Ellie O’Daire is a long-haul trucker from Missoula, Montana, who spends 300 nights a year on the road delivering frozen food and fresh produce all over the country.
She loves being alone on the road. She used to like being an employee of a family-owned trucking company, which offered good pay and benefits. But, partly because of the tax law Republicans pushed through Congress at the end of 2017, O’Daire decided to strike out on her own last fall, ditching employee status to become an independent contractor.
The tax law made contracting more favorable for the 29-year-old because it eliminated a deduction for work expenses that had particularly benefited company drivers. Now contractors can take the expenses deduction, but employees can’t.
Although O’Daire makes more money as a contractor, she now has less security and has to pay for more things out of pocket. Because she now leases her truck, “I have to take on a lot more responsibility for truck maintenance and fuel,” she said. “It puts me in a situation where I’m one illness away from having difficulties paying my bills.”
“It puts me in a situation where I’m one illness away from having difficulties paying my bills.”
- Ellie O'Daire, independent trucker
The law cut taxes for most households, and Republicans said it would especially help workers because employers would share the benefit of sharply lower business taxes. The trucking industry hailed the law, but it turns out carriers should have been proactive to prevent certain drivers from facing a tax hike. The companies were able to offset their drivers’ loss of the deduction by adjusting their payroll systems, but the law’s hasty enactment caught many off guard.
Though she had already considered becoming an independent contractor, the missing tax deduction was the deciding factor for O’Daire. As many as a million truckers previously benefited from writing off expenses. Many are only now discovering, during tax filing season, that the deduction is gone.
Under the old law, O’Daire could rack up more than $15,000 in deductions for the cost of food for each day on the road, plus more for things like parking, showers and supplies. The meal per diem let truckers reduce their taxable income by more than $50 per driving day. O’Daire said the deductions helped her get a $2,000 refund in each of her first two years as a trucker but that she expects to owe money this year because of the nine months that she was still a company driver.
There were 1.8 million people working as heavy or tractor-trailer truckers who drove regionally or cross-country in 2017, according to the latest data. About 40 percent were independent contractors, while 60 percent were company employees, said Jim O’Donnell of Trucker Tax Service, a Fort Wayne, Indiana, company that does tax preparation and bookkeeping for thousands of drivers.
The Tax Cuts and Jobs Act didn’t target truckers specifically. The law did away with a broad category of deductions that included employee work expenses that are not reimbursed by employers. Independent contractors can still deduct their work expenses, but most company employees can’t. (Independent contractors may also be eligible for an entirely new deduction that the law created.) So employees who worked from home, for example, used to be able to deduct their home office costs; in most cases, now they can’t.
Theoretically, the change should not have harmed any drivers. Though employees lost the deduction, trucking companies could still pay their employees a portion of their wages tax-free to account for the daily cost of food. Doing so should actually save companies money by letting them avoid some payroll taxes while giving their employees the same take-home pay.
But it’s unclear how many trucking firms have made adjustments for the new law, which took effect less than two weeks after President Donald Trump signed it. O’Donnell said Trucker Tax Service has prepared returns for several truckers whose companies haven’t given their workers the tax-advantaged pay. Revamping a payroll system, after all, can be complicated and take time.
“It’s by far the most confusing issue” in the trucker tax world, O’Donnell said. “Drivers don’t understand it. Companies don’t understand it.”
Republicans deliberately eliminated the deductions in question ― and many others ― to simplify the individual tax code. Deductions save people money by reducing taxable income, but adding them up at tax time is a chore. Most people can now file simpler tax returns and still keep more of their money because lower tax rates make up for the lost deductions.
“It’s by far the most confusing issue. Drivers don’t understand it. Companies don’t understand it.”
- Jim O’Donnell, Trucker Tax Service
Truckers were in an unusual situation, as the per diem gave them a big write-off for workers in their income range. The median trucker income was $42,000 in 2017, according to the latest data. O’Donnell said a typical driver could have expected to have $18,000 worth of deductions under the old law. Single drivers were more vulnerable to the change than married ones, since the new law gives married couples a standard deduction worth $24,000.
Rep. Kevin Brady (R-Texas), the former chairman of the House tax committee and one of the main authors of the law, said he had expected trucking firms to take care of their drivers affected by the tax change but was keeping an eye on the situation.
“We feel like they should be picking up those expenses of their employees on the road,” Brady said. He added that the House Ways and Means Committee wanted to hear from truckers if they weren’t getting the benefit of the law. “We always want to be open to fine-tuning parts of the tax code if the impact is different than we anticipated.”
O’Daire said that last February she asked her employer, Wilson Logistics, about paying a portion of her wages as a tax-free per diem, but the company didn’t have such a policy at the time. Wilson Logistics is a medium-sized firm based in Springfield, Missouri, with about 800 trucks.
Vice President Kameron Wilson said Wilson Logistics did not offer per diem pay at the beginning of last year but in the past six months has started revamping its payroll system in response to employee inquiries. It wasn’t easy.
“We spent a considerable amount of time on it,” Wilson said, adding that he would be surprised if a lot of other similar-sized firms have done the same.
Roughly half of trucking carriers offer the option of taking part of their pay as a per diem, said Kehl Carter, CEO of a consulting firm that helps carriers with payroll issues. He said his company, Atlantic HR Solutions, has been slammed with inquiries this year from drivers, accountants and managers. He said he has been helping three to five new clients change their payroll systems each week.
“It’s really going to help the company driver, but the fact is the education was not put out there for them to understand what they needed to do, so a lot of truck drivers lost the benefit,” Carter said.
The overall message from Republicans about their tax law was that it was a great benefit to corporations and their employees, not that there might be some tricky changes. Truckers and their employers would have had to have been paying close attention to catch the new per diem regime.
The day the law passed, the American Trucking Associations, a trade group that trumpeted the tax cuts on its website, sent its members a letter warning about the per diem, which it also noted “may not make a difference to some drivers.”
O’Daire, for her part, says she’s happy working for the company as a contractor now and doesn’t plan to switch back to being an employee, even though she might not have made the switch when she did if the per diem had been available to her then.
Still, she said, “it’s a frustrating pressure on the industry.”