Truck Drivers: Beware the 1099! - Words of Caution

What follows is a social media conversation recently with a truck driver seeking advice about signing up with a trucking company claiming they pay company drivers $100,000 per year (as 1099 income). It sounds great? 100k a year! You can live really well on that, right? But there's a little catch. 1099 statements mean you're being paid as an independant contractor, not an employee. Technically, there's a huge legal distiction between the two and not to be taken lightly.

I lost my patience knowing the guy had already made his mind up. I have not named him for obvious reasons.

HIM: I found a $100,000+ a year job as a company driver., but you are responsible for your own taxes you will be filing a 1099. Inbox me your information.

ME: Probably illegal. Find a reputable company if you're going to be an employee. This one, you'll get screwed.

HIM: how can you get screwed if they 1099 you I never heard of this before explain

ME: OK, John, I'll try. Any good road driver can make over 100k per year with a decent company these days. You said you can make 100k on a 1099. That means you will pay the full Social Security tax, both employer and employee portion,15% total. So you will pay 15k off that 100k knocking you down to 85k just to start. Then, say you want 2 weeks off for vacation. That cuts your gross income another 4k down to 81k. Now, you will need some health care insurance, oh that ain't looking good, figure on another 12k minimum. That knocks you back to 69k. What about some disability insurance in case something bad happens? Another 2k, down to 67k. And you haven't paid a dime yet in federal or state income tax. Now, what about road expenses, like meals, hotels, showers? I could think of more, but, please believe me, you will get screwed. I spent my life in trucking and I've seen so many get taken for a ride. Good luck. 

HIM: but this is standard and get an extra $600-$1000 a week should help with benefit. Correct me if I’m wrong plz

HIM: it’s call good business no one forcing anyone it’s a contract you have a right to hire a lawyer if you don’t understand the contract or you can sign the contract and get a lawyer to try to sue that company. This been around for a long time so I will say good luck with that.

ME: Yep, it's your life, go for it! I was just trying to warn you. And you were asking for advice. I knew I was wasting my time, but I tried. Carry on. Oh, and a couple things, since you'll be self-employed, don't forget to budget for a tax accountant/bookkeeper, minimum, a couple grand for a good one (That was quite a few years back, they're probably a lot more now). And you should put a lawyer on retainer, and those guys ain't cheap. And with that independant contractor status, you may now have some legal liability in case you get in a wreck. Better set up an LLC for that (more ongoing costs). Get a seperate business checking account to make it easier as you will have to file business tax returns as well as personal. More fees. DO NOT fall behind in your estimated income tax payments, as the IRS will come crashing down hard on you, I've seen what they can do. BTW, I was a driver for 38 years and also had a sideline income tax prep and bookkeeping service for many years, specializing in trucker service. You will quickly find a big fish (the government) and all sorts of little fish circling and taking chunks out of that 100K. Save this post and let me know how it's going in a couple years. Good luck.

I admit, I was short tempered with this guy, but I've seen it so many times. These trucking companies taking advantage of drivers that have no business experience, and most of them are not legal if a company assigns you equipment, tells you where to go. It is illegal to misclassify an employee as a 1099 independent contractor to avoid paying payroll taxes and benefits. 

If any of the following apply, you are an employee, not an independant Contractor.

• Company drivers: Drivers who use company-provided equipment, follow company-set schedules and routes, and are subject to the company's direction and control.
• Lack of investment: Drivers who do not have substantial capital investment in their own equipment and tools.
• Exclusivity: Drivers who are exclusively tied to one carrier with no ability to perform services for others.
• No control: Drivers who cannot decline loads and must adhere to specific instructions on how to do their job.

I've talked until blue in the face to some drivers that decided to try this, one in particular. He had a wife and young kids and was always near the top in earnings for us as he would do anything, take extra runs, work 6 days a week to make money. He didn't have an earning problem, he had a spending problem, if he had cash, he had a need to spend it. After a while, a small trucking company owner got in his ear, preaching that he could make $2 per mile working for him. "Just buy a used tractor and come to work for me". I couldn't talk him out of it, all he heard was $2 per mile and he was going. He eventually asked me to do his books and tax returns for him. He was in deep, so deep, it ruined his life. He ran hard for this guy, was never home. I talked to him once while he was on the road. He was running in 95 degree heat, his A/C had quit and he couldn't afford to fix it. He had trouble just paying basic repairs to keep the truck on the road, let alone fixing the A/C. Finally, he went to the trucking company owner telling him he didn't know how much longer he could hold out. The owner told him, he could solve all his problems with a new tractor that got better fuel mileage! It didn't end well, it ended horribly.

There is not one driver, that I know personally, who successfully switched to be an independant contractor. Every one of them eventually went back to work as an employee, with most deeply in debt and paying off their previous obligations. That's not to say it can't be done, there are exceptions, but why take the risk? Many years ago my wife (the one I had at the time) asked me why I didn't buy a truck. That was my answer. Truck drivers have a difficult enough life, why add a whole bunch of stress to it, while working for less than a reputable company would pay?

One driver told me he could write meal expenses as an independant contractor, while employees couldn't. That is true, the income tax reduction reform in the first Trump term did away with the employee business expense deduction. While away from home overnight employee truckers could deduct $65 per day for meal expenses as an itemized deduction. It is important to consider that this was not a tax credit, but a deduction. If you compare this as an employee to your company paying half your social security payment (7.5%) as well as matching contributions that most make into your 401k of several thousands of dollars, paid time off, company contributions to your health care, disability and life insurance plans, it's not even remotely close to meal deduction savings.