Last month, Dennis Bridges, who runs an accounting firm just north of Atlanta, had to break bad news to a client. Bridges specializes in doing taxes for truck drivers around the country, and this tax season he’s had to tell dozens of truckers that after years of being able to count on receiving tax refunds, that they in fact would owe thousands of dollars. This particular client from New York owed $4,000. It could have been worse: about 20 percent of Bridges’ trucking clients have owed more than $5,000.
When Bridges’ firm called the driver to deliver the news, the line first went silent. Then the driver “went into a panic,” Bridges recalls. “He was just asking, ‘Where on earth am I going to get the money to pay this thing?'” For years, he had received an annual refund in the ballpark of $1,500.
“They got screwed,” says Kevin Rutherford, a small-fleet owner who hosts Trucking Business and Beyond, a daily satellite radio show, and also runs an accounting service geared to drivers. After the tax bill became law in late 2017, Rutherford asked his clients and radio listeners for their 2017 and projected 2018 tax data. Using their numbers, he ran about 50 scenarios, finding that for “most company drivers, losing the per diem would mean they’re going to pay more tax.” Only a handful of scenarios came “close or about even” to the filers’ past returns. “It depends on how many kids they have and a couple other things, but for the most part, it was a pretty big loss,” he says.
Trucking is a popular vocation, employing about 3.5 million drivers nationwide, making it, by some counts, the most common job in 29 states. While all but three of those states went to Donald Trump in 2016, the tax overhaul enacted by the president and the GOP Congress in 2017 hit American truck drivers hard by stripping a key exemption for dining and living expenses while on the road. Millions of long-haul drivers employed by trucking companies are finding themselves slapped with massive and unexpected tax bills, according to accountants, professional trucking associations, and drivers.
Estimates about the scope of the problem vary. Rutherford thinks drivers will lose an average of $600 once the tax law’s other cuts are factored in, a stark contrast to the tax savings that most Americans are projected to see this year thanks to lower overall rates and the doubled standard deductions put in place by the 2017 bill.
Until this year, long-haul drivers, like other workers requiring travel, could claim a set amount of unreimbursed expenses on the road as a per diem tax deduction. In 2017 the IRS set the per diem at $63 per day and allowed such workers to subtract 80 percent of that amount every day they worked on the road from their annual taxable income, on top of their standard deduction and other miscellaneous deductible expenses. A typical long-haul driver spends somewhere from 250 to 300 days a year traveling, according to Rutherford and Bridges, which works out to an average reduction of $15,000 in taxable income. “It was literally money in the bank,” says Bridges.
But the 2017 Tax Cuts and Jobs Act got rid of all employee expense exemptions, and, in a bid to make filing simpler while offsetting that change, doubled the standard deduction for both single and married filers. But for truckers used to deducting upward of $15,000 based on the per diem rule, the larger standard deduction isn’t enough to make up the difference.
“This was the law of unintended consequences,” Rutherford says. “They just said, ‘Look, get rid of the employee deductions, we’ll double their standard [deduction], everybody will be happy.’ Except there are few employees taking deductions of $15,000 a year, and that’s the average per diem for a driver.”
“Even though your tax rate is lower, you’re having to pay that lower tax rate on a higher amount of taxable income,” says Bridges, who estimates that a third of the company drivers whose returns he prepared paid more taxes this year due to the loss of the per diem. Single drivers fared worse, thanks to a big savings for married filers built into the tax bill. Bridges says “at least 75 percent” of his clients have faced an unexpectedly large tax bill. “Most company drivers are worse off now in the sense that they’re now having to somehow come up with money out of pocket.”
Bridges says he’s been having versions of the same conversation with his clients, explaining that after years of refunds, they now owe hundreds if not thousands of dollars. “My heart breaks for the company drivers getting upended by this change,” he says. “It’s just a very, very upsetting thing financially. Not only are they not going to get a refund, but now somehow they’ve got to come up with money they don’t have.”
Bridges’ New York client who panicked about his $4,000 tax bill asked his accountant to hold off on filing his return as long as possible so he could cobble together enough cash.
“Now multiply this one driver times 2.7 million other company drivers in the country,” says Bridges. “What an impact that one thing is going to have.”
Not every trucker is experiencing tax season sticker shock. Buried in the fine print of the 2017 tax law is a provision allowing one group to continue to benefit from the per diem exemption: owner-operators, the slim minority of drivers who own their own trucks, or have a fleet employing other drivers. About 300,000 of the nation’s 3.5 million drivers fall into this category.
“This was the best tax bill I’ve ever seen for owner-operators,” says Rutherford, who says that beyond their continuing access to the per diem exemption, they also reap benefits from the law’s new 20 percent deduction for pass-through businesses. The provision means their profits, instead of being taxed as corporate income, are taxed at a lower personal rate.
“I wish Congress had been aware of the unfairness of the fact that they are padding the pockets of the owner-operators, but they are taking money away from the company drivers,” says Bridges.
He says some of his clients are angry at Congress, but they mostly blame the president. “Democrat, Republican, or whatever, it’s just ‘This is wrong,'” he says. “People know that the law originated in Congress, but it was Trump that signed it into law.”
While the tax bill’s caps on deductions for mortgage interest and state and local taxes are causing higher bills for some taxpayers, they’ve often fallen on wealthier citizens. However, the elimination of the per diem, Bridges says, makes it one of the few major tax changes that’s hitting a group of people who aren’t particularly well paid.
“The ability for drivers to write off costs for meals goes back decades in the tax code and it is a reflection of the fact that these are very much blue collar jobs,” says Todd Spencer, president of the Owner-Operator Independent Drivers Association (OOIDA), which represents both owner-operators and company drivers. “This is a workforce that doesn’t really make all that much money, and they are the ones that were specifically hit.”
Illinois driver Stu Hochfelder paid an extra $7,125 to the federal government this year, on top of the typical taxes—federal, state, Social Security, and so forth—that were deducted from his paychecks all year. That’s a far cry from the $500 or so he owed in previous years from his job as a unionized company driver. Hochfelder spends about 300 days on the road each year, accruing between $15,000 and $20,000 in per diem and other unreimbursed expenses.
“My tax liability just went right through the roof because I lost that deduction,” he says.
His coworker, Anthony Sublett, says that after doing his taxes, he found out he’d owe $1,400—a first in his 15 years as a driver, during which he’d always broken even, or at most owed a small amount come Tax Day. Sublett says he spends about 300 nights on the road each year, but keeps his per diem expenses down by packing a cooler and microwaving meals. Last year, he claimed per diem expenses just below $4,700.
Sublett says he “was on fire” when his accountant told him this year’s numbers. With a daughter in college, the mid-April tax deadline comes around the time her tuition is due. “It was hard enough coming up with it before,” he says. “Now you’ve got them both together. Now what are you going to do? They’re killing us.” Sublett is counting on setting up an installment plan with the government so he can pay the bill without interfering with his daughter’s school fees.
An OOIDA member, Hochfelder says he’s spoken to dozens of upset colleagues—including one who went from typically getting a small refund to paying an additional $3,800 in taxes, even after making extra 401(k) contributions to lower his taxable income. He’s recruited friends to call their representatives in Congress, and done so himself.
OOIDA is also pushing for a legislative change: Spencer sent a letter to the heads of the House and Senate committees that oversee tax policy in January, warning them about the law’s impact on his organization’s members. Elimination of the per diem could “lead to greater tax exposure for many hard-working Americans who make their living behind the wheel of a truck,” wrote Spencer, as he asked Congress to reevaluate the impact of “reforms that were designed to benefit blue collar Americans.” OOIDA has not yet received a response. A spokesman for Sen. Chuck Grassley (R-Iowa), who chairs the Senate Finance Committee, said his committee had reviewed the letter, but downplayed the truckers’ concerns. “Changes in the tax code will have a limited effect and in most cases will be offset by the new standard deduction, lower rates and changes in employer reimbursements,” he said. Rep. Kevin Brady (R-Texas), the former chair of the House tax committee and one of the chief authors of the 2017 overhaul, did not respond to requests for comment. Last month, he told HuffPost that he’d expected most trucking firms to offset the tax change by opting to reimburse driver expenses themselves.
Hochfelder has his hopes pinned on Sen. Bob Casey and Rep. Conor Lamb, both Democrats from Pennsylvania. Casey fought against the per diem change before the tax law was passed, and last year introduced legislation to reinstate employee expense deductions. Casey reintroduced the legislation this month, and Lamb introduced a companion version in the House.
In the meantime, for some drivers who once supported Trump, the tax changes are complicating their view of his presidency. “We’ve had them say ‘I thought Trump was giving us a tax cut. And where the heck is it?'” says Bridges. A few have even pointed to the President’s Twitter feed, where he’s bragged about the tax law. “A couple people mentioned his tweets saying that this is part of making America great again, that this is to help Americans. Then they’re saying: ‘But he’s not helping me a damn bit.'”