OMAHA (AP) — A trial judge was wrong to order BNSF Railroad to pay the full amount awarded by a jury to a former railroad worker without deducting federal railroad retirement taxes, the Nebraska Supreme Court ruled Friday.
Eddie Heckman of Alliance was injured on the job in 2003 and sued the railroad in 2004. A jury awarded Heckman $145,000 in 2011. BNSF paid the award, but deducted $6,200 to cover the tax withholding it says it must pay on compensation for lost wages.
Heckman objected, and a Box Butte County judge ordered BNSF to pay Heckman the $6,200, saying the award was not compensation for lost wages. The judge also required both sides to agree in writing that no amount of the award would be considered lost wages, thereby avoiding the need to deduct payroll taxes on it.
Railroad workers do not receive Social Security benefits. Instead, they receive retirement benefits under the Railroad Retirement Tax Act of 1974, funded through payroll taxes, much as Social Security benefits are.
BNSF appealed, and the case caught the attention of the U.S. Justice Department, which filed a friend-of-the-court brief in the case arguing that the lower court judge's decision could be "harmful to the United States because ... it may interfere with federal tax collection."
Heckman argued in the appeal that the verdict did not state how damages were allocated, so no amount of the award could be considered lost wages.
But the state's high court disagreed, noting that Heckman alleged in his lawsuit that his damages included lost wages.
The high court said federal law makes clear that when part of a jury award is to cover lost wages, the whole verdict may be considered pay and, therefore, subject to the tax.
The lower court also erred when it ordered the railroad to agree that none of the award would be considered lost wages.
"We find no authority that would permit the court to order BNSF to agree to an allocation of the settlement after the verdict was entered," Nebraska Supreme Court Judge John Wright wrote for the court.
The state Supreme Court ordered the lower court to find that the jury award to Heckman has been satisfied upon proof that BNSF paid the $6,200 withholding to the IRS.
Neither attorneys for Heckman nor the railroad immediately returned messages Friday seeking comment on the ruling.
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