7 Per Diem Questions Truck Drivers Ask Most (Answered for Drivers and Payroll) – Episode 52

Almost every day I answer questions about truck driver per diem. Sometimes they’re from trucking company owners, sometimes they’re from the payroll or from the office people, and a lot of the times they’re directly from truck drivers. Today, I’m answering the questions I hear most from the drivers. Because once drivers understand how per diem really works, they almost always stop worrying about.

Welcome to the Driven for Success podcast. This is the podcast for trucking company owners who want to build better businesses, make better decisions, and keep drivers without losing control. I’m Mike Ritzema, your host and owner of Superior Trucking Payroll Service, where our mission is simple: to help trucking families. This podcast is one of the ways we fulfill that mission.

So over the last several episodes, we’ve talked about how per diem works and how to roll it out, what to do if the IRS asks any questions, tax time, all those kinds of things. Those are all in prior episodes. Go find them. I think they’re very helpful.

Today, we’re going to answer the questions that the drivers ask the most often. And this episode isn’t just for the drivers. It’s for the people who have to answer driver questions as well, the payroll people, the owners, etc. So drivers, this is totally for you too, but it’s also for the people that you might ask.

So the first question I get is, “Is per diem extra money?”

The answer is no, not the way that we suggest that companies do it. It is not extra pay. It’s just the same compensation package differently. What we do is we make part of those taxable wages into non-taxable reimbursement. So your gross pay changes and your taxable wage change, but your take-home pay, your net pay, the money, that goes into your bank account as a driver goes up. And that’s really the goal, isn’t it? That’s because you’re paying less in federal income tax, Social Security and Medicare taxes, and state income tax if your state has one.

Per diem doesn’t create money. It helps you keep more of the money you’ve already earned.

A lot of people have this misconception about it. There’s a lot of misconceptions about per diem, but the way that we suggest that companies pay per diem is that they convert some of that wage into non-taxable reimbursement, basically. The IRS allows it, as we talked about in the previous episode. There are trucking companies that pay you per diem over and above the wage. So just be clear when you go talk to them which kind of program they have. Now, ultimately, compensation’s compensation, and what most drivers care about the most is what goes into their bank account every week. But make sure that you have that conversation with your driver. And this misconception exists because drivers don’t always get told all the information, and then they have to ask other drivers, and everybody kind of pieces together what they were told, and somehow a story comes out. And that story is often affected by the driver’s experiences with the trucking companies they worked for. And so those experiences may be negative, and they may have a negative perception of per diem and might think it’s a way to stick it to the driver, which it’s not. Sometimes that’s the story that gets out. The next question is, “Will this hurt my Social Security payout someday?”

Meaning, if my company pays per diem to me, will I collect less in Social Security?

Yes, you absolutely will. Because you’re paying less Social Security tax in, you’re going to get less of a benefit when it comes out.

There’s a whole formula for how Social Security gets done. Your years that you worked longer ago count for more weight than this year because you’ve had more because they’ve had more time to keep your money, basically. There’s a whole formula for it. And you can go to SSA.gov, and I think you can sign in and find out what they think your benefits are going to be. But yes, you are going to get paid less Social Security when you retire. Absolutely, and I think every trucking company should tell you that.

But what you can do, there’s a couple of thoughts about this. One of the things you can do is take even a quarter of the savings that you get by per diem, which so look at your paycheck the one week and then with no per diem and look at it the next week with per diem if you did about the same amount of work and have about the same amount of pay details. Your check’s going to be 90 to a hundred dollars bigger, depending on, again, what state you’re in and what taxes you claim and things like that. Take 25 dollars of that, put it into an IRA, and just let it sit there. You’re going to be way better off. And that’s for people. I mean, I’m 58 years old. I can see Social Security from here. It’s getting closer, right? I could start drawing in 4 years if I chose to. But for young drivers, they’re going to be a lot less confident that Social Security is going to be there for them. So for them, they may, they should also be putting money, taking that money and putting it into the IRA. But they’re going to have less faith that, generally, that the Social Security payment will be there anyway. So just something to consider. Uh, a side bonus question in this is, “Well, that means my trucking company pays less into my Social Security too.”

Yes, it does. That’s where their benefit is. However, again, if you take a quarter of your savings, you’ll be way better off. There’s all kinds of math you can do about this stuff. Talk to your financial advisor if you don’t, and if you don’t have a financial advisor, go talk to somebody who does this stuff because you’ve earned a good retirement, let’s hope. Let’s hope that you can retire easily. But the whole important thing is that you understand the trade-off here and not be surprised about it when you retire and say, “Nobody ever told me that my benefits were going to get cut.”

And they would get cut by about, if you did it your whole career, from the first day you ever started driving, and you started driving as soon as you could to the day you retire, you’re going to lose about a third of your benefits, absolutely, if you did it the entire time. So that’s why it’s important to put other money away. The next question is, “Can I claim per diem against my tax return?”

Not anymore. You used to be able to do that. I think it was the 2018 Tax Cuts and Jobs Act. I always have to print that out because I never remember what it’s called. I think of it as the Trump tax cuts back in his first term. And I’m not getting into the politics of whether good or bad. I have opinions, but nobody cares. So let’s skip that part and just go right to what happened, which is one of the things that changed in the tax returns at that point was it’s a lot harder to get deductions for unreimbursed employee expenses. You really can’t do it anymore if you’re a W-2 employee. Uh, the trade-off, there were a lot of other trade-offs in it, like you got a higher standard deduction, so you wouldn’t have deducted anyway. You wouldn’t have probably itemized anyway. But, you know, that was the big change there.

So per diem can still be paid by the trucking company to the W-2 driver. And if you’re an owner-operator getting a 1099, you can still deduct it on your tax return, and you absolutely should. Uh, it’s $80 a day. It’s 80% deductible. Talk to your tax advisor about the details. If your tax advisor looks at you like you have a hole in the head, have them reach out to me. I will explain it to them because they don’t do a lot of trucking returns. I’ll walk ’em through it. Easy peasy. Glad to help. Again, it honors our mission of helping trucking families. So, yeah, yeah. So that’s, that’s really the main thing is you can’t deduct it anymore on your tax return unless you’re a 1099 owner-operator. The next question I got is, “Why did my W-2 wages go down?”

They look at their W-2 from one year, they look at their W-2 from the next year, and the next year they got paid per diem. “Why did my wages go down? I felt like I worked just as hard. The cost of everything else went up. Where’s my money? “Well, it’s in a different box. Your taxable wages are lower. That is what per diem is designed to do. So your W-2 wages are lower. That would be Box 1, Box 3, and Box 5 of your W-2. Those are all lower. No worries there. But you should have, if done properly, in Box 12, that’s the one with the letters and then the amount, you should see your per diem in there. Should be Code L and then the per diem amount. So you, you’re not getting paid less automatically. I can’t tell you that your trucking company didn’t lower your rate of pay or anything like that. I have no idea of everybody’s individual circumstance. However, the, the money’s there, and it should still be listed on the W-2 as non-taxable compensation. It just has to be reported.

But this makes a lot of drivers nervous, and I get that. You know, you’re like, “I made this much that last year, and now with per diem, I only made this much. What’s going on? “You know, I get how that would be unnerving, but it’s okay. Again, it should be in that Box 12 with a code of L. And if it’s not, it really doesn’t affect your tax return anyway, so I wouldn’t worry about it. You can tell your employer about it, and again, tell ’em to call me. I’ll walk ’em through it. And if they don’t, even if they don’t ever want to sign up with us, like we’re happy to educate people. That’s why we do the podcast. And, you know, it’ll be okay. Yes, you’re going to show less money, absolutely, on your W-2 as taxable wage, but you’re getting more in your paycheck, and that’s really the number that is the most important and keeps your day-to-day running.

The next question, I get this one a lot. “Will this affect getting a mortgage or a car loan or things like that?”

Sometimes it does. Some lenders will only look at taxable wages, meaning they’ll only look at Box 1 or 3 or 5 of your W-2, and that’s all they will look at. Not all of them, but some of them. Others use bank statements.

The important thing is to know you’re on per diem before applying, and you can go right to your lender and explain it to them, and your payroll company should be able to provide you with a letter that explains it. If you’re one of our clients, ask us. We’ll shoot it right over to you. Explain that the compensation is not all wages. The compensation also includes per diem, which is absolutely predictable and is usually around $400 a week. Don’t wait until the mortgage is ready to close to act on this. What I would say is, send in your pay stub or whatever they require, the payment documents, W-2s, tax returns, all that stuff that they require. Get that to them right away, and then a couple days later, ask them, “Are we good?”

If they go, “Well, we have a problem with your income,” then say, “Well, let me get a letter to you that can explain it.”

Because the person you’re talking to only gets paid if they write the loan. They want to write the loan also. So if you can help them tell the story to the underwriter, that’s only going to help. And again, your payroll company should be able to explain it in a letter, uh, then that should really help ’cause it’s not just you telling them that, it’s someone else. But don’t wait until the last day. Don’t wait until you’re ready to sign or the day before, and then the mortgage lender comes to you and goes, “Yeah, we got a problem with your income.”

Because that’s going to be too late, and now everything’s thrown apart crazy, and we don’t want that for you. Another question I get is, “Do I get per diem every day?”

You get it on qualifying travel days. You always qualify if you’re gone overnight, and you’re subject to hours of service regulations, and you’re in multiple meal and incidental expense periods. That’s the qualifying. If you’re home, generally there isn’t per diem for you. Uh, if your company pays every day, if they pay you per diem every day, whether you qualify or not, that should raise a question for you. That should be an issue. That is not legal. Uh, you would want to have to have a discussion with them about that. It doesn’t happen a lot, but if they did, you’d want to look into that. This per diem is based on qualifying travel days, not just the calendar. If they pay you seven days every single week and you’re home some days, that’s a problem. It could be just a clerical error. It could be just they forgot to change what they told their payroll service or what they changed in their software that they use to do payroll. That happens. People are human. They make mistakes. But you want to look into it.

Also, if you live in your truck, like you literally don’t have a home, and you just live in the truck because why would you need a home, you’re in the truck all the time, the IRS will tell you that you’re home every night. And if you claim 365 days of per diem, or 366 in a leap year, you’re asking the IRS to look into it. And they’re going to say, “Well, no, you live in the truck. You are home every single night. No per diem for you.”

And now all that wage becomes taxable for you, and you’re going to pay Social Security, and your company’s going to pay Social Security and all these things. It’s going to be a pain. It’s going to be unneeded friction in your life. So if you are living in the truck, either make sure you’re home for a couple of months somehow, whatever home is, or yeah, make sure you don’t get per diem seven days a week. Again, if you’re gone, some drivers run 3 or 4 or 5 or 6 or 8 weeks straight, and then they take a couple of weeks off. That’s fine because you’re not getting per diem on the weeks you take off. So I’m not saying that having seven days per diem in a week is a problem. It’s having seven days of per diem every week. That’s a problem. Next question I get is, “Can I opt out?”

Now, it’s up to your employer because they get to set how you’re paid. However, you absolutely should be able to opt out because you can opt to work for somebody else, quite honestly, if you’re a truck driver. So you should be able to opt out. I rarely think it’s a good idea, but some drivers just don’t want it. Whatever their issue is, they have trust issues because they got burned by other trucking companies, or they think they need it for the mortgage issue because their mortgage people just won’t listen to what we’re talking about earlier in the podcast. You know, some feel like they don’t feel like they have the discipline to save the money into an IRA, which you should be able to do it through a second direct deposit or something. But that’s okay. For some people, that’s just a mental load they don’t want to carry, and that’s fine. So can you opt out? You absolutely should be able to.

A good employer will explain it to you. They’ll answer all your questions, and they’ll let the driver make the decision. Because if you’re a good driver, and if you’re listening to a podcast about driving, you’re probably a good driver. I don’t want to paint with a broad brush here, but people that are trying to get better and trying to learn, they’re generally the better ones. So if you’re that person, you’re probably a good driver, and if you’re a good driver, your trucking company should never risk losing you over this per diem savings that you and they could enjoy. Again, I think it’s a bad idea, I think Brussels sprouts are a bad idea too, but those are still okay, I guess. “How much money will I save?”

Isn’t that the magic question? How much money will I save as a driver? How much bigger is my paycheck going to be? Because that’s the part that really impacts me. And that’s an awesome question. Every driver’s situation’s a little different. We’d have to know your take-home pay. We’d have to know your gross. How many miles you drove, how much you get per mile, how many days you were out, what did you claim on your W-4? What state are you in? How many exemptions do you have for that state? All those things matter.

So I can’t give you an exact number, but I can say this. For many of the over-the-road drivers, and I use Michigan as an example, our state income tax rate’s about 4.25%. So just as a guide. And drivers between the Social Security and Medicare and federal income tax and state income tax savings, I just paint with a broad brush and make an average. They save between $90 and $100 a week. What I mean by that is their paycheck is $90 to $100 bigger every single week. That’s $4,500 to $5,000 a year in your bank account every single year. And sometimes it’s a little more. Again, it depends on your, you know, if you work, if you really bust it out there, you know, you are driving all the time. I don’t want to see your logs. And you’re hauling high-dollar freight where you’re getting paid a premium because you’re taking complicated equipment or whatever the situation is. You’re going to make more money. It’s going to help you even more because it’s taking the tax away from the highest earning part of it. It’s called marginal tax rates. I don’t want to put you to sleep because you might be driving right now. But the idea is the more that you make, the more it saves you. And that’s the part you really want to get to.

And this is why we talk about it so much, because I believe that giving drivers an extra $4,000 or $5,000 a year would make their lives a lot better. And again, even if you take $1,500 of that, and I’m rounding up now and putting that into your retirement, still leaves you $3,000, $3,500 somewhere in there in money you can have right now to take care of your kids, to pay your bills, to keep things running at home while you’re out earning it on the road. That’s a real difference for trucking families. You know, small daily savings becomes big yearly money. And that’s what I want you to see. It’s nice that the trucking company saves money, too. They do. Honestly, they save about $50 a week on you and you save about $100. So it’s nice you both get the win, but the driver win is much more significant because it’ll be the biggest raise you’ll probably ever get in one shot.

So let’s wrap this up.

The biggest mistake I see isn’t drivers refusing per diem. It isn’t even companies not offering it. It’s the confusion. Drivers hear something from another driver or they read something online or they listen to somebody and they say, don’t do it. Really, for anything, if you go online, you can find someone to tell you not to do anything or to do that same thing. There are always both sides of the coin.

But most of the time, they’ve never been shown how it actually works. And that’s why the education matters so much. Because when people understand it, they’ll make better decisions for themselves. And that’s what we want for you as a truck driver. And that’s hopefully what your trucking company that’s listening to it now wants for you as well.

If you’re a trucking company owner or administrator and you’re wondering whether your company is handling per diem correctly, we’d be happy to help. We can review your current program and answer your questions and show you how it should work. We’ll do all of this for free. Absolutely. Because again, our mission is to help trucking families.

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Thanks for listening to the Driven for Success podcast. We’ll see you next time where we’re going to take company questions and answer those. Until then.