Supreme Court Decides BNSF Railway Co. v. Loos

On March 4, 2019, the Supreme Court of the United States decided BNSF Railway Co. v. Loos, No. 17-1042, holding that a railroad’s payment to an employee for lost wages due to an on-the-job injury is taxable “compensation” under the Railroad Retirement Tax Act.

Michael Loos was injured while working at BNSF Railway Company’s (BNSF) railyard. Loos sued BNSF under the Federal Employers’ Liability Act (FELA), 45 U.S.C. § 51 et seq. The jury awarded him $126,212.78, of which $30,000 was apportioned to lost wages for the time when Loos was unable to work. BNSF asserted that this $30,000 was taxable “compensation” under the Railroad Retirement Tax Act (RRTA), 26 U.S.C. § 3201 et seq., and that BNSF therefore was required to withhold the lost-wages portion of the award to cover Loos’s RRTA taxes. The district court and the U.S. Court of Appeals for the Eighth Circuit disagreed with BNSF, holding that awards for lost wages are not taxable under the RRTA.

The Supreme Court reversed. The Court noted that taxes under the RRTA are measured by an employee’s “compensation,” which the RRTA defines as “any form of money remuneration paid to an individual for services rendered as an employee.” 26 U.S.C. § 3231(e)(1). This definition is textually similar to the definition of “wages” in the Federal Insurance Contributions Act (FICA) and the Social Security Act (SSA). The Court therefore looked to prior decisions holding that “wages” under FICA and SSA included awards of backpay and severance payments, respectively, because those awards represented pay for active service as well as pay for periods of absence from active service. In line with those cases, the Court held that “compensation” under the RRTA encompasses pay for active service as well as pay for periods of absence from active service, as long as the pay in question stems from the employer-employee relationship. Damages for lost wages awarded under the FELA fit within this definition and are therefore taxable “compensation.”

Justice Ginsburg delivered the opinion of the Court, in which Chief Justice Roberts and Justices Breyer, Alito, Sotomayor, Kagan, and Kavanaugh joined. Justice Gorsuch filed a dissenting opinion, in which Justice Thomas joined.