In an amicus brief filed this week in the Missouri Court of Appeals, CCL Senior Counsel Jeffrey White argued that an employer is not entitled to withhold taxes from a judgment awarded under the Federal Employee Labor Act.  The issue arose after a jury awarded Lawrence Mickey nearly $400,000 against BNSF Railway under FELA for a permanently disabling injury to his back and knees. The employer railroad tendered payment after withholding Railroad Retirement and Medicare taxes. The trial court declined to credit BNSF for payment of the full judgment.

In the Missouri Court of Appeals, the railroad, with amicus support from the IRS, contends that, although the injury payments are excluded from “income” for federal income tax purposes, they are “wages” and “compensation” for purposes of federal employment taxes, including Medicare and Railroad Retirement taxes.  This appears to be an unprecedented change in the IRS position on the taxability of personal injury awards, which could chill the pursuit of some FELA actions and make settlement more difficult. CCL's brief was filed on behalf of the American Association for Justice in the Missouri Court of Appeals on April 9.