimbursement, known as per diem, to cover their meals and incidental travel expenses. It is calculated in cents per mile and is intended to compensate truck drivers for expenses while on the road.
When it comes to tax time, per diem isn’t taxable by the IRS and reduces the driver’s gross income. In turn, this can lower the amount of taxes owed. However, there are other criteria to qualify for per diem pay.
These typically include:
- Traveling over 50 miles from your home.
- Being away from home and needing sleep to fulfill your work requirements.
Special Transportation Industry Per Diem
Several factors make the Special Transportation Industry per diem unique.
- A daily allowance. Motor carriers and self-employed drivers receive a daily allowance for food as well as some other expenses that come with being on the road overnight, instead of having to turn in every receipt.
- A nationwide rate. There is a nationwide rate that is revised annually to cover meals and incidental expenses (fees and tips). In the United States, this rate is $69 a day. In Canada: $74 a day.
- Tax deductible percentage is raised in regard to per diem. The tax-deductible percentage for employee travel expenses is raised from 50 percent to 80 percent for the Special Transportation Industry. Special circumstances are also taken into account (in 2021 and 2022, the rate was raised to 100 percent).
- Per diem is excluded from income and wages. Any amount paid under a per diem arrangement that meets the requirements of business connection, substantiation, and return amounts in excess of expenses are treated as paid under an accountable plan. This means they are excluded from income and wages.
It’s important to note that truck drivers cannot claim per diem as a federal tax deduction. Only those who are self-employed and are subject to the U.S. Department of Transportation Hours of Service (HOS) and those who are away from home overnight can claim it on their taxes as a deduction.
Those who are not eligible include:
- Local drivers who start and end a driving trip at home on the same HOS 14-hour workday.
- Employee drivers (those who work for a company) cannot claim per diem on their federal income tax return as an itemized deduction as of January 1, 2018.
However, employee drivers can receive per diem if they are subject to HOS and travel away from home overnight. It simply isn’t taxable as income but is classified as a non-taxable reimbursement.
Trucker Per Diem Documentation
While it’s a relief to know that receipts are no longer required to receive reimbursement, Mark warns that per diem still requires some documentation.
To fulfill the IRS requirements, each driver must substantiate the time, date, and place of the expense. This can be done through a DOT Electronic Logging Device (ELD) or through Per Diem Plus. ELD backups should be maintained and kept for no less than three years from the filing date of the income tax return, while Per Diem Plus has a four-year documentation period. These documents (either physical or electronic) should identify what and when, as well as the amount required.
Outsourcing Per Diem
While an ELD is a viable option to keep track of documentation for trucker per diem, there are services, like Per Diem Plus to help. These applications are IRS-compliant and help you maximize your savings at tax time.
Frequently Asked Questions
Per Diem Plus is the leading provider of cloud-based, IRS-compliant trucker per diem software solutions in the transportation industry. Established in 2015, Per Diem Plus was born over the founders’ 30 years of experience as IRS agents and tax practitioners and a relentless pursuit to introduce efficiency to the time-consuming task of per diem tax compliance for truckers and fleet managers.