What is Per Diem for Truck Drivers?
Being a truck driver, especially for new over-the-road drivers, can be like learning a whole new way of life. The most notable change when becoming a truck driver is that you are constantly away from home and have to purchase all your meals on the road. To help, some companies offer their drivers per diem to get them started.
This can get a little complicated, so we want to walk you through what per diem is and how it may or may not benefit you. If you just want to find out more about the highest-paying companies, go ahead and skip to the next section.
Now back to per diem… First, if you receive a per diem, this payment is part of your salary. Per diem is not just charity money that your trucking company decided to generously put into your pocket.
Receiving per diem is more like getting a tax-free cash advance on your weekly paycheck. Your company gives you an portion of your salary upfront and tax-free. By receiving this non-taxed amount, the salary you report to the IRS will be substantially lower during tax season.
Sure, you may be earning $40,000 a year. But if a portion of that amount is designated as per diem by the company on your behalf, you are only be able to record $25,000 as your annual salary. This significant reduction in recorded salary is an important factor to consider when deciding if you wish to receive per diem.
What is per diem? Literally, it means “per day.” Per diem for truck drivers lets you take a daily allowance for food and incidentals (which is a fancy way of saying tips). Drivers can take $63 per day for most regions and $68 per day for travel outside of the United States.
One reason you might choose to take per diem is because the IRS allows a driver to deduct 80% percent of their expenses on the road. If the company gives you the maximum per diem of $63, then you would only have to pay taxes on 20% percent of that number.
Sounds good, right? The only catch is that this reduces your total salary reported to the IRS during tax season, which can come back to affect you later.
Per diem can be paid in one of two ways:
(1) Your company can reimburse you for your road expenses, by giving you a daily allowance out of your wages (a tax-free advance); or (2) you can take a tax deduction at the end of the year.
If you wait until tax season to report all the per diem you took, then the IRS will record exactly how much money you earned throughout the year. The IRS then gives you the total amount of your earned per diem back as a tax refund.
If you don’t want to take the per diem, you can take a similar standard daily meal allowance, based on the per diem rate of $63 per day. The driver would do this on their own at the end of the year as a tax deduction.
There are Pros and Cons to taking per diem pay.
- Receive money for meals upfront because your per diem is paid right away out of your wages.
- Per diem is not taxed, so your take-home pay is greater than if you did not count your income as “per diem”.
- You may still write food off as a work expense on your taxes (daily meal allowance) if you do not accept the company’s offer to designate a portion of your salary as per diem upfront for you.
- Per diem is a non-taxed income received in advance reflects a lower annual salary to the IRS.
- Low salary statistics decrease the likelihood of receiving a loan.
- Workman’s Comp benefits may be reduced due to the taxed portion of your salary being smaller.
- Unemployment insurance will only cover taxed portion of your salary and does not include the non-taxed portion of your salary that is designated as per diem.
Breaking Down Per Diem
Breaking It Down: A Positive
Let’s look at the Pros and Cons in the long run: If you take a per diem allowance from your trucking company, they advance you a weekly allowance, which is usually 63 dollars per day, less 20% percent.
The government only allows you to claim 80% of per diem, which is untaxed. Any amount over that, and you will have to pay income taxes on it.
This reimbursement will lower your reported income, because the reimbursement portion is tax free. So, for example, if you make $1,000 per week and the company gives you a $200 per diem, then you would only pay taxes on $800.00.
Therefore, you could bring home more money, and you wouldn’t have to keep up with receipts, which makes things simpler.
Breaking It Down: A Negative
Now let’s look at it the other way: With the company per diem, you now only make $800 per week. Of your $1,000 pay, your income is only $800 because $200 is counted per diem.
If added to your income, however, that $200 could give you a better credit score, because you’re making more money based on your debt-to-income ratio.
A better credit score makes it easier to buy a new car, home, or upgrade to a better apartment. And there are other benefits to having a higher reported income as well.
If you take per diem from your company, they save on payroll taxes because you’re making less money. That means they pay less unemployment insurance. And then there’s worker’s comp… Worker’s comp benefits are based on two-thirds of your gross income. This does not include the designated per diem portion of your salary. If you get injured (and it does happen), then you’d rather have your benefits based on a higher income.
So the lower reported income from truck driver per diem could hurt you in the long run.
Breaking It Down: No Per Diem
But what if you don’t take the company per diem? As stated in the previous examples, if your income with per diem was $800, then your income without is $1000 per week. This, in turn, could increase your credit score, once again based on your debt-to-income ratio.
Your unemployment base and your workman’s comp base would go up as well. The downside, if there is one, is that you will have to come up with your own road money, and you cannot take the per diem until the end of the year when you file your taxes.
There are two ways that you can take your own per diem: (1) You can keep up with all the receipts and break these down in the proper categories; or (2) you can take the standard meal deduction per day which is 63 dollars a day as mentioned before.
For example, if you are on the road for 300 days this year, you would multiply that by $63, which comes to $18,900. The government only allows 80 percent of that, or $15,120, which you would claim on a Schedule A and reduce your gross income by this amount. Reducing your gross income would mean that you pay fewer taxes, and you would end up with a larger tax refund because you previously paid taxes based on the higher income.
If you can afford your own road expenses without the advance on your wages, and if you can wait until the end of the year to take a per diem off your taxes, you would come out far better if you do not take per diem.
It really boils down to what you want as a truck driver. Before deciding to take the per diem upfront, you should consider if you need money to spend on the road or if you have enough savings where you can take care of yourself until you start getting regular paychecks to keep you going.
The Rules of Per Diem
Not all drivers can take trucker per diem though. According to the government, you can to take a per diem tax deduction if:
- You are an over-the-road driver;
- Your job takes you away from home overnight;
- And you are required to rest before you can return home.
However, there is a restriction to that. If you live in your truck all the time, and you do not have a “tax home,” you cannot claim a per diem. A tax home is a permanent place of business or residence.
If you want the full per diem allowance, remember to leave before noon on the day that you depart and return after noon on the day that you come back. Otherwise, you will only get to claim a partial per diem for those days.
This does not apply to local drivers. You cannot take a per diem allowance if:
- You leave from and return to the same starting point each day
- You are given only a lunch break and not a sleeping break.
Overall, you first must be able to take per diem. If the option is there for you, the decision is yours.
The per diem higher or lower reported income is also reported to Social Security, so could affect you there as well in the future.
My husband has had success taking “partial” days. We keep a yearly Excel spread sheet, showing the date / time he leaves the terminal, and the date / time he returns on each trip. We then figure the per diem on the percentages of the days he is out. The IRS has always accepted this.
Also would like to note that the per diem paid by the trucking company might be considerably LESS than the IRS allowance you can take on your year end taxes. My husband’s company only used to pay $.08 / mile. Considering the 11 duty hours / averaging approx. 55 miles an hour, that would only be about $44 per day. Then, they cut it out completely, as they didn’t want the reporting hassles.
Thanks a lot for your comment! We want to have the most thorough and accurate info out there.
– Michael, from Class A Drivers
Thank you so much, Connie! Nick, Class A Drivers