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KSM Blog | Katz, Sapper & Miller CPA

Implementing a Per Diem Program to Boost Driver Pay…and Corporate Profits

Posted 5:57 PM by

A transportation company can provide employee drivers who are away from their tax home a per diem allowance for meals and incidental expenses of up to $59 daily without substantiation from the driver of its use. The per diem is usually paid using a cents-per-mile approach, and the driver accepts a lower base pay per mile as a result. Neither the company nor the driver is subject to payroll taxes on the amount of the per diem paid.  Also, the per diem is deductible by the company at 80% and not included as taxable income to the driver. The end result is more money in both the driver’s and the company’s pockets.

To avoid the Internal Revenue Service (IRS) from reclassifying the per diem payments as wages under audit (and assessing large penalties and interest), a company must be sure processes and procedures are in place to ensure that drivers are not being paid more than $59 daily and that any excess is being taxed to them or repaid to the company. Some common testing methods are as follows:

  1. Test 100% of all per diems paid and ensure excess amounts paid are handled correctly. Without software and/or personnel, companies will not find this a cost effective option.
  2. Set the cents-per-mile per diem low enough that none of the drivers will ever exceed the $59 rate. However, the low rate may not be competitive enough to entice new drivers or retain existing ones.
  3. Conduct random samples, but also select high-mileage drivers for compliance. This is the preferred alternative if a company lacks personnel and/or software to perform 100% testing and is considered an acceptable method by the IRS.

About the Author
Troy Hogan is a director in Katz, Sapper & Miller's Business Advisory Group. Troy consults with clients to manage business concerns specific to the transportation industry and crafts solutions related to tax deferral, per diem, fuel tax credits, and entity restructuring. Connect with him on LinkedIn.

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