Our tax experts jotted down some common Trucker Per Diem questions that truck drivers are asking.
An often misunderstood but very important expense for transportation companies is the use of per diems. It is believed that all truck drivers are eligible for this deduction but as noted below that is not the case. In addition, the substantiation requirements can be an issue if a company is not careful. While mileage logs are a part of the equation there is additional information required to substantiate the expense.
Keeping track of business travel expenses, such as the cost of lodging, meals and incidental expenses can be a very time-consuming task. In lieu of substantiating actual travel-related meal and lodging costs, the IRS provides optional per diem allowances, which employers and employees are deemed to have substantiated by adequate records or other sufficient evidence. The optional per diem allowances are intended to simplify record keeping, and depending upon your business, may indeed make the task of keeping track of business travel expenses less burdensome. Per diems can only be used when travel is considered away from home or the trip passes the “overnight rule” test. These qualifications are explained below.
Per Diem amounts
Per diem is a term used to describe an allowance for lodging, meals and incidental expenses. Every year, the General Service Administration (GSA) issues per diem amounts for lodging, meals and incidental expenses for travel by federal employees during the government’s fiscal year (October 1 to September 30). The IRS traditionally follows the GSA per diem amounts.
The IRS provides tables that identify the maximum per diem amounts for lodging and the maximum per diem rates for meals and incidental expenses in many localities.
High-low method
Rather than using the per diem rates, an employer may use simplified “high-low” rates for travel within CONUS (Continental United States). Certain localities are identified by the IRS as “high cost” and travel to those locations qualifies for a special per diem rate. All other locations are deemed “low-cost.” To find the rate applicable to you visit the U.S. General Services Administration (GSA) website at: http://www.gsa.gov/portal/content/104877?utm_source=OGP&utm_medium=print-radio&utm_term=perdiem&utm_campaign=shortcuts.
When the new high-low rates become effective (generally October 1), you can either continue with the rates you used for the first part of the year or change to the new rates. However, you must continue using the high-low method for that employee for the rest of the calendar year (through December 31). Also, you must use the same rates for all employees reimbursed under the high-low method during that calendar year.
Incidental expenses
In 2011, the IRS announced that the term “incidental expenses” would have the same meaning as in the federal travel regulations. The GSA revised the federal travel regulations last year.
The revised GSA regulations describe incidental expenses as fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses and others on ships. Transportation between places of lodging or business and places where meals are taken, and the mailing cost associated with filing travel vouchers and payments of employer-sponsored charge card billings are excluded from the GSA definition of incidental expenses. As a result of the GSA revised definition, taxpayers using per diem rates may separately deduct or be reimbursed for transportation and mailing expenses.
Travel away from home / “Overnight Rule”
Per the Revenue Ruling 75-432, 1975-2 CB 60, IRC Section 162, in order for travel to be qualified as travel away from home the employee must be away from their primary post of duty longer than an ordinary work day. The rule known as the “overnight rule” or the “sleep or rest rule” is used to determine whether an employee whose duties require that employee to leave the principal post of duty during all of part of the actual working hours is considered to be in a travel status. An employee may deduct the expenses for meals and lodging on a business trip away from the principal post of duty only when the trip lasts substantially longer than an ordinary day’s work, the employee cannot reasonably be expected to make the trip without being released from duty for sufficient time to obtain substantial sleep or rest while away from the principal post of duty, and the release from duty is with the employer’s tacit or express acquiescence, or is required by regulations of a governmental agency regulating the activity involved.
What can be used to substantiate distance?
To substantiate business mileage and related expenses a daily log should be kept. In this log you should keep the following items:
- Date of the trip
- Destination (city, town or area)
- Business Purpose
- Odometer readings (Starting Mileage, Ending Mileage, Total Miles for this trip)
- Expenses (Gas, oil, tolls, etc.)
- Amount of the expense
It is highly recommended that you use on the available apps for this purpose!
An example of meeting the overnight rule would be if you were traveling on business and you rent a room to sleep or rest during a layover. An example of not meeting the overnight rule would be if you were traveling several hundred miles and needed to stop to rest for an hour.
If you have no regular place of business and you do not maintain a fixed home, you may not deduct any travel expenses. A trucker who lives in his or her truck during the entire course of the year cannot deduct per diem meals.
Truckers could encounter problems related to their expenses and per diem payments, depending on how their carriers handle their business. Per diem payments are subject to income and employment tax if a carrier reimburses a trucker in excess of the federal per diem rate, which is currently $63 per day.
Do I have to spend all the per diem?
No. This is the maximum amount the IRS will let you claim on your tax return.
Who can claim trucker per diem?
Self-employed truckers who are subject to DOT HOS and who travel away from home overnight where sleep or rest is required.
As of January 1, 2018, employee (company) drivers can no longer claim per diem on their Form 1040, US Income Tax Return, as an itemized deduction on Schedule A.
Can motor carriers pay per diem to employee drivers?
Yes. A motor carrier can offer per diem to drivers subject to DOT HOS and who travel away from home overnight where sleep or rest is required under an accountable per diem plan.
What documentation is required to prove overnight travel and expenses?
You must substantiate the “time, date, and place” for each day of travel.
What documentation meets the IRS substantiation requirements?
Only itemized log listing showing “time, date & place” for each per diem event.
Is company-paid per diem taxable as income to an employee driver under an accountable fleet per diem plan?
No. Per diem is classified as a non-taxable reimbursement to an employee driver.
Can all truck drivers receive per diem?
No. Drivers who start and end a trip at home on the same DOT HOS 14-hour work day cannot claim per diem.
What are the current per diem rates for travel in USA & Canada?
USA $63 Canada $68
Can a driver prorate per diem for partial days of travel?
Yes. A partial day is 75% of the per diem rate (USA $47.25 Canada $51).
- Per Diem Plus will record 3/4 per diem when a driver departs their tax home BEFORE noon or returns to their tax home AFTER noon.
How much per diem can I deduct on my income tax return?
A trucker can deduct 80% of per diem on their income tax return.
Self-Employed: Use Schedule C, Profit / Loss From Business or Form 1120S – Line 19 “Other Deductions”
What are Incidental Expenses?
Only fees and tips.
Are showers & parking fees incidental expenses?
No. Self-employed drivers may separately deduct expenses for: Per Diem Plus subscription, showers, reserved parking fees, mailing expenses, supplies and laundry.
Can employee drivers deduct company-paid per diem on their tax return?
No.
What qualifies as a tax home?
Where you park your truck. Your regular place of business, or home in a real and substantial sense.
Can I claim per diem if I live in my truck?
No. A taxpayer who’s constantly in motion is a “Tax Turtle” or someone with no fixed residence who carries their “home” with them.
Can truck drivers claim a mileage allowance per diem?
No. Only fleets can use a cents-per-mile per diem. IRS’ standard mileage allowance is for use of a personal vehicle.
What documentation is required to prove other expenses?
Paper or electronic receipts that identify what, when and the amount are required.
Can a driver claim per diem for lodging?
No. You must have a receipt for all lodging expenses. A self-employed driver falls under the related party rules of IRC 267(b) & Rev. Proc 2011-47.6.07 and, therefore, cannot use per diem substantiation that includes a meals and lodging per diem.
How long should tax records be retained?
Not less than 3 years from the filing date of an income tax return.
What published guidance has the IRS issued that explains trucker per diem?
Refer to IRS Revenue Procedure 2011-47.