What is Per Diem?

I heard “per diem” a lot around the office when I first started here and I was confused because obviously, it was a Latin word. I looked it up and it actually means “for each day.” This actually makes a lot of sense considering what the trucking industry means when they say per diem. In short, per diem is reimbursement for daily expenses for truck drivers on the job.

What is per diem?

This normally consists of a meal allowance and incident expenses. Incident expenses include; laundry, fuel, weighing, etc. This also might include lodging depending on the season, time frame, and location. This gives truck drivers more take-home pay because fewer taxes are taken out. If you are a truck driver, are thinking of becoming a truck driver, or are becoming one now, you should know more about per diem and how it works.

How does it work?

There are 2 ways companies can pay per diem to truck drivers. For example, your company may reimburse you every time you have a trip for all of your expenses while on the road by giving you a daily allowance out of the wages. That daily allowance is up to $69 if traveling continental within the United States (CONUS) not including Alaska and Hawaii, and $74 if traveling outside of the United States, including Alaska and Hawaii. This way is usually a tax-free advance. Or you could take an annual tax deduction by the of each year.

Some employees wait until the tax season to report all of the per diem for the year. This way the IRS will record the exact amount earned during the entire year. This means that the IRS provides the aggregate amount of your earned per diem back as a tax refund.

The important reason for you to choose to receive per diem for your expenses is that the IRS deducts about 80% of truck drivers’ total expenses. Companies offer a CPM (cost per mile) if they provide per diem for the truckers. A maximum per diem for truckers is $69. This would mean that you would only need to pay 20% of that amount.

Advantages of per diem:

You get your money for your meals and incident expenses upfront because the money is taken out of your wages. This will let you get prompt reimbursement for your daily expenses.

Per diem is not taxed so your take-home pay is higher than if you got reimbursements instead. The truck drivers’ companies are the ones that take care of the taxes. This makes you more likely to get a tax refund. It also lowers your gross income which is really good. It can help you become more eligible for public assistance or student loans because your income is less than it would be if you didn’t opt for per diem.

Managing your money will be easier as well. Since you get your money allowance before you go on the road you will know how much you will be able to spend. Having the allowances gives you a specific budget to stick to.

Disadvantages of per diem:

It affects your taxable income. Since companies that offer per diem give you an allowance for your expenses that’s lower than the average, and it comes from your wages, you end up getting less money. This means that you won’t be able to put as much money towards Social Security, Medicare, and unemployment.

Loans and mortgages will be harder to qualify for because since per diem is non-taxable and you receive it in advance, it shows the IRS that you have a lower annual salary. This means that you would be less likely to fall between the acceptable income bracket. It will also be harder to get certain insurance that you want.

Unemployment benefits will decrease and since per diem pay is not eligible for 401K contributions, you wouldn’t be able to put any money towards that unless your company has different arrangements for investing.

How to calculate per diem? (example)

If you look at your paystub and you see that you made $1,000 and you have $200 in per diem. The $200 per diem is used by you. So now that the $200 is taken off of the gross pay of $1,000 you have $800. That $800 is what is going to be taxed, instead of the full $1,000. Once all of the taxes and deductions are taken out, you will get your $200 reimbursed and that would go back into your paycheck making that your net pay.

How does per diem affect the company?

A lot of companies offer per diem programs for their employees because they pay lower wages. Not only is this financially beneficial for the company but they also don’t have to pay as much payroll taxes to the government. Some companies require their truck drivers to use the per diem program but others make it an option but encourage the truck drivers to use it. The company does help out their employees by helping them with their taxes if they use the per diem program which makes it a good deal for the employer and the employees.

Bottom Line:

If you have the choice to take part in the per diem program or not I would definitely recommend looking into everything about it to see if it’s the best option for you. Always conduct more research to know how it would affect you by looking at the advantages and the disadvantages.