BNSF Ry. Co. v. Loos
Headline: Court holds that lost-wage awards in workplace injury suits are taxable under the railroad retirement tax, reversing the appeals court and requiring railroads to treat and withhold RRTA taxes on such payments.
Holding: The Court held that damages awarded to a railroad employee for wages lost because of an on-the-job injury qualify as taxable "compensation" under the RRTA, so employers must treat and withhold RRTA taxes on those awards.
- Railroads must withhold RRTA taxes from lost-wage awards.
- Railroad employees may owe RRTA taxes on FELA lost-wage awards.
- Could affect settlement talks by changing tax consequences of awards.
Summary
Background
A railroad worker, Michael Loos, was injured while working in a railyard and sued his employer, BNSF Railway, under the Federal Employers’ Liability Act (FELA). A jury awarded him $126,212.78, including $30,000 for wages lost while he could not work. BNSF asked to withhold RRTA (Railroad Retirement Tax Act) taxes from the lost-wages portion. The District Court and the Eighth Circuit denied the tax offset, and the Supreme Court agreed to decide whether such damage awards count as RRTA “compensation.”
Reasoning
The Court focused on the RRTA definition of “compensation” and its similarity to Social Security law’s definition of “wages.” It relied on past decisions (including Nierotko and Quality Stores) and the IRS’s long-standing rule that “compensation” can include pay for identifiable periods of absence, including pay for time lost. The Court found that FELA lost-wage awards function like backpay and therefore fall within the RRTA’s definition. The Court also rejected arguments that personal-injury damages are exempt under other income-tax rules and concluded Congress did not clearly intend to exclude pay for time lost from RRTA coverage. The Court reversed the Eighth Circuit and remanded for further proceedings consistent with this ruling.
Real world impact
Railroad employers must treat jury awards or settlements labeled as lost wages as RRTA-taxable compensation and withhold the employee share. Railroad workers receiving FELA lost-wage awards may owe RRTA taxes on those amounts. The ruling resolves a split among lower courts about tax treatment.
Dissents or concurrances
Justice Gorsuch (joined by Justice Thomas) dissented, arguing such damages compensate for injury, not services, and warned the tax rule could affect settlement incentives and fairness to injured workers.
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