Difference Between Household & Practical Miles and Per Diem
Understanding Practical Miles in Trucking
“Practical miles” refer to the actual driving distance that truck drivers cover when transporting goods from one location to another. This method of mileage calculation takes into account the most efficient and realistic routes that trucks would typically use, including highways and major roads, rather than the shortest possible distance. Practical miles offer a more accurate reflection of the true distance traveled by drivers, making it a fairer method for calculating driver pay, fuel costs, and logistics planning compared to household goods (HHG) miles, which might not account for real-world driving conditions.
Understanding Household Goods Mileage (HHG) for Truck Drivers
Household Goods Mileage (HHG) is a standardized method used in the trucking industry to calculate distances between points based on predefined routes, often those found in household goods moving guides. This method usually estimates the shortest practical distance between origin and destination, which may not reflect actual driven miles due to route deviations or detours. Trucking companies commonly use HHG miles for determining driver pay, fuel surcharges, and logistical planning, though it can sometimes lead to discrepancies with actual driving distances.
For further details, visit industry resources such as the American Trucking Associations.
What is Per Diem in Trucking?
In the trucking industry, “per diem” refers to a daily allowance provided to drivers to cover expenses incurred while on the road, such as meals and lodging. This allowance is a non-taxable reimbursement that helps reduce the driver’s taxable income, as it is considered a business expense. The per diem rate is typically set by the employer and can vary, but it often aligns with rates established by the Internal Revenue Service (IRS).
Key Points:
1. **Non-Taxable Reimbursement:** Helps reduce taxable income.
2. **Covers Meals and Lodging:** Intended to cover daily expenses while away from home.
3. **IRS Rates:** Often based on IRS guidelines, which set standard per diem rates.
4. **Employer-Set Rates:** Rates can vary by employer.
Benefits:
– Simplifies expense tracking for drivers.
– Provides financial relief for out-of-pocket expenses.
– Offers tax advantages.
How it Works:
Employers either provide a daily per diem payment or reimburse actual expenses up to a set limit. Drivers need to maintain records to substantiate the expenses if required by the employer or for tax purposes.
For more detailed information on per diem rates and regulations, you can refer to the [IRS guidelines on per diem rates](https://www.irs.gov/tax-professionals/standard-mileage-rates).
Example of Per Diem in Trucking
Let’s consider a truck driver, John, who is on a five-day haul. His employer offers a per diem rate of $66 per day, in line with the IRS guidelines for meals and incidental expenses.
Breakdown:
- Daily Per Diem Rate: $66
- Duration of Trip: 5 days
Calculation:
- Total Per Diem: $66/day * 5 days = $330
Application:
John receives $330 as a non-taxable reimbursement for his trip. This amount covers his daily expenses such as meals and lodging while he is away from home, simplifying his expense management and providing tax advantages.
Benefits of Per Diem Pay for Truck Drivers
- Tax Savings: Per diem payments are non-taxable, reducing the driver’s taxable income and overall tax liability.
- Simplified Expense Management: Drivers receive a set amount daily, eliminating the need to track and submit receipts for meals and incidental expenses.
- Increased Take-Home Pay: With reduced taxable income, drivers may see an increase in their net pay.
- Predictable Reimbursement: Drivers know in advance the amount they will receive for daily expenses, aiding in financial planning.
- Employer Benefits: Companies can attract and retain drivers by offering competitive per diem rates and simplifying expense reimbursement processes.
Example:
If a driver receives a per diem of $66 per day for a 5-day trip, they get $330 tax-free, covering meals and incidentals without impacting their taxable income.
