Per Diem (per day) is one of your largest tax deductions as an owner-operator, but what is it exactly? In its simplest terms, the Per Diem deduction is a tax deduction that the IRS allows to substantiate ordinary and necessary business meal and incidental expenses paid or incurred while traveling away from home. In this article, we address the specific rules around using this significant tax deduction.
As a result of the Tax Cuts and Jobs Act, employees known also as company drivers are no longer eligible to claim the Per Diem deduction.
The IRS does allow contractors and self-employed transportation workers, subject to the hours of service regulations that travel for business, to deduct their meal expenses from their income. The per diem rate is set by the IRS. The current rate for 2023 (last updated October 1, 2021) is $69 per full day and $51.75 per partial day in the Continental US. You may hear the amount of the deduction quoted as $55.20 per full day. Temporarily for 2021 and 2022, the Taxpayer Certainty and Disaster Relief Act of 2020, allowed a 100% deduction on Per Diem. Starting in 2023, the deduction has gone back to 80%.
Need help calculating your Per Diem deduction and filing your taxes? Click here!
In order to qualify for these deductions, IRS publication 463 states that you are traveling from home if:
Your duties require you to be away from the general area of your tax home substantially longer than an ordinary day's work, AND
You need to sleep or rest to meet the demands of your work while away from home.
It further states that taking a nap does not satisfy the requirement. However, “you do not need to be away from home for a whole day, as long as your relief from duty is long enough to get necessary sleep or rest.”
What does this mean to a driver? If you are an owner-operator, the rule is simple, you get to claim the tax deduction for each day that you are away from your “tax home”. On the days that you depart and the days that you arrive at home, you must claim a partial day allowance instead of a full day allowance. That is ¾ of the standard allowance.
Things become a little more complicated if you are a local driver. Are you gone from home long hours? Local and regional drivers are frequently away from their home much longer than an average eight-hour workday. Therefore, fulfilling the first part of the requirements is simple. However, notice the “AND” between the two requirements? This means that you must meet both conditions in order to claim the deduction. Another way to think of it is, drivers who start and end a trip at home on the same DOT HOS work day cannot claim per diem.
Furthermore, IRS publication 463 states that you must have a “tax home”. There are three tests to determine your tax home. In order to meet the requirements, you must satisfy at least two of the three following items:
You have living expenses at your main home that you duplicate because your business requires you to be away from that home.
You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.
You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.
So what does this all mean? In a nutshell:
You must be away from home for 'substantially longer than a normal work day', per the IRS.
You must have a home from which to be away.
For 2021 and 2022 taxes, if you meet both requirements above, you can deduct $69 for each full day away from home as a driver and as a ride-along that assists in business functions. You can deduct $51.75 per partial day as a driver and as a ride-along that assists in business functions.
At ATBS, we believe that a good way to start tracking Per Diem is to keep a Per Diem calendar, where you put an ‘X’ on full days away, and a ‘/’ on partial days. That way you can count up exactly how many days of Per Diem you have for your tax preparer come tax season. In order to prove your Per Diem, you will need to be able to provide DOT ELD logs with time, date, and location. Also, it's good practice to keep all receipts and documentation of travel for at least 3 years.
The Department of the Treasury and Internal Revenue Service continues to work on regulations clarifying various tax matters that were affected by the Tax Cuts and Jobs Act. If future regulations are published that impact the per diem deduction, ATBS will update this information and communicate any changes.
If you have more questions on Per Diem, please contact ATBS at 866-920-2827.
