Per Diem Truck Driver Tax Break
One of the largest tax deductions for truck drivers is per diem. The ability to understand and use this tax deduction properly, can substantially reduce your income tax liability. Keep reading below to learn the requirements you must meet to claim this beneficial deduction.
What does per diem mean?
“Per diem” is a Latin phrase that means “for each day.” In the trucking world, you may hear this term used in one of two ways. One, being used as a daily meal allowance term. This is where a trucking company reimburses you for the added meal expense. Since this is an employer reimbursement, this portion of your salary is untaxed.
Secondly, per diem can also be referred to as the amount the Internal Revenue Service (IRS) allows you to deduct from your taxable income. The IRS allows a certain amount per day of over-the-road travel. This is if you meet certain requirements.
Figuring per diem rates
Per diem rates for drivers
The difference between per diem pay and per diem tax deduction is important to know and understand because it affects the way you figure taxes. As of January 2021, the per diem allowance is $66 per day in the continental United States. However, if you deliver goods outside the continental U.S., this rate increases to $71per day. The IRS currently allows owner-operators to deduct 80% of the per diem rate.
Per diem rates for riders
If a spouse or partner rides with you to help assist with your duties, they can also claim a per diem tax deduction. Riders without a CDL who help with bookkeeping, dispatching, and loading or unloading can claim a per diem rate of $33 per day. The IRS currently allows rider to deduct 50% of the per diem rate.
Meeting qualifications for per diem tax deductions
Per diem tax deductions are unique because these deductions do not require you to keep receipts for travel expenses. Because of this, the IRS places restrictions on per diem eligibility. Per IRS Publication 463, you must meet both of the following requirements to claim the per diem deduction.
- You are away from your tax home for “substantially longer” than an ordinary day’s work.
- Your work requires you to sleep or rest while you are away from home.
A nap does not necessarily consist of having to spend a full day away from home. Your off-duty rest period must be long enough for you to rest. In most cases, if you are fulfilling Hours of Service (HOS) requirements away from home, you can claim the per diem tax deduction.
Rules for partial days
If you are leaving or returning home, this only counts as a partial day. The per diem rate for a partial day is ¾ of a full day. If your normal rate is $66 per day, your per diem rate for a partial day would be $49.50.
Avoiding potential problems
Company Driver
So, what if you are a company driver and your employer pays you a the full per diem rate? The IRS states you are unable to claim a tax deduction because you have been reimbursed at the full per diem rate. This is referred to as non-taxable per diem. If your employer only pays for full days, you may still be able to claim a partial per diem tax deduction.
If your employer pays less than the full per diem rate, you can take the difference. For example, you employer pays you a standard meal allowance of $45 per day, you then subtract that amount from the maximum allowable per diem rate of $66. You can also take 80% of the remaining $21 as a deduction. However, if the trucking company pays you the federal per diem rate or higher, you cannot take a deduction.
Independent Owner-Operator
You would follow the rules listed about regarding the full and partial rate for the driver and rider
Calculating your per diem tax deduction
Tax preparers and most tax preparation software perform these calculations for you. However, some individuals prefer to do their own calculations. Use the following formulas to determine your tax deduction amount.
Drivers
- Domestic: (number of full days) x (domestic driver per diem rate).
- International: (number of full days) x (international driver per diem rate).
- Domestic: (number of full days) x (domestic driver per diem rate) x (0.75).
- Add the answers from step one, step two and step three. Take this figure times 80%. This is the actual amount of your per diem tax deduction.
Riders
- Domestic: (number of full days) x (domestic rider per diem rate).
- International: (number of full days) x (international rider per diem rate).
- Domestic: (number of full days) x (domestic rider per diem rate) x (0.75).
- Add the answers from step one, step two and step three. Take this figure times 50%. This is the actual amount of your per diem tax deduction.
Defining a tax home
The IRS has a specific definition of what a tax home is. The following are three requirements for your tax home; your home must meet two of these requirements.
- You do at least part of your work in the same area as your main home and live there while working in that area.
- You are duplicating expenses at and away from home because your business requires you to be outside the area. For example, you pay for an electric hook-up at a truck stop and pay an electric bill at home.
- You live in your main home when you are in the area or have family members living there, and you help maintain it.
Tracking per diem for truck drivers
Maintaining good records is absolutely critical to avoid losing this beneficial deduction in an audit. Fortunately, record keeping does not have to be complicated. Use our app calendar to track full and half days. You would make a full day with an “X” and half days and a “/”. If you make deliveries outside the continental U.S., place a “*” on those days to help remember which days are higher per diem rate. Our app will calculate the running total per diem deduction based on full, partial and international days. The app will also provide reminders of when to file your Form 2290, Quarterly IFTA, and renew your Medical DOT Card.
Maintain these records for at least 5 – 7 years after you file your taxes. This way, you have sufficient documentation in case questions arise later or you are audited.
For many truck drivers, the per diem tax deduction can substantially reduce their tax bill. Make sure you meet the requirements for each day. If you are unsure whether a day qualifies, consult a tax professional. Also, you can have an accountant review your taxes periodically to help you find other tax deductions and credits that are available to you.