BNSF R. Co. v. Loos
The Court ruled that when a railroad pays an injured worker for wages he lost while unable to work, that payment counts as taxable "compensation" under the Railroad Retirement Tax Act, just like ordinary pay.
The decision means railroads can withhold a share of injured workers' lost-wage damages to cover retirement-system payroll taxes, resolving a split among lower courts over how broadly the tax law reaches jury awards and settlements.
How it got here: A federal trial court and the Eighth Circuit ruled that Loos's lost-wage damages weren't taxable; BNSF asked the Supreme Court to resolve a split among lower courts.
The Case in Depth
What happened
Michael Loos was injured while working at a BNSF Railway railyard and sued the company under the Federal Employers' Liability Act. A jury awarded him $126,212.78, including $30,000 for wages he lost while unable to work. BNSF argued that portion was taxable "compensation" under the Railroad Retirement Tax Act and sought to withhold $3,765 of it to cover Loos's share of retirement-system payroll taxes.
The question before the Court
Does a railroad's payment to a worker for wages lost because of an on-the-job injury count as taxable "compensation" under the Railroad Retirement Tax Act?
The Court's answer
Yes — the Court ruled that a railroad's payment to an injured worker for wages lost because of an on-the-job injury counts as taxable "compensation" under the Railroad Retirement Tax Act. The Court read that term the same way it has long read the nearly identical Social Security wage definition, which covers pay for both active work and paid absences tied to the employment relationship, including things like backpay and severance.
Because damages for lost wages under the Federal Employers' Liability Act replace earnings a worker couldn't earn due to a workplace injury, and are paid only because the person was employed by the railroad, they fit that same definition. So BNSF was allowed to withhold Michael Loos's share of retirement-system taxes from the lost-wages part of his jury award.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Railroad workers who win damages for lost wages after an on-the-job injury will now have payroll taxes withheld from that portion of their award, just as if it were a paycheck. Railroads must factor in withholding and matching excise taxes when settling or paying judgments, and the money withheld also counts toward the worker's future retirement benefits.
What changes now
The case goes back to the Eighth Circuit for further proceedings consistent with the Supreme Court's interpretation of "compensation." BNSF may now withhold Loos's share of RRTA taxes from the lost-wages portion of his award. The ruling is a final decision on the meaning of the statute and will govern how railroads and injured workers handle similar lost-wage awards and settlements going forward.
Concurrences and dissents
Dissent — Justice Gorsuch
“When an employee suffers a physical injury due to his employer’s negligence and has to sue in court to recover damages, it seems more natural to me to describe the final judgment as compensation for his injury than for services (never) rendered.”The dissent's central objection that injury damages aren't pay for services rendered.
Justice Gorsuch argued that damages for a workplace injury are naturally compensation for the injury itself, not for "services rendered," since the worker never performed any service in exchange for the payment and had to sue to obtain it. He traced the RRTA's history, noting Congress deliberately removed language covering pay for time lost and personal injury, which he said signals such damages are not taxable. He also warned the ruling could let railroads offer cheaper settlements by shifting how damages are labeled.
How the Court got there
The legal reasoning, step by step
- The Court compared the RRTA's definition of "compensation" to the nearly identical definition of "wages" under the Federal Insurance Contributions Act, the law that funds Social Security, reasoning that both cover pay tied broadly to the employment relationship rather than only pay for work actually performed.
- Relying on Social Security Bd. v. Nierotko (a 1946 case holding that backpay for a wrongful firing counts as wages) and United States v. Quality Stores (holding severance pay is taxable wages), the Court concluded that pay covering periods away from active work still counts as compensation as long as it flows from the employer-employee relationship.
- Applying that principle, the Court found that damages for lost wages under the Federal Employers' Liability Act work the same way as backpay: they replace earnings a worker could not earn because of an on-the-job injury, and they are paid only because the person was employed by the railroad when hurt.
- The Court rejected the Eighth Circuit's narrower view that compensation covers only pay for services actually performed, noting that reading would make the RRTA's specific exclusions for certain sick pay and disability pay pointless, since those exclusions only make sense if pay for time away from work would otherwise be taxable.
- Reviewing the statute's amendment history, the Court concluded that Congress's removal of express references to "pay for time lost" in 1975 and 1983 were technical changes tied to shifting from monthly to annual tax calculations, not a deliberate choice to exclude such pay from taxable compensation.
- The Court also rejected the argument that the federal income-tax exclusion for personal-injury damages should apply to the RRTA, explaining that the RRTA taxes "compensation," a term Congress defined separately from "gross income," and Congress never wrote that specific exclusion into the RRTA.
Doctrinal impact
Cases affected by this decision
Reaffirms Nierotko (327 U. S. 358)
The Court relied on this case's rule that backpay counts as wages to hold lost-wage damages are taxable compensation.
Reaffirms Quality Stores (572 U. S. 141)
The Court used this case's broad reading of taxable wages to support taxing lost-wage injury damages.