Supreme Court: Lost Railroad Wages Are Taxable

The United States Supreme Court recently held that payments to an injured employee for lost wages are taxable compensation under the Railroad Retirement Tax Act (RRTA) (High Court Calls Lost Wages Taxable in 7-2 Railway Ruling). The Court ruled 7-2 in favor of the railroad in BNSF Railway Company v. Loos, allowing the withholding of part of the employee’s lost wages to cover RRTA taxes.

Justice Ruth Bader Ginsburg’s opinion cited the 1946 decision Social Security Bd. v. Nierotko, which held that an award of back pay to an employee constituted wages under the Social Security Act. “Our decision in Nierotko undermines Loos’s argument that, unlike sick pay and vacation pay, payments ‘compensat[ing] for an injury,’ are not taxable under the RRTA,” Ginsburg wrote. “Applying that reasoning here, there should be no dispositive difference between a payment voluntarily made and one required by law.”

In a somewhat surprising development, the liberal wing of the Court was joined by new Republican appointee Brett Kavanaugh in a decision that favored a huge railroad company at the expense of the little guy. And in another twist, Justice Neil Gorsuch, joined by the ultra-conservative Justice Clarence Thomas, penned a dissent defending the employee against the railroad behemoth.

While Ginsburg seems to have accepted BNSF’s claim that a ruling in its favor would help ensure the solvency of the federal railroad retirement system, Gorsuch notes that paying more in taxes now will ultimately allow BNSF to pay less to injured employees. “Railroads like BSNF can now sweeten their settlement offers while offering less money,” Gorsuch wrote. “Employees will pay a tax for going to trial – and railroads will succeed in buying cheaper settlements in the future at the bargain basement price of a few thousand dollars in excise taxes in one case today.”

Under Chief Justice John Roberts, the Supreme Court has generally been friendly to business and hostile to workers. The recent appointments by President Trump should only be expected to make things worse. But this case shows that you can’t always count on even the liberal justices to fight for the rights of workers against big business. If you have been injured in a railroad accident, it is critical that you hire an experienced attorney. Please call DBJ today at 1-800-875-5972 for a free consultation.