PER DIEM PROGRAM

Q: What is per diem and how does it affect me?

Per diem pay is a tax exempt payment drivers can receive for certain personal expenses incurred each day away from home, such as meals and other incidental expenses. Prior to the recent tax law changes, a driver could sign up with their employer (if the employer offered a per diem plan) to receive a portion of their pay as non-taxable per diem pay or instead, a driver could deduct on their individual income tax return an allowance of $63 ($66 beginning 10/01/18) per day for each day they were away from home. Beginning in 2018, the ability for a driver to deduct the $63 per day was eliminated, so the only remaining way to recover costs incurred for meals and incidental expenses is through an employer’s per diem program. What this means to you is that you can receive a portion of your wages as non-taxable per diem instead of taxable wages. This will lower the amount of payroll taxes withheld from your check each week, and therefore, result in more take-home pay for you. Another side effect is that your taxable wages reported on your W-2 will be lower for the year – which could qualify you, or increase the amount of, tax credits received when filing your federal income tax return. A great example is the earned income tax credit which is a refundable credit which is largely based on your W-2 wages. A lower W-2 wage generally results in a larger credit which could result in thousands of dollars coming back to you at the end of the year. (Our savings calculator includes an estimate of this benefit as well).

Q: I used to deduct the $66 per day allowance on my individual income tax return. I really can’t deduct this anymore?

That is correct. You NO LONGER get to deduct this on your individual income tax return. When the Tax Cuts and Jobs Act passed in late December 2017, it eliminated your ability to take this deduction on your individual return.

Q: Why is it important for me to participate in PAM’s per diem plan?

Since participation will increase virtually everyone’s take home pay (by reducing taxes), we encourage everyone to consider participation. Each check that goes by without participation is another week of potential benefit that is lost. However, there are a multitude of tax situations out there so we advise that you consult with your tax preparer to confirm that participation is favorable, based on your specific tax situation.

Q: Does PAM Benefit When Company Drivers Can Claim Per Diem?

We hope so. Our benefit comes primarily from having a satisfied driving force. By satisfied, we mean that you are satisfied that we are doing everything possible for you to take advantage of an opportunity to put more money in your pocket. We hope that offering this per diem plan exhibits our desire to do just that. It is true that PAM will pay less in payroll taxes since per diem pay is not subject to FICA payroll taxes, but it is also true that we lose a tax deduction because we can’t deduct the full amount of per diem we pay you. There is also a cost to PAM in administering the per diem plan. In the end, it is pretty much a wash for PAM. Our incentive to offer the per diem plan is driven solely by our desire for you to keep more of the money you earn.

Q: I signed up for PAM’s per diem plan last year and PAM gave me $0.08 per diem, but took away $0.10 from my base rate. Does PAM’s new per diem plan still cost me the additional $0.02 in base pay?

No. The new per diem plan will transfer the entire $0.14 reduction in your taxable base pay to the non-taxable per diem pay category. This is a change from our old per diem plan where we gave you $0.08 in per diem pay but reduced your base pay rate by $0.10. This was entirely tax driven as PAM was not allowed to deduct 100% of the per diem payments while we were allowed to deduct 100% of your base pay payments. This was very costly to PAM so we had to get per diem participants to help us offset some of this cost with the $0.02 difference. As you might have heard, the new tax law reduces the corporate federal income tax rate from 35% to 21%. This lower rate makes the plan less costly to PAM which allows us to eliminate the previous $0.02 reduction.

Q: Will participation in a per-diem plan have a negative impact on my Social Security when I retire?

Yes, but the impact is generally minimal. The amount you will receive as social security benefits when you retire is based primarily on your lifetime earnings. Generally, your highest 35 years of earnings will be used in the calculation of benefits and since a per diem plan reduces the amount of reported social security wages, it is possible that some of those 35 years will include a lower amount if you participate in the per diem program. While a negative impact is likely, and everyone’s situation is different, we estimate that the impact will be negligible. You will have to decide which option is best for you but based on our calculation estimate, it is difficult to imagine a situation where the benefits of participation don’t far outweigh the reduction in social security benefits. If you could benefit today by $200/month under the per diem program then should you really be concerned about losing a few dollars a month in benefits 10 years from now? And this does not even consider the benefits of potential higher tax credits you could receive now because you would be reporting lower taxable wages.

Q: Will participation in a per-diem plan have a negative impact on my ability to get a loan?

This is a difficult question because it really depends on the bank you use. When you provide the bank a copy of your W-2 to verify your earnings, it will not show how much you received in per diem payments. The W-2 will basically only represent a portion of your total earnings, so you would have to explain that you participate in a per diem program and request that the bank consider those payments as well. Based on experience under our old per diem program, very few participating drivers have brought this up as a serious problem. We do know that there have been some banks that asked us to explain the per diem program or verify the amount of per diem we paid (since it’s not shown on the W-2). All banks might not accept per diem payments as income so participation in the per diem program could have an impact on your borrowing capability.

Simply register for the PAM Portal at www.pamtools.com to take advantage of this Program, or click the red button below. Not a current PAM driver? Email us at info@pamdrivingjobs.com, and we’ll explain how the program works.