The U.S. Supreme Court today held (seven to two) that a railroad’s payment to an employee for working time lost due to an on-the-job injury is taxable compensation under the Railroad Retirement Tax Act (RRTA).
The Supreme Court majority found that an award compensating for lost wages is subject to taxation under the RRTA, and reversed and remanded a decision from the Eighth Circuit (the appeals court held that the damage award to the injured railroad worker for lost wages was not taxable under the RRTA).
The Supreme Court majority noted the similarity between the definitions of “compensation” for railroad retirement purposes and “wages” for Social Security purposes, and looked to, among other opinions, the 2014 decision in United States v. Quality Stores, Inc. (severance payments qualified as “wages” taxable for FICA purposes). The Court today concluded:
In harmony with this Court’s decisions in Nierotko and Quality Stores, we hold that “compensation” for RRTA purposes includes an employer’s payments to an employee for active service and for periods of absence from active service. … [D]amages for lost wages qualify as RRTA-taxable “compensation.”
Justice Ginsburg delivered the opinion for the Court. Justice Gorsuch, joined by Justice Thomas, dissented.
The case is: BNSF Railway Co. v. Loos, No. 17-1042 (S. Ct. March 4, 2019). Read the Supreme Court’s decision [PDF 116 KB] that includes a dissenting opinion.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.