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Tax Update for Owner Operators and Fleet Owners

IRS Brings Back Form 1099-NEC

The IRS form known as 1099-NEC is returning for the 2020 tax year. The 1099 form has been in use for a long time—it’s the tax form used for independent contractors to report their taxable income. The NEC variant hasn’t always been in use, however, as it was replaced in the early 1980s by an updated, more robust version of 1099 MISC. This year, the form you’ll use to report information about your income as an independent contractor has changed. In this article we’ll describe why that is and what you need to know to be prepared. Filing taxes correctly can save you a lot of time, money, and headache—so make sure to do your due diligence and brush up on what’s new for 2020, and read our other tips for trucking success once you’ve made a plan for this tax season.

Supposedly, the revival of this tax form is in response to the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), which now requires businesses to file new information returns that are specific to their 1099 (aka non-employee) workers by January 31 of each year. The PATH Act created new problems with the IRS and its ability to process data, because the due date for 1099-MISC forms those same workers would have to file wouldn’t be due until March 31. In order to skirt this issue, the new version of 1099-NEC, available on the IRS website, contains a new box for indicating non-employee compensation (NEC). Note, the 1099-NEC form isn’t replacing 1099-MISC. Rather, it’s a supplemental form that deals with NEC. As we’ll explain later, 1099-MISC is used to report many different types of miscellaneous income, and for that reason, it still remains in use for employers, businesses, and non-employed contractors alike.

How This Affects Fleet Owners and Drivers

If you work for a fleet or are a fleet owner yourself, it’s important to acknowledge this change. If you’re an operator, this will be the form you’ll have to fill out and supply to both the government and your contract supplier, which is slightly different from the 1099-MISC you’ve likely filled out in previous years and will have to fill out again this year. If you’re a fleet owner, this will be the form you’ll have to issue to your independent contractors in 2020.

Form 1099-MISC, which most seasoned owner/operators should be familiar with, is what’s called an information return businesses of all kinds use to report payments to outside independent contractors. This form is also used for other types of income payments like royalties and rent payments, which only applies to certain types of businesses. Any contractor who makes more than $600 from one particular source will receive a 1099-MISC from that source. For the most part, the 1099-MISC is filled out a lot like form W-2, except it has extra boxes for giving information about non-employed contractors.

The 1099-MISC form is an information return used to report types of payments made to independent contractors. Payments included can come in the form of royalties and rents as well, but for most O/Os, this form will be used to assess what you owe based on what outside businesses paid you during the last fiscal year.

Here’s a full list of income types that can be reported on a 1099-MISC:

  • Royalties
  • Rent
  • Fishing boat proceeds
  • Medical and health care payments
  • Substitute payments in lieu of dividends or interest
  • Crop insurance proceeds
  • Excess golden parachute payments
  • Gross proceeds paid to an attorney

So, What Do You Report on 1099-NEC?

1099-NEC is for reporting non-employee compensation. These include the following taxable payment types to independent contractors: fees, commissions, prizes, awards, and other forms of potentially non-monetary forms of compensation for services rendered. For every 1099-NEC, there are multiple copies that need to be sent to the proper parties.

Use this checklist to make sure your 1099-NEC copies get sent to the proper places:

  • Copy A: Send this copy to the IRS
  • Copy 1: Send to your state tax department, if your state collects income tax
  • Copy B: Send to your independent contractor
  • Copy 2: Send this copy of the state return to your Independent contractor
  • Copy C: To be kept for your business records

Have More Questions about Taxes?

Taxes can be difficult to manage, which is why we make a point to keep our readers updated on the latest changes to tax code and different financial strategies for owner/operators. If you’re interested in what truckers have been doing to find enough capital to stay afloat during the coronavirus pandemic, read our blog on short-term financing. Keep up to date on the state of trucking in America by reading our posts on supply chain and employment topics, which you can find here. If you’re new to trucking, and want to get started with your own fleet or your own rig, contact us with any questions you might have and we can help you get started in a brand new career.

How the Payroll Protection Program is Helping Truckers

The Payroll Protection Program (PPP) is a form of federal relief that was provided to cash-starved small businesses as a response to the economic troubles caused by the COVID-19 pandemic. When the federal government signed the CARES Act into effect at the end of March of this year, it created two immediate forms of financial relief, the first being the Payroll Protection Program, a loan available to smaller businesses that delivers up to 2.5 times the amount of a business’ monthly payroll. PPP loans can be fully forgiven if spent correctly based on the government’s guidelines: payroll, rent, utilities, and mortgage interest payments.

The second form of financial relief presented came in the expanded form of Economic Injury Disaster Loans, which offer up to $2 million with a fixed low interest rate of 3.75%, coupled with a longer repayment period of up to 10 years. This loan requires collateral if the requested amount exceeds $25,000.

If you’re looking to borrow a small amount of money for your business, Payroll Protection Program Loans are superior in every way—as they always have the potential to be entirely forgiven—whereas Economic Injury Disaster Loans can only be forgiven for up to the first $10,000 borrowed, for the rest of the amount to be repaid over the loan period. For the most part, EID loans are primarily directed toward businesses too large to apply for a PPP loan, which means small businesses that qualify for PPP loans should generally pursue that avenue.

How Truckers Can Make the Most of a PPP Loan

While full forgiveness of a PPP loan is an unbelievably sound financial offer, the drawbacks on spending your PPP loan on something outside of the explicitly approved channels aren’t as bad as you might think. According to information found on the U.S. Small Business Association’s website, PPP loans have an interest rate of only 1%, which is beyond competitive when compared to loans you could have found on the private market.

A large part of driving a semi-truck is managing the up-front costs. For most people starting out in the business, it’s unlikely you’ll get seated in a capable machine without having to find additional financial resources somewhere, somehow. The great thing about trucking is that it doesn’t usually take long to start paying off big chunks of your just-starting-out loans, but it’s always a good idea to prioritize paying off those loans as quickly as you can to avoid paying too much additional interest. For some people, paying off your private loan one year earlier can make a four-figure difference in terms of just how much your rig cost to own outright.

This is where the PPP loan can come to the rescue. If you’re experiencing financial hardship, it can be a strong strategy to take out the largest PPP loan you can be approved for and use that to pay your higher interest-rate debts. This is a form of roundabout refinancing that’s legal under the guidelines for PPP loans, and it’s a practice that private lenders have been encountering and actively encouraging for drivers who have fallen into delinquency on their loans.

PPP Loans Across the Country

As more than 95% of freight carrier companies in America consist of fewer than five trucks altogether, it makes sense that PPP loans have been a large part of keeping these small businesses afloat during the economic downturn. The Commercial Carrier Journal compiled data on the subject, finding that around 100,000 trucking companies received funds of all sizes, some of which were in excess of $5 million. Local and long-haul trucking companies received $12 billion total, which is more than 2% of all the capital handed out by banks in the United States under the PPP loan program.

In a CCJ survey conducted in June, more than 60% of the fleets that responded said they had applied for PPP funds, with some carriers describing the money as vital for surviving the  post-pandemic economic landscape. Another recent survey, conducted by Overdrive, of smaller outfits (independent owner/operators and fleets operating no more than nine trucks), found more than 50% claimed to have applied for PPP loans.

In an interview with CCJ, Mike Kucharski the co-owner and vice president of JKC Trucking, the largest refrigerated trucking fleet in the Chicago Metro area, said his business would have endured layoffs without the more than $2 million loan JKC received through the PPC program. Kucharski said he used the money for payroll, a condition that should allow the loan to be forgiven, but he’s not worried even if things don’t go as expected.

“Even if it doesn’t get forgiven,” Kucharski said, “I think the interest rate they’re going to charge us is a pretty good deal.” Either way, he sees it as a win-win situation.

If you have questions about semi-truck financing, come to the experts. Mission Financial has loan officers well-versed in public and private loan practices who can help you make sense of your next best move.

How the CARES Act Will Impact Fleets and Owner Operators

On March 27, 2020 President Trump signed the Coronavirus Aid, Relief, and Economic Security Act. The CARES Act, as it’s commonly known, is a $2 trillion bill that offers financial support to unemployed persons, small businesses, and large businesses in particular. But how is this bill going to affect the trucking and transportation industry?

How CARES Affects Owner Operators

For those who would be able to work, but are no longer able due to the coronavirus outbreak, Unemployment Insurance Provisions include an additional $600 per week payment to each recipient for up to four months, and extend benefits to self-employed workers, independent contractors, and those with limited work history. “That means, in trucking terms, any leased or independent owner-operators who loses work can draw the new federal unemployment benefits through the end of July.”

While the wording of the law is designed to be generous, it will depend on whether the government believes that many truck drivers are rendered unable to work while the coronavirus is continuing to spread. In general, truckers are working longer hours than ever, and there’s an increasingly high demand for truckers that are available to move freight. The majority of Americans will receive the $1,200 Economic Impact Payment, regardless of their current employment status.

Another bill helping owner operators, the Families First Coronavirus Response Act (passed prior to the CARES Act) – requires trucking companies to provide two weeks of paid sick leave to employees who contract COVID-19. “They don’t have to test positive for the virus. Rather, if they experience symptoms and are seeking a medical diagnosis, employers are required by the law to provide two weeks of paid sick leave, up to $511 a day, or $5,110 for a two-week period.”

What is the Economic Impact Payment?

According to the CARES Act and well-described by an e-book by ATBS, The Economic Impact Payment is designed as a 2020 refundable tax credit claimed on a taxpayer’s 2020 tax filings. The checks going out are effectively an advanced payment of a tax credit for 2020.The tax credit will be reconciled to the payment received when filing your 2020 tax return. If you file your tax return as a single citizen, your credit will be $1,200. If you are Married Filing Jointly, your credit will be $2,400. Additionally, each Qualifying Dependent Under Age 17 that is on your tax return will net an additional credit of $500. In order to receive the payment, you must be an American citizen or resident alien, you must have a Social Security Number (includes children), and you cannot be eligible to be claimed as a dependent.

For many taxpayers, this credit will make a significant impact on their immediate earnings and help them through the extra expenses that may arise from surviving the pandemic. As mentioned above, Unemployment Insurance has been bolstered, which means that truckers who lost their jobs due to the outbreak will be better able to live their lives with income closer to that of their previous wage before their job was lost.

How the Bill Affects Businesses

The CARES Act brings great news for small and large businesses, offering between $350 – $500 billion to help keep businesses of different sizes afloat. America is currently at over 10% unemployment, so these new provisions have come in just in time, making it easier for businesses of different sizes to continue paying their employees while their storefronts may be closed. For companies with under 500 employees, the federal government is offering tax credits and $350 billion for small businesses to apply for loans that can be partially or fully forgiven. For businesses that employ more than 500 people, a separate $500 billion is available.

How Fleets Should Operate Around the Loans

There are two types of loans available. The first is called the Paycheck Protection program, and it’s a loan available to smaller businesses, that delivers 2.5 times the amount of a business’ monthly payroll. These loans can be fully forgiven, if spent correctly— on payroll, rent, utilities, and Mortgage Interest. This is a great loan option for independent owner-operators, who in effect need to pay their own salaries. Best practice for sole proprietor owner-operators would be to use the loan to pay their own payroll and keep strict documentation so that the loan can be fully forgiven in the future.

The second type of loan is called an Economic Injury Disaster Loan, which offers loans of up to $2 million with a fixed low interest rate of 3.75%, coupled with a longer repayment period of up to 10 years. This loan requires collateral if the requested amount exceeds $25,000. If you’re looking to borrow a small amount of money for your business, Paycheck Protection Program Loans are superior in every way, as they always have the potential to be entirely forgiven, whereas Economic Injury Disaster Loans can only be forgiven for up to the first $10,000 borrowed, for the rest of the amount to be repaid over the loan period.

What Does This Mean For Trucking?

All of this is good news. Many freight companies have been able to continue operation throughout the pandemic, which means that financial losses will likely not exceed their cost of operation. With loans being available for all businesses at competitive interest rates, we shouldn’t see many freight companies going under any time soon. There are plenty of resources available for how to secure a loan for your business. If these new government opportunities aren’t enough, or you don’t apply, you can always look to a private financial service company like Mission Financial to help your business see it through these difficult times.

With the additional income from the Economic Impact Payment, truckers should be able to stay on the road long enough to deliver the vital food and supplies that the country is relying on. With one of the stipulations to loan forgiveness being that businesses need to keep their payroll at maximum capacity, semi-truck drivers working for freight companies as standard W-2 employees shouldn’t be worried about getting laid off any time soon.

Stay informed on the state of trucking in America by browsing our news page, updated frequently so you don’t miss any important updates!

New Infrastructure Investment May Benefit Trucking Industry

The President released his proposed federal budget for the 2021 fiscal year on February 10. The proposal titled “A Budget for America’s Future” has allocated $1 trillion of its $4.8 trillion total budget to infrastructure, and a great deal of that should positively impact the trucking industry should it be approved.

$50 million is slated to go towards the Moving America Safely and Efficiently Program, which is described as intending to disburse money to programs aimed at opening up bottlenecks and “adding capacity, deploying effective technologies, and expanding truck parking infrastructure,” according to the budget request. This is good news for truckers, and it’s likely that this change along with others in the bill will help increase America’s highway capacity for truckers and increase overall freight efficiency. The budget requests more than $800 billion for a 10-year reauthorization of surface transport programs by the federal government, which effectively renews and bolsters the FAST Act of 2015— a $305 billion infrastructure bill that’s set to expire in 2020.

What Should We Expect to Change?

In general, it’s difficult to speculate on how much the average owner-operator is going to see in terms of change to their regular truck routes after 2020. For starters, the budget that the Trump Administration proposed isn’t yet set in stone. As with all presidential budget proposals, this document serves as a template for Congress to work from when constructing their own official budget. In a way, this proposal serves as a starting point when it comes to broaching budget changes to the American people, which can help members of Congress identify the sticking points of their constituents.

According to Jay Grimes who is the Owner-Operator Independent Drivers Association Director of Federal Affairs, there are certain aspects of the bill that the President may have proposed as a starting point for negotiation moving forwards. “I don’t think Congress is going to bite on doing a 10-year bill for $810 billion,” Grimes said. “I think the goal is trying to get a five-year new highway bill, which would match the FAST Act length. That’s probably going to be more realistic. The 10-year is a little pie-in-the-sky, I think.”

$810 billion would be a significant increase to infrastructure funding compared to previous legislation, and it’s likely to be a significant talking point when it comes to the final budget that Congress agrees on. The $50 million for Moving America Safely and Efficiently Program is slightly more likely to be brought into the official budget as-is, being a smaller portion of overall spending. There’s no mention as to where funding for the infrastructure changes will come from and whether economic growth alone will easily support the increase in spending levels.

Trucking in 2021 Compared to 2020

There’s been a greater level of national attention to the trucking industry, and that’s set to continue through 2020. Starting in September of 2019, a proportion of truckers became newly eligible for overtime pay, which is especially helpful for owner-operators at the bottom of the pay scale. The President’s pro-infrastructure budget comes at a time when he’s receiving backlash for disallowing the Department of Homeland Security from enrolling or re-enrolling New York residents in Global Entry, which impacts the truckers in the state who carried low-risk shipments across the Canadian and Mexican borders. This issue is still ongoing, and New York intends to sue the DHS over the policy. Trump issued an executive order on February 12 that calls for the protection of GPS services, which presents primarily as a security-based solution, but will again promote spending in the trucking industry. There were GPS disruptions in maritime shipping in the Mediterranean last year, which has prompted concern over such disruptions taking place on domestic soil— something that could cost billions according to a study by the Department of Commerce.

Overall, the budget proposal indicates a greater level of care for truck drivers in America, with more straightforward benefits than the policies that are shaping 2020. With the worries regarding California’s gig economy bill AB 5 finally diminishing in result of a judge’s ruling, and the DoT having overturned trucker-specific work regulations, it seems like truckers might finally get a break when it comes to adjusting to new regulations.

How Does New Infrastructure Affect Truck Drivers?

Semi-Truck driving is a growing industry according to the National Bureau of Labor Statistics, and there are billions of dollars invested in trucking logistics every year, meaning that there’s a lot of money to be made in terms of getting trucks to their destination as efficiently as possible. Infrastructure improvements can result in a reduction of traffic and hazard-based braking, which increases time efficiency and lowers the fuel cost for fixed-distance trips. Much of the Trump administration’s efforts have been devoted to shaping trade in America, with the hopes of increasing interstate trading. This will continually affect the traffic distribution of semi-trailer trucks across America, which means that certain infrastructure bottlenecks may become more noticeable as trade routes continue to be affected.

Truck parking is a relatively inexpensive infrastructure upgrade, and $50 million could go a long way in terms of increasing frequency of truck stops on an owner-operator’s route. This obviously contributes to an increased level of comfort and convenience for truck drivers across America, and freight companies might see the infrastructure changes as a green-light to expand. In general, the freight industry appears to be moving at an upswing, and there aren’t many indicators that the livelihoods of owner-operators won’t increase through 2021.

Stay up to date with the latest infrastructure and trucking developments with our blog! If you’re new to trucking and curious about how to get started as an owner-operator, contact us today.

What You Need to Know About the Drug and Alcohol Clearinghouse

The Drug and Alcohol Clearinghouse has been immensely controversial in recent months. Its goal is to keep the roads safer by holding drivers accountable for their past alcohol and drug-related infractions. Previously, drivers who failed a drug or alcohol test could easily gain employment shortly after with another carrier. This was due to a series of loopholes created by poor recording of these incidents. 

Finally, there is a system in place to prevent this, which will likely improve driver quality and keep our roads safer. Let’s get into the logistics of the Drug and Alcohol Clearinghouse.

What is the Drug and Alcohol Clearinghouse? 

The Drug and Alcohol Clearinghouse is a secure database that provides potential employers with details about the previous drug and alcohol infractions of any candidates. Put into effect January 6 by the Federal Motor Carrier Safety Administration (FMCSA), it will provide records of any commercial driver’s previous violations, so that they can be taken into consideration for a variety of quality standards. This information will not only be available to employers, but it will also be viable for review when it comes to the issuing and renewal of a commercial driver’s license. Law enforcement and substance abuse personnel can also use this information in the event that an infliction requires legal intervention. It also presents information about when a driver is suitable to return to duty. 

Why is This Database Necessary?

Alcohol and drug use are massive safety concerns for both drivers and the general public. There are many recorded incidents of drug and alcohol abuse severely impacting the judgment and performance of drivers and consequentially resulting in tragedy. The DOT authorizes urine tests, but when more detailed tests were conducted, the drug and alcohol issues throughout the trucking community were found to be more severe than we initially thought. While the electronic record-keeping might seem strict upon the first impression, it is an important measure to keep the roads safer. 

Is This Good News for Drivers? 

Privacy is a valuable thing, so it’s understandable that an online logging system might have some skepticism. In reality, this new system will actually benefit drivers in several ways: 

  • Drivers will be able to register and query the database to view their own records for free
  • The Clearinghouse will notify a driver, either by mail or email, any time there is information about him or her added, altered, or deleted
  • Instead of using the driver’s Social Security Number, the Clearinghouse will categorize and store data by birthdate and CDL number

The only drivers who will have any cause for concern with this new database are drivers who are intending on committing drug and alcohol violations in the future. Because the system was only effectively put into place in January, any past inflictions will not be entered into it. The Drug and Alcohol Clearinghouse extends to all commercial vehicle operators, including School Bus Drivers, Limo Drivers, and Construction Equipment Operators. Any employee operating under FMCSA functions must comply with Clearinghouse regulations. 

How Employers Are Being Affected

This new system not only affects drivers, but it also affects carriers and other potential employers. Employers will have to add an extra step to their hiring process and modify the way they maintain safety records. According to the Department of Transportation, 

  • “Employers will conduct pre-employment queries on prospective employees and if drug and alcohol violations are identified, those employees will be prohibited from performing safety-sensitive functions, until successful completion of the return-to-duty (RTD) process;
  • Employers will query the Clearinghouse annually for each driver they currently employ, and if drug and alcohol violations are identified, those employees will be prohibited from performing safety-sensitive functions until successful completion of the RTD process.”

New Technology Continues to Change the Trucking Industry

Previously, drivers with unsafe drug and alcohol histories could easily lie about their records, especially if they crossed state lines to apply for their new position. This database closes up that massive loophole that was posing a safety and efficiency risk for the public and the trucking industry. Overall, drivers have nothing to worry about as long as they’re safe and sober when on-duty. 

To find out more about how technology is changing the trucking industry, check out our blog today!

New Environmental Law Impacting California Truckers

California is doubling down on its efforts to get older trucks off the road. The California Air Review Board (CARB) has been a formidable force in truck and bus regulation in the state, setting a strict set of laws that took effect in 2012, which most notably, set restrictions on the age of semi-truck engines fit for transport. In 2017, there were 80,000 heavy-duty trucks registered in California that were out of compliance with diesel regulation laws. In 2020, that number is estimated to have been reduced to 50,000, but CARB is continuing to close in on the trucks that are still out of compliance.

New Legislation

A new law has been put in place to suspend DMV registration of trucks that don’t meet CARB’s guidelines for emissions, which include minimum standards for particulate matter filters. Cost is a major reason that drivers avoid meeting the standards, which will eventually mandate that every truck entering the state has a 2010 model year engine or equivalent. Many semi-truck drivers had chosen to gamble with operating non-compliant vehicles, in the hopes of skirting the Air Resources Board enforcement arm altogether. This law should rope in the last batch of recalcitrant operators, as driving a truck without registration is hardly feasible.

What This Means for Drivers

Should the law work as intended, it would result in a significant number of owner-operators being forced to spend the money it takes to make their rig compliant, or leave trucking altogether, contributing to the national driver shortage. That being said, there are plenty of resources for finding the capital needed to bring a semi-truck up to standard. CARB offers grants for truck drivers, as well as links to financial incentives on their website.

It should be emphasized that CARB’s environmental guidelines apply to all semi-trucks entering in the state, with temporary passes for out-of-date trailers now being fully discontinued. As a result, it may be a good time to consider trading up to a new, cost-saving model now, when restrictions are just being put into effect and not likely to increase for a significant amount of time.

What This Means for Dealerships

It’s likely that the increasingly strict guidelines for efficiency are contributing to the decline in used truck sales, which are down as much as fourteen percent. New trucks and trailer-service industries could see a boom in the coming year however, with every new batch of trucks that falls out of compliance with guidelines every year. It’s possible that used trucks may not all be defunct as well. With the demand for used semi-trucks in decline, there’s potential for the cost-efficiency of retrofitting these vehicles to be on the rise. Dealers with access to a well-trained shop team familiar with CARB guidelines might consider purchasing used trucks on the cheap, with the intent of bringing them up to date and selling them to value-focused drivers.

Some Good News for Owner-Operators

Pressure has been relaxing in some areas, however. Trailer regulations set to take effect on January 1 of this year have been postponed for at least two years, giving manufacturers time to bring their products up to the new standards, which has the potential to positively impact trailer prices in the future. The changes largely mirror new federal greenhouse gas trailer regulations, which generally concern reducing weight and drag from trailer models. The U.S. Environmental Protection Agency is currently precluded from enforcing the federal standards however, as a case against the changes has reached the court of appeals in Washington D.C. This should give owner-operators some breathing room when it comes to upgrading their equipment.

A special exception for California in the Clean Air Act of 1963 makes it the only state with the authority to set its own regulations. They would be set to enforce GHG trailer standards, but for trailer manufacturers inability to meet CARB’s stringent guidelines in time for enforcement. The suspension is set to be lifted on January 1, 2022, and CARB will continue their work to vet and approve manufacturers in the meantime.

What to Expect Moving Forward

CARB has been clear about its intentions moving forward. GHG regulations for trailers won’t be moved up in timeframe, and manufacturers will get six months’ notice before trailer standards are enforced. California has only tightened its regulations on diesel emissions in recent years, however, and it’s unclear as to whether the current appeal to the EPA that’s paused federal trailer regulation will affect California’s special case for self-regulation. In general, it’s best for drivers to expect enforcement of environmental emission regulations and do the best they can to outfit their vehicle properly if they plan on operating in California. Dealers should look to stay ahead of the curve when it comes to the demand for new semi-trucks and adjust to the declining demand for used semi-trucks accordingly.

Whether you’re a driver that needs help with financing, or a dealer looking to expand your business, look towards Mission Financial to help you find the capital you need. Visit our blog to stay up to date with trucking regulations as they continue to develop.

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