Case No. 17-1042 | 8th Cir.
Preview by Michelle Divelbiss, Online Editor
Two complementary acts, the Railroad Retirement Act (“RRA”) and the Railroad Retirement Tax Act (“RRTA”), govern the benefits and taxes of railroad employees. 45 U.S.C. §§ 231–231v (2018); I.R.C. §§ 3201–41 (2018). The taxes levied under the RRTA directly support the benefits provided to railroad employees under the RRA.
Respondent Michael Loos, a railroad employee, was injured at work and subsequently sued his employer, Petitioner BNSF Railway Co. (“BNSF”) to recover damages for time lost. A jury awarded Loos more than $120,000, including $30,000 for lost wages. BNSF had paid taxes on the $30,000—both the employer and employee portions. BNSF asked the district court to reduce the damages by $3765, the amount it had paid to the IRS on behalf of Loos. Although personal injury awards are not subject to income taxes, “compensation” under the RRTA includes lost wages and is otherwise subject to income tax. I.R.C. § 3231(e) The district court found that because personal injury awards are exempt from income taxes, this type of award should also be exempt from income taxes under the RRTA and denied the offset. The Eighth Circuit affirmed this decision.
BNSF explains that under the RRTA, “compensation” includes “any form of money remuneration paid to an individual for services rendered” and argues that payment for time lost falls under this definition of “compensation.” Id. Loos also points to the RRTA’s definition of “compensation” and argues that damages for time lost due to a workplace injury are not payment for “services rendered.” Id. Loos bolsters his argument by pointing out that “Congress had expressly removed ‘pay for time lost’ from the RRTA’s definition of compensation.” Brief of Respondent, at 13, BNSF Railway Co. v. Loos, No. 17-1042 (U.S. filed Sept. 10, 2018).
It is surprising that a dispute over the payment of only a few thousand dollars would make its way up to the Supreme Court. Nevertheless, an interpretation of the term “compensation” is something that could impact the benefits on which railroad employees rely, and could have more pronounced effects for other tax-related regulations.