03 Apr How the New Tax Law Could Impact Truck Drivers
The new tax plan has been in existence for quite a while now, but many people are still unaware of how it all works. We’ve talked about it before, but now it’s time to explain how it affects truck drivers.
The law is substantial, and it has a lot to it, and it manages to affect every business differently, and it’s thus imperative for you to know how it affects your business.
Main Takeaway from the New Tax Law for Truck Drivers
There’s only one thing that’s worth talking about when it comes to the effect of the tax plan on truck drivers – itemization rules.
The new law has changed them completely, and W-2 truck drivers are no longer eligible to itemize expenses.
It probably sounds like the new law is hugely detrimental to truck drivers, but there’s a workaround that can help.
Additionally, it’s worth noting that the new law doesn’t change much for owner-operators, lease operators, and all of those operating under their authority. What’s more, it even puts more money in their pockets.
For example, if an owner-operator is grossing around $150,000 and netting about $50,000 on the schedule C – they get a 20% tax break. That means that only $40,000 get taxed, and $10,000 are saved.
How the ‘Workaround’ Works
Up until recently, the average driver was able to get about $18,000 in deductions. That included about $15,000 in per diem deductions and some $3,000 in expenses.
However, under the new tax law, this was changed and made that every driver gets $12,000, which ended itemization but reduced the overall amount a driver could receive.
Now, this is where the workaround comes in.
It comes in the form of the other per diem a company can pay its drivers as part of their salary. The average driver passes some 450 miles every day, and they can get about 10 cents on every mile as per diem. That’s $45 every day which totals to about $13,500 per year (300 working days) which the company can pay to the driver as if they were a 1099 worker.
With no itemization anymore, this per diem can be added back easily as it’s not shown as income.
What’s even better about this is the fact that many companies are increasing the previously mentioned 10 cents per mile to 16 cents. That turns into 40% of the overall yearly salary which is about $21,600 that doesn’t need to be claimed – it remains in the pocket of the driver.
It’s almost the same as reimbursement pay, and the company can write as par their expense. In essence, everyone wins here, both the company and the driver, which makes this an option most companies will choose.
The Bottom Line
As we can see, with the workaround for truck drivers, the new tax law is a significant benefit for everyone involved in the trucking industry.
Our company, Golden Tax Relief specializes in tax resolution for the trucking industry, and if you would like to know more about how taxes affect your industry, you can take a look at our blog or contact us at your convenience, we are always here to help!