A per diem program can restore a tax-efficient travel allowance for OTR drivers after the Tax Cuts and Jobs Act eliminated their deduction for unreimbursed business expenses.
What Changed?
Before the TCJA, an over-the-road driver could deduct travel expenses as unreimbursed business expenses, subject to an adjusted-gross-income limitation. For a driver away from home much of the year, the deduction could exceed $15,000 and materially reduce annual tax.
Lower rates, a larger standard deduction, and an expanded child tax credit could still reduce many drivers' total tax, but the travel-expense deduction was gone. That made employer per diem programs more valuable.
What Is a Per Diem Program?
A per diem plan allows an employer to pay an OTR driver up to $66 for each night away from home, or $71 outside the continental United States, instead of requiring receipts for each expense.
The plan reduces administrative burden and provides cash on a pre-tax basis. To qualify as an accountable plan:
- The travel must have a business purpose.
- Logs must substantiate the eligible amount within a reasonable period.
- Payments must be tested regularly against the allowable maximum.
- Excess reimbursement must be returned or treated as compensation.
The driver must actually be over the road and away overnight, where the route cannot reasonably be completed without sufficient rest.
Example
Assume a driver earns $0.55 per mile and runs 2,500 miles. If $0.10 per mile is converted to per diem, the driver would save approximately $43 per week in federal and state taxes at a combined 17% rate, plus about $19 per week in FICA and Medicare tax.
The carrier would save an equal amount of employer FICA and Medicare tax.
Other Considerations
Transportation companies could deduct only 80% of driver per diem payments. The lost deduction might matter less to owners with suspended losses or to ESOP-owned carriers because the ESOP itself is not a taxpayer.
Drivers also need to understand the consequences of lower reported compensation. It may reduce borrowing capacity, compensation-based 401(k) contributions, unemployment benefits, and other amounts tied to taxable wages.
Communication
A per diem program may still be highly beneficial, but successful implementation depends on clear communication.
Carriers can explain the program at driver town halls and use templates that compare old and new compensation and tax results. Some large carriers dedicate part of their recruiting and retention websites to the plan, with FAQs and a feedback channel.
DriverReach founder Jeremy Reymer emphasized that open communication is especially important when changing how drivers—the carrier's most important asset—are paid. Companies gain the most when they begin with open communication among the people affected.
Not every carrier or driver qualifies, but a properly designed and clearly explained per diem plan can improve take-home pay and strengthen the carrier's driver-compensation package.