The Tax Cuts and Jobs Act approved by Congress on the 22nd of December 2017 was the first major tax reform since the Tax Reform Act of 1986 and it will drastically affect the income of trucking and logistics companies. However, did you know that it will also affect you as a company driver?
First off, the bill has completely changed the way the Internal Revenue Service (IRS) handles what is referred to as per diem. If you are not familiar with per diem it is, according to the GSA, an allowance paid to employees “for lodging, meals, and incidental expenses incurred while traveling.” In order to see how per diem has changed let’s take a brief look at how per diem worked before the Tax Cuts and Jobs Act.
1.) Per Diem Last Year
Some carriers did not offer a per diem program in which case long-haul drivers were able to deduct unreimbursed expenses on their income tax returns using Form 2106. Generally, that meant a claim of $63 per day, which could amount to over $20,000 per year.
Carriers that had a per diem program operate largely the same today. Company drivers using these programs would be paid by their carrier a nontaxable per diem amount, based on mileage or some pre-arranged fixed amount.
2.) How Per Diem Works in 2018
The recent tax reform does not change anything for owner-operators or company drivers already using a carrier’s per diem program.
Company drivers working for a carrier with no per diem program cannot take a personal tax deduction claim of $63 per day. However, this does not mean that all company drivers are taking a $20,000 per year tax hit thanks to the new higher standard deductions.
3.) New Higher Standard Deductions
THE GOOD NEWS: Standard deductions have nearly doubled. Section 11021 of the Tax Cuts and Jobs Act increases the the standard deductions from $6,500 to $12,000 for taxpayers filing as “single” or “married filing separately.” For those filing as the head of household, your deduction increased from $9,550 to $18,000. Additionally, if you are married and filing jointly your standard deduction increased from $13,000 to $24,000.
The intention of these increases in standard deduction is to decrease the number of taxpayers who itemize their deductions consequently simplifying the tax return preparation process. Furthermore, because the standard deductions have almost doubled, the loss of the ability to deduct per diem if your carrier does not have a program in place may be offset by these increased deductions. At the end of the day, every individual tax situation is different and only time will tell if these new standard deductions will account for the elimination of per diem.
Does your carrier have a per diem program?
Even with the potential of the increased standard deductions offsetting the elimination of per diem, it is important to check to see if your carrier offers a per diem program. If your carrier offers a per diem program, consider getting involved as you may still reap the benefits of the increased standard deductions while retaining some ability to receive per diem. If your carrier does not have a per diem program, consider asking them to start one. Maybe you could ask for a raise to help offset the decrease on your standard of living. Lastly, you may want to find a new carrier that offers a per diem program.
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Be safe, be well, and good luck keeping 4-wheelers off your grill.