The allowable driver per diem is increasing for the first time in three years.
According to the Internal Revenue Service, the per diem for transportation workers will rise to $69 for travel within the continental United States and up to $74 for travel outside the continental United States. Both values reflect a $3 increase.
The new rate takes effect on Oct. 1, the first day of the federal fiscal year. Since 2018-19, the previous rate has been in effect.
While the per diem allowed by the IRS does not automatically translate into the per diem paid to drivers, it essentially does.
Steve Pletcher and Kelli Block, partners at Scopelitis, Garvin, Light, Hanson & Feary, said in an email to FreightWaves that “in practice, many motor carriers effectively adopt the IRS meal and incidental expense rate as their per diem rate, which makes a certain amount of sense because that is the amount the IRS has effectively deemed reasonable for certain transportation workers to incur in meal and incidental expenses.”
The growth may appear insignificant. However, because the per diem is treated as expenditure reimbursement by the IRS, if used for 200 days on the road by an independent owner-operator, it works out to $600 in tax-free pay. Compensation of this nature is not taxed. Depending on a driver’s tax rate, $600 might be worth $900 to $1,000 in taxable earnings.
The $3 increase, according to Scopelitis attorneys, is the same as the one that took effect in the 2018-19 tax year. That rise, however, occurred after only two years, as compared to the three years required for this increment.
According to Troy Hogan, a partner at Katz, Sapper & Miller, a transportation advice firm, the per diem fee isn’t simply a consideration for independent owner-operators. According to him, employee drivers who are paid a linehaul rate typically receive an expense fee per mile.
However, according to Hogan, the daily per-mile payout to employee drivers is often capped at the IRS permissible per diem rate.
According to a presentation Hogan and Pletcher gave at an American Trucking Associations meeting on the per diem, a driver must be on the road for a significant period during a working day to qualify: “must be away from tax home longer than an ordinary workday,” according to the presentation.
However, this does not imply that it is a 24-hour rule. They must be “abroad for some time sufficient to prevent them from completing the journey without sleep or rest.”
Given that per diems are generally not taxable — the presentation emphasizes that the issue can be complicated at times — “paying employee drivers with per diems can be an effective strategy to improve driver pay while protecting corporate profits,” according to the presentation.
Pletcher and Block wrote in their email that if a corporation pays an employee a reimbursement connected to expenses that exceed the $69 per diem amount, it poses hazards. “The IRS may very well reject the entire per diem plan if payments surpass $69,” they stated.
They wrote, “In our experience, most motor carriers have found it more administratively practicable to simply set a cap that is at or below the IRS rate (and back that amount up with some evidence demonstrating it is reasonable to anticipate drivers incur at least that amount of meal and incidental expenses while working away from home overnight).”
