It’s that time of year already, tax time. Hard to believe! But with the first of the year comes another change thanks to Congress. The Miscellaneous Itemized Deduction category was eliminated for all company drivers. For all the details on how this change could affect you, we turned to trucker taxes expert, Tara Thompson from Judy's Bookkeeping in Sioux Falls, SD.
How Will the 2018 Per Diem Changes Affect Company Drivers?
Despite Congress' big change for company drivers, we've noticed very little in trucking news about this issue. So we wanted to go to a trustworthy trucker taxes source to get answers! When we contacted Tara she was definitely familiar with the question as she has been getting it a lot lately. So without further ado, here is what has changed and who it affects.
Owner Operators Who Are Sole Proprietors or S-Corporations
Good news! No change! Self-employed individuals and companies will get the same deduction that they always have. Where this rule could affect owner operators is if they also have employees in their fleet. For more information on that change, read on.
Company Drivers, or Employees of Trucking Companies
As previously mentioned. One part of the new tax bill approved in December of 2017 was the elimination of the Miscellaneous Itemized Deduction category. Things that fall in this category include unreimbursed employee expenses (see below), tax preparation fees, investment interest, etc. Note, the "unreimbursed employee expenses" include union dues, job education, certain uniforms, and TRAVEL.
For tax years beginning before 1/1/18, the IRS has allowed DOT transportation workers to take a per diem deduction for the days that they travel for work. Basically this means that drivers were allowed a small amount of tax-free money each day to help offset the increased living expenses incurred because of the nature of being on the road. However, beginning 1/1/18, this category of deduction has been eliminated.
The elimination of this per diem tax exemption can make a huge difference to some taxpayers, up to a couple thousand dollars in taxes.
So what can you do?
First, it’s a good idea to update your form W4. Ask to decrease your exemptions claimed. This will increase the amount of tax withheld from your paycheck (smaller paycheck), and help ensure that you don’t end up owing taxes on April 15. Also, if you are receiving social security benefits, you should check with a tax expert to see how these changes might affect your situation in particular.
Second, check with your trucking company to see if they will still offer a company driver pay package with per diem pay. The IRS does allow your employer to pay you a tax-free per diem (because it’s considered a reimbursement, not a wage), so you can potentially save on taxes that way. Since this change in the law, employers can still offer this pre-tax benefit, but there is a downside for the company.
Currently an employer can deduct all the wages paid to the driver, but if they set aside an amount and designate as per diem reimbursement they can only claim 80% of that amount as a deduction for their own taxes. Employers will receive a small benefit from offering a per diem as it includes no FICA or workman's comp insurance charges on that amount, however, this doesn't totally offset the loss of their previous ability to take the per diem as a full deduction.
Clear As Mud?
Is that all clear now? If not, you aren't alone! This is a great time to reach out to your trusted trucker taxes expert and make sure your affairs are in order.
Special thanks to Tara Thompson for providing great answers to our burning questions! Please let us know in the comments if you have follow up questions for Tara and we will do our best to address them in an upcoming blog.
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