Guest post by Mark Sullivan, Tax Counsel for PerDiemPlus
The freight market has experienced steady softening over the past year while diesel prices have gained more than 40 cents from a month ago. So how can fleets mitigate softening freight rates and the exploding cost of fuel? Most fleets aren’t maximizing the tax deductible benefits of per diems, leaving thousands of dollars per driver on the table every year. Below is a guide on how best to manage this within your carrier operation, and unlock significant fleet savings while boosting driver pay amid economic uncertainty and record inflation.
Although Congress temporarily increased the trucker per diem deduction to 100% for 2021 and 2022, there is a common misconception in the industry that at 80% deductibility, per diem will not save a motor carrier money. The below tables prove otherwise.
The following analysis assumes:
Twenty-three states are members of the National Council on Compensation Insurance (NCCI), and 39 rely on NCCI regulations. Under NCCI rules, a motor carrier paying substantiated per diem under an IRS-accountable plan can exclude up to $69/day of per diem from taxable wages, which provides a significant per driver annual savings to a fleet.
Even with growing economic uncertainty and recessionary clouds on the horizon, Congress elected not to extend the 100% deduction for per diem. However, a motor carrier that implements an automated per diem solution will be in a stronger position to weather the economic storm.
As of January 1, 2018, employee drivers can no longer claim per diem as an itemized deduction on their federal income tax return. However, motor carriers can offer per diem to employee drivers to recapture the lost tax savings. The average Married over-the-road driver earning $65,000 annually will save approximately $3,457 in federal income taxes equivalent to $0.03 cents per mile.
The average Single over-the-road driver earning $65,000 annually will save approximately $4,485 in federal income taxes equivalent to $0.04 cents per mile.
In short, you are virtually always better off leveraging a fixed $69/day (as of this writing) to maximize your per diem tax offset from wages.
Mark specializes in tax consulting for the transportation industry. With nearly two decades of experience advising trucking companies on per diem issues, Mark has been instrumental in defining software logic rules that automatically calculate trucker per diem in accordance with IRS regulations. In addition to his time working in the industry, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark Sullivan at firstname.lastname@example.org.