BNSF R. Co. v. Loos
The Supreme Court ruled that a railroad worker's court award for lost wages counts as taxable pay under the federal law that funds railroad workers' retirement benefits, so the railroad can withhold payroll taxes from that portion of the award.
The decision means injured railroad workers who win damages for lost earnings will see retirement taxes deducted from that part of their recovery, just as they would from ordinary paychecks.
How it got here: A federal trial court and the Eighth Circuit both rejected the railroad's request to withhold retirement taxes from the lost-wages award; the railroad asked the Supreme Court to review the tax question.
The Case in Depth
What happened
Michael Loos was hurt working at a BNSF Railway railyard and sued under a federal law that lets injured railroad workers recover damages from their employer's negligence. A jury awarded him over $126,000, including $30,000 for wages he lost while unable to work. BNSF wanted to withhold part of that $30,000 to cover retirement payroll taxes, arguing the lost-wage award counted as taxable pay.
The question before the Court
When a railroad worker wins a lawsuit for wages he lost because of an on-the-job injury, does the railroad have to withhold retirement payroll taxes from that award?
Why it matters
Railroad workers who sue over on-the-job injuries and recover damages for lost wages will now have retirement payroll taxes withheld from that portion of their awards, slightly shrinking their take-home recovery. Railroads will also owe a matching tax, and the ruling may affect how railroads structure settlement offers going forward, as the dissent warned.
What changes now
The case is sent back to the lower courts so BNSF can apply the tax withholding the Court approved to the $30,000 lost-wages portion of Loos's award. This is a final merits ruling on the legal question, not a temporary order, and it resolves a split among federal and state courts over whether such injury-related lost-wage awards are taxable under the railroad retirement system.
Concurrences and dissents
Dissent — Justice Gorsuch
“No one would describe a dangerous fall or the wrenching of a knee as a “service rendered” to the party who negligently caused the accident.”Gorsuch's objection that injury damages are compensation for harm, not for work performed.
Justice Gorsuch, joined by Justice Thomas, argued that damages for a workplace injury are compensation for the injury itself, not for 'services rendered,' since no one would call a negligent injury a service performed for the employer. He pointed to Congress's deliberate removal of statutory language taxing 'pay for time lost' as evidence lawmakers meant to exclude such damages, and warned the ruling could let railroads use the tax asymmetry to pressure injured workers into cheaper settlements.
How the Court got there
The legal reasoning, step by step
- The Court compared the railroad retirement tax law's definition of taxable 'compensation' to the nearly identical definition of 'wages' under the Social Security payroll tax law, reasoning that similar wording in parallel statutes should be read the same way.
- Under prior decisions interpreting 'wages,' the Court had already held that backpay awarded for wrongful firing counts as wages because it compensates for time away from a job caused by the employer's misconduct, not just for work actually performed.
- Applying that same logic, the Court held that 'compensation' under the railroad tax law covers pay for both active work and paid absences, as long as the payment flows from the employment relationship rather than from some unrelated source.
- The Court found that damages for lost wages awarded under the federal injury law for railroad workers fit this definition, because they replace earnings the worker would have received had the employer not caused the injury — functionally the same as backpay.
- The Court rejected the argument that Congress's earlier removal of explicit statutory language about 'pay for time lost' meant such pay was no longer taxable, reasoning instead that the law's narrow, specific exclusions for certain sick pay and disability pay would be pointless if all time-lost pay were already excluded.
- The Court also rejected the claim that a separate income-tax rule excluding personal injury damages from 'gross income' should apply here, because the retirement tax law is built on the different concept of 'compensation,' which Congress never exempted for injury damages.
Doctrinal impact
Cases affected by this decision
Reaffirms Social Security Bd. v. Nierotko (327 U.S. 358)
The Court relied on this case's holding that backpay counts as wages to conclude injury-related lost wages are similarly taxable.
Reaffirms United States v. Quality Stores, Inc. (572 U.S. 141)
The Court used this case's broad reading of 'wages' to support taxing lost-wage damages as compensation.