BNSF R. Co. v. Loos
Headline: Court allows railroads to treat lost-wage awards to injured workers as taxable compensation under the railroad retirement tax, permitting railroads to withhold payroll taxes from such judgments and reversing lower courts.
Holding: The Court held that a railroad’s payment to an employee for working time lost due to an on-the-job injury is taxable "compensation" under the RRTA, allowing RRTA withholding from such awards.
- Allows railroads to withhold RRTA taxes from lost-wage awards to injured employees.
- Treats FELA lost-wage damages as payroll compensation for tax purposes.
- May change settlement bargaining by making lost-wage labels tax-relevant
Summary
Background
A railroad worker sued his employer after a yard injury and a jury awarded $126,212.78, including $30,000 for wages lost while he could not work. The railroad sought to withhold $3,765 of that $30,000 to cover the worker’s share of the Railroad Retirement Tax Act (RRTA) payroll tax. The trial court and the court of appeals rejected the withholding request, and the railroad asked the Supreme Court to decide the tax question.
Reasoning
The Court examined whether the RRTA’s term “compensation” includes payments for time an employee is absent from work. Noting that RRTA uses language like Social Security’s wage rules and relying on prior cases about backpay and severance, the Court concluded that “compensation” covers pay for active service and for identifiable periods of absence, including awards that replace lost wages. The Court also rejected the argument that the federal income tax exclusion for personal injury damages should exempt these awards from the RRTA. The Court said it does not matter whether the payment was voluntary or required by law.
Real world impact
The decision means railroads may withhold RRTA taxes from FELA awards or settlements designated as lost wages and must treat those amounts as payroll compensation for retirement-tax purposes. The case was sent back to the lower court for further proceedings consistent with the ruling. The ruling may affect how awards and settlements are labeled and how parties negotiate.
Dissents or concurrances
A dissent argued the damages compensated an injury, not services, highlighted Congress’ past deletions of “time lost” language, and warned the decision could change settlement incentives.
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