Do I have to pay per diem as a daily amount or can I pay it another way like per mile or percentage of pay?
Per diem is Latin for per day. “But my software won’t let me pay it per day, can I pay per diem by the mile or as a percentage of truck driver pay?” The short answer is yes but you may be missing out on some savings or you may be out of compliance with the IRS rules on per diem. Let me explain.
On page 14 of IRS Revenue Procedure 19-48 with amounts updated in Rev Proc 20-71 and N-20-71, the IRS specifically allows per mile per diem pay as long as it does not exceed the $66 per day limit. The example below is from Rev Proc 19-48 with the old rates.
“Example 2. Taxpayer, a truck driver employee in the transportation industry, is paid a “cents-per-mile” allowance that qualifies as an allowance paid under a flat rate or stated schedule as defined in section 3.03 of this revenue procedure. Taxpayer travels away from home on business for 10 days. Based on the number of miles Taxpayer is expected to drive per day, Taxpayer’s employer pays an allowance of $500 for the 10 days of business travel. The CONUS special M&IE rate is $59 per day. Taxpayer actually drives for 8 days, and does not drive for the other 2 days Taxpayer is away from home. Taxpayer is paid under the periodic rule used for transportation industry employers and employees in accordance with section 4.04(4) of this revenue procedure. The amount deemed substantiated is the full $500 because that amount does not exceed $590 (10 days away from home at $59 per day).”
Because the per diem amount did not exceed the $59 per day limit at the time all is good with the IRS. But, the company left $90 in per diem that could have been paid on the table which means the driver paid more tax and the trucking company paid more Workers Compensation insurance than was necessary.
The alternative to paying too little and leaving savings on the table when paying by the mile is paying too much. If you exceed the current $66 per day in per diem, the excess is taxable to the employee as wage. Failing to recognize that extra money as wage takes you out of compliance with the IRS. The DOT is no fun but the IRS may be able to match them in terms of complicating your life. So if you do pay per diem by a method other than per day, you may need to make sure you do not pay more than $66 per day. It can be done but it is a little tricky.
So, in summary you can pay per diem as a percentage or per mile but it may not be best for your trucking company.
Written by Harley VanDyke
Harley joined Superior Trucking Payroll Service (STPS) in early 2019. With nine years of customer service experience, she truly understands what it takes to make our clients happy. She loves working at STPS because of the family-like atmosphere. Harley’s favorite place to be is Traverse City, Michigan or anywhere that has hippos.
[form id="8639" /]