FELA Employer’s Payment for Time Lost Is Taxable as Income

BNSF Railway Company v. Loos, 203 L. Ed. 2d 160 *; 2019 U.S. LEXIS 1734 **; 2019 WL 1005830 (S. Ct., March 4, 2019)

By: Arthur Crais

The employee was injured while working for BNSF and sued to recover damages for his injury; he recovered $126,212.78. The jury assigned $30,000 as lost wages. The employer asserted it was “compensation” and thus taxable under the Railroad RetirementTax Act (RRTA) and requested the court to withhold $3,765 (12.5%) to cover the employee’s share of taxes. The trial court denied the employer’s request which was affirmed by the Eighth Circuit Court of Appeals.

In an opinion by Justice Ginsburg with Chief Judge Roberts, Breyer, Alito, Sotomayor, Kagan and Kavanaugh joining, the Court held that as both the RRTA and RRA (Railroad Retirement Act) define compensation as “’any form of money remuneration paid to an individual for services rendered as an employee’” (203 L. Ed. 2d 160 at *168) Relying on other precedent under the Social Security Act, (Social Security Bd. v. Nierotko, 327 U. S. 358, 66 S. Ct. 637, 90 L. Ed. 718 (1946), and United States v. Quality Stores, Inc., 572 U. S. 141, 134 S. Ct. 1395, 188 L. Ed. 2d 413 (2014), compensation under the RRTA includes any compensation for active service as well as absence from active service. (203 L. Ed. 2d 160 at *169)

The Court also rejected the employee’s argument that the Internal Revenue Code which excludes personal injury damages from taxation from gross income. The majority was not persuaded. This would lead to the employer paying the excise tax with the employee making no contribution but would receive full credit. (203 L. Ed. 2d 160 at *173)