Swept away with new tax code enacted in late 2017 was the allowance for truck drivers and other transportation workers to take an income deduction for daily expenses on meals and incidentals, known as the per diem. The change affects only company drivers; owner-operators still can file per diem as a business expense.
In the year since the law took effect in January 2018, there’s been a pronounced trend among carriers to shift to a pay model that effectively compensates company drivers for the missing per diem benefit, says Kehl Carter, chief executive officer for Atlantic HR Solutions, a consulting firm that works with hundreds of carriers.
“It’s a huge movement right now for retention and recruiting,” Carter says. “Because of the ‘driver shortage,’ you don’t want to be the carrier that doesn’t offer drivers an alternative. We know a driver will leave an employer for even a small bonus, let alone something that could be [worth] $4,000” or more annually.
As carriers shift toward adding per diem pay as an option, the Owner-Operator Independent Drivers Association has filed a letter with lawmakers in the House and Senate asking them to restore the per diem deduction. “The per diem deduction was a popular tax provision among these drivers,” writes Todd Spencer, president and CEO of OOIDA and the letter’s signatory. “Its elimination shouldn’t result in them sending more of their hard-earned money to Washington.
A more positive part of tax code change was the increase in standard personal deductions, which will reduce taxable income for most professional drivers. Married couples now take a standard deduction of up to $24,000, nearly double that of the previous $12,700. Single filers also got a boost in the standard deduction — now $12,000, up from the previous $6,350. That could help drivers, especially married filers, to offset the impact of the per diem loss.
“Despite the increased standard deduction,” Spencer writes, “elimination of the per diem could lead to greater tax exposure for many hard-working Americans who make their living behind the wheel of a truck.”
Until the 2018 tax year, filings for which are due in April, drivers could deduct from their annual income 80 percent of the allowed $63 per diem for every day spent away from home. Often, that amounted to a hefty deduction and could save drivers thousands a year in tax liability. A driver on the road four days a week could take a deduction of nearly $10,500; depending on the driver’s income, that could reduce a tax bill by $1,500 or more.
Though many carriers are aware of this change, which will be reflected for the first time this year on annual tax returns due in April, many drivers don’t know about it, says Carter, who recently polled 400 drivers at a fleet of more than 5,000 trucks.
“Only three or four knew that the law had been changed,” he says. That indicates many drivers likely will be caught by surprise when they file their taxes, he said.
One way carriers have changed their driver compensation packages to make up for the lost deduction was by factoring per diem pay into drivers’ regular per-mile pay.
Another was to reimburse $63 – now $66, at 2019’s level – to drivers for each day spent on the road. Because the money comes from drivers’ regular pay, they receive a lower base pay, but they’ll benefit from the tax-free treatment of each reimbursement. The 80 percent rate applies, so $50.40 of last year’s $63 payment would be tax-free under those restructured pay plans.
Likewise, carriers save some because they avoid paying items such as payroll taxes and workers compensation on those reimbursements.
Kevin Rutherford, a former small fleet owner and now a radio personality and owner-operator coach, said early last year he estimated that company drivers would pay on average $600 or more a year in taxes due to the loss of the per diem allowance.
Like Carter, Rutherford said the onus would be on carriers to overhaul their pay plans to account for the change. He said drivers who were making 40 cents a mile could take a base pay of 30 cents a mile and then have 10 cents a mile added as a per diem reimbursement.
Owner-operators, meanwhile, should fare better under the new tax code, as Overdrive reported last year.