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Per Diem Expenses – Special Rules Benefit Trucking

Good advocacy by the trucking industry has produced special IRS rules to benefit trucking companies when they use flat-rate per diem payments to cover employee travel expenses.

The benefits:

  • Nationwide allowance of payments up to $41 per day for meals and incidental expenses, with no requirement of expense amount substantiation.
  • 20 percentage point advantage on deductibility ceilings for driver meal expense payments.
  • Options for additional reimbursement for lodging with full deductibility.

Truck operators should make sure they are taking full advantage of these rules which are unique to the trucking industry.

Paying drivers through per diems rather than wages benefits everyone. Per diems are tax free to drivers, require no employment tax contributions by drivers or employers, and are not counted as wages in determining employer payments for Michigan workers compensation or unemployment.

Travel expense reimbursement in most other industries faces three significant problems:

  • A general requirement that employees actually substantiate their travel expenses.
  • An alternate per diem system that caps reimbursement at $31 per day unless employees show that expenses were incurred in high-cost localities.
  • Deductibility to the employer of only 50% of meal expenses.

Special rules for the trucking and transportation industries, provide significant relief from these provisions.

Beginning in 1998, the IRS began increasing the deductibility percentages on meals for truck drivers performing duties subject to DOT hours of service limitations to levels higher than the standard 50%. The deductibility percentage for 2004 and 2005 is 70%. Percentages will rise to 75% for 2006-07 and 80% beginning in 2008.

The IRS also gives transportation companies a $10 per day increase in expenses that can be paid under a per diem plan without employee expense substantiation. The increase results from allowing employers to use a flat $41 maximum figure nationwide rather than requiring locality by locality evaluations to determine whether amounts in excess of $31 can be paid.

Trucking companies also may add either actual lodging costs or locality-specific lodging rates ranging from $60 to $199 per day without any limitation on deductibility.

Specific rules must be followed in order to qualify for these transportation-specific options. The options are available only for meal, incidental and lodging expenses which occur "away from home". IRS guidelines state that drivers or employees are "away from home" only if they are outside the general area of their base of operations for a period substantially longer than an ordinary day’s work and that they have a reasonable need while away to get sleep or rest.

The IRS also requires that employers develop information which generally substantiates that employees typically incur actual travel expenses which approximate the per diem expenses being paid.

Careful advance planning and strict compliance with the per diem expense rules is an absolute necessity. In a recent case, the United States Tax Court ruled that a trucking company’s efforts to adapt the per diem standards to match its own internal operating experience had the effect of voiding the entire application of the per diem rule. This left the carrier with no way of qualifying any of its $1 million per year per diem expense payments for a tax deduction.

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Article Originally Published: February 2005

The information contained in this article is not intended to be legal advice. Readers should not act or rely on this information without consulting an attorney.