Category: "EDI"

02/03/10

  11:20:18 am, Categories: EDI, efficiencies

Many people in the transportation industry misunderstand per diem. Per diem is simply reimbursing drivers for meals and incidental expenses incurred while working away from home, but it is complicated by the tax laws. The IRS has created special per diem rules for the transportation industry that differ from regular business rules. Let’s look at some of these rules.

In it simplest form, the driver would save all receipts for meals and incidental expenses while away from home base. When filing tax returns each year, if itemizing, 80% of these expenses can be deducted from gross income.

The IRS, however, has agreed to allow trucking companies to prepay per diem expenses as a non-taxable amount under certain conditions: (1) the company must have an "accountable" per diem plan, (2) the driver must be away from his "home" long enough to require a rest period per the DOT HOS rules, and (3) the driver must have a "home" (if the driver has no permanent domicile he cannot deduct these expenses). If these requirements are met, the per diem amount will be exempt from federal withholding, FICA, and Medicare taxes. If any one of the requirements is not met, the company cannot prepay expenses on a tax free basis. They can still reimburse the driver for expenses if they choose, but it will be reported as regular income.

A plan is considered accountable if: (1) it covers only business expenses, (2) all expenses are substantiated, and (3) the employee is required to return to the employer any prepaid amount over the substantiated amount. Sounds like a head ache right? The IRS however has made it easier by setting a "meal and incidental expense (MI)" amount and as long as the per diem amount is less that this standard amount, rules two and three are considered substantiated. Currently the federal MI amount is $59.00 per day away from home.

Let's take a simple example: A driver is away from home 5 nights and is at home 2 nights per week. Salary is $1000/week including per diem expenses. At the $59 per day amount $236 (59 x 5 x 80%) could be deducted from gross salary before calculating federal withholding, FICA, and Medicare taxes. Instead of paying taxes on $1000, taxes would only be paid on $764. This would benefit both the company and the driver.

The IRS has allowed transportations companies to calculate per diem amounts per, per mile, or as a percent of gross, as long as the total paid does not exceed the $59 per day away from home. If paying per diem as mileage or percentage, this needs to be monitored occasionally to insure that the per diem amount stays below the federal guideline.

There are some negative things to consider however for both the driver and the company.

For the driver:

  • If the per diem is being deducted before paying FICA taxes, your retirement benefits may be lower. However, if the tax savings is invested in an IRA or 401K, there is usually a much greater benefit received than from paying additional FICA taxes.
  • When applying for a loan, the banks typically look at taxable income. Thus deducting per diem will lower the taxable income showing on the paycheck stub. If the bank uses the 1040 return to find total taxable income, this will not be an issue, as the MI expenses will have been deducted from your 1040 also.

For the company:

  • If a company is audited and the IRS finds you have routinely paid drivers more than the standard daily amount, taxes will have to be paid on all per diem paid out, not just on the over payment. It is important to monitor the per diem payments to insure they do not exceed the federal standard.
  • There can be administrative costs associated with deducting and monitoring per diem pay. These can be minimized however, by using a good trucking software package such as TruckMaster which makes per diem calculations a simple part of the settlement process.

Talk to a tax advisor before making changes, but generally a company can save a bundle on taxes by paying per diem correctly, plus it benefits the drivers as well.

Craig Sorensen
TruckMaster Solution Provider
TruckMaster Your Trucking Company

12/11/08

  07:27:00 pm, Categories: EDI , Tags: edi, trucking edi, trucking electronic data interchange

Trucking Industry EDI 101

What Is EDI?

In today’s business climate, leaders are looking for methods that will allow their businesses to operate faster, cheaper, and better. One tool that will allow you to achieve significant improvement in all three areas is Electronic Data Interchange, better known by its acronym, EDI.

If you are not currently using EDI in your business, you may think that it is too complex and costly for you to implement, or is not applicable to your situation. With an understanding of EDI basics, however, you should be able to find ways to streamline many aspects of your business.

What is EDI? Basically it is the electronic exchange of business documents in a standardized format. In the EDI world, these business documents are called "transaction sets", and the customers and carriers with whom you do business are "trading partners".

The Old Fashioned Way

In order to better understand what EDI transaction sets accomplish, let’s first look at a non-EDI information flow example:

The customer, Acme Widgets, has a load of widgets that need to be delivered to the receiver, Wiley Coyote General Store. The logistics manager (LM) at Acme creates a load tender document and either faxes, mails, or phones the carrier, Birdflew Express.

Birdflew’s dispatcher receives the load data from Acme, faxes or phones an acceptance to Acme, and manually enters the information into his trucking software. We’ll assume the information he received and enters in his trucking software matches the information on the original load tender at Acme, but often there are input errors in the manual process.

Birdflew sends a truck to pick up the product at Acme. After the load is picked up and the dispatcher notified, the truck proceeds across the desert to Wiley’s. Later that day, Wiley runs out of widgets and calls Acme to find out when his shipment will arrive. The Acme LM calls the dispatcher at Birdflew, who calls the driver. After 10 minutes of niceties with the driver, the dispatcher calls Acme back with the current location of the truck, who in turn notifies Wiley.

After the truck arrives at Wiley’s and is unloaded, the signed delivery documents will start their journey back to Birdflew, typically with the driver, who may not be headed home immediately. Meanwhile the sales person at Acme wants to make sure Wiley received his widgets. He calls the Acme LM, who calls the Birdflew dispatcher, who calls the driver. Eventually Acme finds out their product was delivered.

When the signed delivery documents finally arrive at Birdflew, the billing clerk prints an invoice and mails it to Acme. Days later, Acme receives the carrier invoice, enters it into their system (hopefully with no additional errors), and ages the invoice for a couple weeks before issuing a check. The billing clerk at Birdflew calls Acme multiple times to check on the status of her check, which eventually arrives at Birdflew and the transaction is completed.

The EDI Way

Now let’s take the same example and watch the information flow using EDI.

There are 5 transactions sets that will be normally used by the Trucking Industry:

204 – Load Tender
990 – Response to Load Tender
214 – Carrier Shipment Status
210 – Carrier Freight Invoice
997 – Acknowledgement

The LM at Acme sees the order for Wiley on his computer and assigns Birdflew to it. In a single keystroke, a digital copy of the order is sent from Acme’s computer to Birdflew’s trucking software via a 204 "Load Tender". Birdflew’s trucking software immediately returns a 997 “Acknowledgement” to Acme indicating that the 204 was received intact. An order is automatically created in Birdflew’s trucking software and the dispatcher is notified. When he accepts the load, a 990 “Response” transaction is returned to Acme indicating that acceptance. If the load is declined, the LM can quickly assign another carrier and send out a new 204 to them.

The driver arrives at Acme to pick up the load. He sends a check-call to the trucking software via his on-board mobile device. The Birdflew trucking software sends a 214 to Acme’s computer letting them know the truck has arrived. This 214 "Status" automatically updates the Acme system so that the sales person can see the order status immediately. (Additionally, Acme could send a 214 to Wiley at this time, if desired.)

As the driver picks up the load and is rolling down the highway, his on-board unit sends in periodic location updates which automatically generate additional 214s. When the load arrives at Wiley’s, a 214 will be sent to Acme notifying them of the arrival and unloading times.

When Birdflew is ready to invoice Acme, instead of printing and mailing an invoice, they send a 210 "Invoice" directly to Acme. Acme’s computer updates its payables and marks the invoice ready to be paid.

When using EDI, the pickup-to-paid time is typically reduced significantly as you can see by these examples.

What Is Required To Get Started?

The only thing you need to implement EDI is trucking software that can send each of the various transaction sets in the standard format agreed upon between you and your trading partner. There is an American National Standards Institute (ANSI) standard called “X12”, to which all EDI in the USA should conform. Most trucking software packages have the ability to send and receive EDI in this format.

There are two basic methods for your computer to send or receive EDI transactions with your partner’s computer: direct communication, and Value Added Network (VAN).

To communicate directly, you and your partner must agree on a communication protocol (FTP, SMTP, XML, or Dial-up via modem). If you each prefer a different communication protocol, then you will need to use a third party “translator”, a VAN. The VAN will accept your transaction sets using any communication protocol you have chosen and then send it out to your partner in whichever protocol they have chosen. The VAN charges a fee for its services, so if you can communicate directly, you will save money.

Don’t have trucking software that supports EDI? Take a look at the TruckMaster Trucking Software system.

Craig Sorensen
TruckMaster Solution Provider
TruckMaster Your Trucking Company™

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