The reality of being a truck driver, especially an over-the-road driver, is that you will pay for meals, clothing, and other miscellaneous expenses. Although many of these purchases will come out of your pocket, some trucking companies will give you a special allotment for those expenses when you are on the road.
But luck is on your side: the IRS has a special “per diem” program to help truckers recoup the money they spend on food and other incidentals. However, you must first meet the eligibility requirements to benefit from this program.
If this concept is new to you, we’ll break everything down in detail below. You’ll learn the per diem meaning in trucking as well as its potential benefits and drawbacks.
- What Is Per Diem Pay for Truck Drivers?
- How Does Per Diem Work for Truck Drivers?
- Recent Tax Changes to Monitor
- Advantages of Per Diem
- Disadvantages of Per Diem Pay
- Meaning of Per Diem for the Company
What Is Per Diem Pay for Truck Drivers?
Before going forward, the term “per diem” is from Latin, and it translates to “for each day.” This is the reimbursement for your daily expenses (while on the job) as a trucker.
Expenses that go into per diem for truck drivers include the following:
- Meal and Incidental Expenses (M&IE) (standard M&IE rate for 2023: $59).
- Lodging expenses — depends on location, seasonality, and time frame (standard continental United States lodging rate for 2023: $98).
Incidental expenses refer to any cost incurred while delivering the load, including fuel, weighing, laundry, and other ancillary activities. Most companies use the High-Low method to calculate incidental expenses.
Trucking companies now offer per diem pay as a way of attracting prospective drivers to work for them. But before you become entitled to this plan, you have to meet the following criteria:
- You must have a purpose for travel, which in this case is to deliver goods and services.
- You must keep a detailed log showing descriptions of reasonable travel-related expenses.
- You have living expenses at your main home that you duplicate because your business requires you to be away from that home.
- You have not abandoned the area in which both your historical place of residence and your claimed main home are located; you have a member or members of your family living at your main home, or you often use that home for residing.
- You perform part of your business in the area of your main home and use that home for residing while doing business in the area.
- If the company offers you an allowance beyond what you are entitled to, you’ll have to return the remainder.
- Only OTR drivers are entitled to the per diem payment plan because they have to spend long hours away from home.
Caveat: Points 3 through 5 are essential for the IRS to establish your tax home.
How to Calculate Per Diem Rates?
According to IRS Publication 463, drivers don’t need to itemize their purchases when filing their taxes. But you still need to save your receipts just in case the tax collector asks for them.
Also, the driver’s salary is divided into two categories: the regular cents-per-mile earnings (taxed) and a separate per diem reimbursement (untaxed).
Starting from 2023 IRS made a rollback to the initial practise of claiming only 80% of deduction. So if you don’t have the receipts, you can take the standard IRS reduction, which is around 80% of $69 per full day and $51.75 per partial day for truckers working within the Continental US. Those working across the Canadian border apply the base rate of $74, and gain up to $59.2 per diem. Companies that pay per diem also offer a smaller CPM to your standard salary, which the IRS will not tax.
While this is the average rate nationwide, the cost of living arrangements can vary by state. For example, housing is more expensive in New York and California than in other parts of the country. You should use the per diem calculator to estimate your daily entitlement for meals, lodging, and clothing.
To find out more about the per diem rates for truck drivers, reach out to a local tax expert and/or financial professional to give you the latest info.
How Does Per Diem Work for Truck Drivers?
We’ve covered the payment considerations for truck drivers based on IRS regulations. Now, let’s dive deeper into how per diem for truck drivers actually works.
For starters, you need to be an employed trucker with an active license to become eligible; this is the base requirement.
Second, the money you earn will be divided into the taxable income (your regular income) and non-taxable income (your per diem pay).
Trucking companies can pay per diem in the following ways:
- Standard meal allowance. The company you are driving for will provide you with money for your daily meals and incidentals. You don’t have to pay taxes on this advance payment, provided you can account for everything in your logs.
- Annual tax deduction. In this scenario, you have to wait until tax season to get refunds on the aggregate amount you spent while on the road.
Another thing worth noting is that companies offer a lower CPM (cost per mile) if they provide per diem pay for truckers. That said, you only need to pay tax on 20% of the total per diem allocation.
Recent Tax Changes to Monitor
Federal and state tax laws are constantly changing, which makes it important to monitor recent developments.
According to the Taxpayer Certainty and Disaster Relief Act of 2020, passed into law during the pandemic, every meal you purchase from a restaurant is now 100% deductible.
Also, the per diem rate went from $66 in Q1, Q2, and Q3 to $69 in Q4. If you have yet to file your taxes for the previous year, don’t forget to factor in these and any other changes when calculating your deductions.
Experts also predict a further increase to $74 per diem for deliveries outside the US. To get accurate per diem rates for every fiscal year based on state, visit the General Services Administration website.
Advantages of Per Diem
Per diem pay for truckers comes with many benefits that every truck driver should consider before signing a contract. Let’s check them out.
You’ll Manage Your Spending Better
Under the per diem payment model, the company gives you the meal allowance beforehand. This means you will get a better picture of how much spending power you have before buying anything. If you are a driver eager to maintain a sustainable spending habit, the per diem model will fit you like a glove.
You Will Pay Less in Taxes
As mentioned earlier, you don’t need to pay taxes on your per diem allowance. Since companies that offer per diem payments also offer lower salaries, this means that you have a lower adjusted gross income. This, in turn, likely entitles you to a bigger tax refund as well as a lower tax indebtedness.
What’s more, companies that offer pay per diem often help their drivers manage their tax payments. This will come in handy should you find yourself struggling to file your taxes.
Lower Income Gives You Access to Social Programs
Even though with per diem you will earn a smaller gross income than the average trucker pay (truckers who work without the per diem allowance), you might still be entitled to social programs like Welfare or Temporary Assistance for Needy Families (TANF).
Disadvantages of Per Diem Pay
Despite the tax deductible advantages and reimbursements from per diem pay, this program still has several aspects that could be drawbacks for drivers. Let’s check out the disadvantages of per diem for truckers.
It Affects Your Annual Income
Companies that offer per diem pay usually offer wages lower than the market average, because they are giving you an additional allowance for food, lodging, and other expenses. In effect, you will end up earning less than your counterparts for the same workload and at the same experience level.
It Limits Your Chances of Getting a Loan
On the surface, earning a few bucks less is not a problem. But upon further examination, you’ll discover that a lower gross income affects your eligibility for many programs.
For instance, you might lose your eligibility for loans and mortgages because you don’t fall within the acceptable income bracket. Another privilege you might lose as a result of lower income is your access to preferred insurance rates.
Furthermore, your unemployment insurance benefits may decrease significantly because you are earning less. And most importantly, pay per diem drivers are not eligible for 401K employer contributions — unless the company says otherwise.
You can get more information about unemployment insurance benefits from the Department of Labor.
You Might Still Need to Pay
Even though you are allowed to take the tax reimbursements for your per diem wages, you are not eligible for the standard deduction. So if your current salary exceeds the limit specified by the IRS, you’ll still need to pay for the coverage.
Meaning of Per Diem for the Company
Companies are adopting the per diem program for their employees for many reasons, chief of which is that, by doing so, they’ll then pay lower wages. But beyond these obvious financial benefits for the company, the idea of lower payroll taxes makes the per diem program attractive for employers.
In the current market, some companies offer per diem as an option, while others use this model exclusively across the board. Offering per diem pay as an option will help your company attract more qualified and experienced drivers.
Also, some companies want to help their employees stay on the right side of the law by covering their taxes for them. This is a win-win for all parties involved.
Either way, the choice remains with the driver to work with a trucking company that offers per diem compensation or to find an alternative if that’s considered more favorable.
Per diem for truck drivers is an easy payment model to get tax deductions and reimbursements during tax season. Nowadays, some companies provide the option to earn on a per diem basis. Always make sure to conduct further research to determine if taking per diem wages affects your eligibility for social programs and other financial entitlements.
If you are in search of a company that offers per diem pay while caring for the driver’s overall health and wellbeing, HMD Trucking is the place for you. We offer our truck drivers $0.12 CPM per diem. Moreover, our personalized approach to trucking makes us the favorite destination for drivers (with at least 6 months of CDL A experience). Apply with us now to start your trucking adventure.
You can also read our article about what kind of clothes truck drivers prefer?