Summary
The Supreme Court held that damages awarded under the Federal Employers’ Liability Act for wages lost because of an on-the-job injury constitute taxable “compensation” under the Railroad Retirement Tax Act. The Court relied on the statutory text, analogous Social Security precedents concerning “wages,” longstanding IRS interpretation, and the RRTA’s limited exclusions for certain payments. The judgment of the Eighth Circuit was reversed and remanded.
Topics
Practice areas
Questions Presented
- Whether a railroad’s payment to an employee for working time lost because of an on-the-job injury constitutes taxable compensation under the Railroad Retirement Tax Act.
- Whether the exclusion of personal-injury damages from gross income under 26 U.S.C. § 104(a)(2) excludes FELA lost-wage damages from RRTA taxation.
Holdings
- FELA damages awarded for lost wages constitute taxable compensation under the RRTA because RRTA compensation includes remuneration paid to an employee for periods of absence from active service when the payment stems from the employer-employee relationship.
- The exclusion of personal-injury damages from gross income under 26 U.S.C. § 104(a)(2) does not exempt FELA lost-wage damages from RRTA taxation.
Key quotations
“In line with Nierotko, Quality Stores, and the IRS’s long held construction, we hold that “compensation” under the RRTA encompasses not simply pay for active service but, in addition, pay for periods of absence from active service—provided that the remuneration in question stems from the “employer-employee relationship.”” (586 U.S. ___, slip op. at 6-7)
“For the reasons stated, FELA damages for lost wages qualify as RRTA-taxable “compensation.”” (586 U.S. ___, slip op. at 14)
Factual background
Michael D. Loos was injured while working in BNSF’s railyard and sued BNSF under the Federal Employers’ Liability Act. A jury awarded him $126,212.78, including $30,000 for wages lost while he was unable to work. BNSF argued that the lost-wage damages were taxable compensation under the Railroad Retirement Tax Act and sought to withhold $3,765 for Loos’s share of RRTA taxes.
Procedural history
A jury awarded Loos $126,212.78, including $30,000 for lost wages resulting from an on-the-job injury. BNSF moved to withhold $3,765 for Loos’s share of Railroad Retirement Tax Act taxes. The district court denied the requested offset, and the Eighth Circuit affirmed, holding that FELA lost-wage damages were not taxable compensation under the RRTA. The Supreme Court reversed and remanded.
Remand instructions
The case was remanded to the Court of Appeals for the Eighth Circuit for proceedings consistent with the Supreme Court’s holding that FELA lost-wage damages are taxable compensation under the RRTA.