Opinion ID: 2531907
Heading Depth: 2
Heading Rank: 4

Heading: Railroad-Retirement Taxes

Text: CSX next argues that the trial court committed reversible error when it refused to allow CSX to present evidence as to the amount of Miller's railroad-retirement taxes, thereby allowing him to recover lost wages in an amount in excess of his actual net lost wages. Although the trial court allowed a deduction from Miller's gross wages for federal and state income taxes, CSX sought to establish that Miller's gross pay should also be reduced to a net sum reflective of what he would have actually taken home after his payment of railroad-retirement taxes. CSX contends that the trial court improperly ruled that net wages only meant gross minus income taxes and charged the jury that it could award damages for past lost earnings, which it defined as net lost wages after deduction of federal and state income taxes. Thus, CSX concludes, Miller was allowed to overstate his wage loss. CSX primarily relies upon the decisions in Norfolk & Western Ry. v. Liepelt, 444 U.S. 490, 493, 100 S.Ct. 755, 62 L.Ed.2d 689 (1980), and Madore v. Ingram Tank Ships, Inc., 732 F.2d 475 (5th. Cir. 1984), to support its contention that the trial court erred in refusing to deduct the railroad-retirement taxes Miller was required to pay from his gross wages in order to determine his net lost wages. It is clear that the appropriate measure of damages in a FELA case is based on the employee's after-tax income rather than his or her gross income. Liepelt, 444 U.S. at 493, 100 S.Ct. 755. In Liepelt, the Supreme Court stated: The amount of money that a wage earner is able to contribute to the support of his family is unquestionably affected by the amount of the tax he must pay to the Federal Government. It is his after-tax income, rather than his gross income before taxes, that provides the only realistic measure of his ability to support his family. It follows inexorably that the wage earner's income tax is a relevant factor in calculating the monetary loss suffered by his dependents when he die s. 444 U.S. at 493-94, 100 S.Ct. 755. It is proper to instruct the jury that federal income taxes should be deducted from any damages the jury may award to the plaintiff. Id. Further, in Madore, the United States Court of Appeals for the Fifth Circuit stated: Unless the amounts the worker would have been required to pay in income taxes and social security taxes is negligible or should, for some articulated reason, be disregarded, the lost income stream must be computed after deducting the income taxes and social security taxes the worker would have paid had he continued to work, for he is entitled only to be made whole for what he has lost, his net income. Madore, 732 F.2d at 479 (footnote omitted). There is no dispute that both federal and state income taxes are to be deducted from Miller's gross wages in order to determine his actual net lost wages. The parties dispute, however, whether the railroad-retirement taxes are to be deducted from Miller's gross wages in order to determine his actual net lost wages. The railroad-retirement taxes paid pursuant to the RRA have been explained as follows: Both employees and carriers pay a federal tax [Railroad Retirement Tax Act, 26 U.S.C. §§ 3201-3233] which funds a Railroad Retirement Account. The Railroad Retirement Board, provided for by the Act, 45 U.S.C. § 231f, disburses benefits from the account to each eligible `individual,' 45 U.S.C. § 231a. In its modern form, the Act resembles both a private pension program and a social welfare plan. It provides two tiers of benefits. The upper tier, like a private pension, is tied to earnings and career service. An employee, to be eligible for benefits, must work in the industry 10 years. Absent disability, no benefit is paid, however, until the employee either reaches age 62 or is at least 60 years old and has completed 30 years of service. 45 U.S.C. § 231a(a)(1).... The lower, and larger, tier of benefits corresponds exactly to those an employee would expect to receive were he covered by the Social Security Act. 45 U.S.C. § 231b (a)(1).... Hisquierdo v. Hisquierdo, 439 U.S. 572, 574-75, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979) (footnote omitted). The current version of the RRA was enacted in 1974.... The current version `resembles both a private pension program and a social welfare plan.' Hisquierdo v. Hisquierdo, 439 U.S. 572, 574, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979). It establishes two tiers of benefits: Tier I, which provides amounts essentially equivalent to social security benefits; and Tier II, which provides retirement benefits over and above social security benefits and operates similarly to other industrial pension systems. See Railroad Retirement Board, Railroad Retirement Handbook 2006, at 5, available at www.rrb.gov/pdf/opa/handbook.pdf (hereinafter the `Board Handbook'). The Board, `an independent agency in the executive branch,' administers the RRA. 45 U.S.C. § 231f. .... The RRA Fund is supported in part by a tax on both the railroad companies and the railroad employees. 26 U.S.C. §§ 3201, 3211. Both the railroads and their employees pay taxes into Tier I at a rate equal to social security taxes. See id. For Tier II, the tax rate varies, and is published annually by the Department of the Treasury. See 26 U.S.C. 3241(d). The Tier II annual tax rate for employers is significantly higher than that for employees. E.g., 71 Fed.Reg. 67,709 (Nov. 22, 2006) (an employer is taxed 12.1 percent and an employee is taxed 3.9 percent of the employee's compensation).... CSX Transp., Inc. v. Gardner, 874 N.E.2d 357, 361-63 (Ind.Ct.App.2007). Miller relies on the decision in Maylie v. National R.R. Passenger Corp., 791 F.Supp. 477 (E.D.Pa.1992), and argues that the railroad-retirement taxes were not deductible from his gross wages. We agree. In Maylie, the railroad employee sued his employer under the FELA to recover damages for an injury he suffered to his back during the course of his employment. Following a trial, the jury returned a verdict in favor of the employee and awarded him, among other things, damages for lost wages in the amount of $238,000. In accordance with Liepelt, the employee was awarded damages for loss of income based on a projected after-tax income of 80 percent of the employee's projected gross income. In determining the amount of income that the employee would have paid in taxes, however, the trial court did not take into account the railroad-retirement taxes. The employer argued on appeal that the trial court erred in failing to include the railroad-retirement taxes in the employee's projected gross income and that the employee's gross income should have been reduced by 30 percent, rather than by 20 percent. Maylie, supra . During the trial the employee's counsel represented to the court that the value of the benefits package the employee lost after his injury was approximately $13,000 per year, if the value of his eventual retirement pension was taken into account, or $4,700, if the value of the pension was excluded. The employer stipulated to the $4,700 figure for the present value of the employee's benefits but refused to consider including the amount of the employee's lost retirement benefits. Based on this refusal, the trial court determined that the $4,700 figure would be used to represent the value of the employee's benefits and that no deduction would be allowed from the employee's gross income for the railroad-retirement taxes. Maylie, supra . Relying upon Liepelt, the employer argued that the trial court erred in refusing to include the amount of the railroad-retirement taxes in the employee's gross income. The district court addressed the issue as follows: Railroad retirement taxes are paid into a fund from which railroad retirement benefits are paid out. See 45 U.S.C. § 231n(a). Had plaintiff continued working until the age of sixty-two, and had plaintiff remained in defendant's employ during that time, he would have been eligible for an annuity upon his retirement, paid from the fund into which his railroad retirement taxes had been paid. See 45 U.S.C. § 231a(a)(1)(ii). It is undisputed that plaintiff is entitled to recover the value of lost future fringe benefits. Cf. Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 534 & n. 12, 103 S.Ct. 2541, 2549 & n. 12, 76 L.Ed.2d 768 (1984) (lost fringe benefits `should be included in an ideal evaluation of the worker's loss;' these may include, inter alia, retirement and pension plans). It is likewise clear that the $4,700 figure, which the parties agreed represented the value of plaintiff's benefits package, did not include the contingent value of plaintiff's pension benefits. The value that the jury placed on plaintiff's lost future wages and benefits, therefore, did not include the value of his lost railroad retirement pension. It would be inappropriate to deduct from plaintiff's lost salary taxes that, in effect, represented plaintiff's contribution toward a pension without including, as an item of damages, the value of that pension. Because defendant did not consent to inclusion of the value of the pension as an item of damages, it was not error to refuse to reduce plaintiff's lost wages by the amounts he would have had to pay in railroad retirement taxes.  Maylie, 791 F.Supp. at 487-88 (emphasis added). Here, Miller contends that, but for his neck injury, he would have continued to work for CSX until he reached 65 years of age. Had Miller continued working for CSX until he reached 65, he would have continued to pay the railroad-retirement taxes into the retirement fund, and he would have been entitled to a larger retirement pension at 65 than the pension he received when he retired at age 60. Although Miller was entitled to seek as part of his damages the reduction in the value of his retirement pension, see Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 534, 103 S.Ct. 2541, 76 L.Ed.2d 768 (1984), Miller has not done so in this case. Rather, he has simply sought as damages lost wages from March 2003 through his 65th birth date. Therefore, like the court in Maylie, we conclude that it would be inappropriate to deduct from Miller's gross lost wages the amount of the railroad-retirement taxes he would have contributed to the retirement fund after March 2003 through his 65th birthday when Miller has not sought as part of his damages claim the reduction in the value of his retirement pension for that same period. To hold otherwise would have the effect of requiring Miller to contribute to a retirement pension, the full value of which he did not receive. This Court's determination in this case that the railroad-retirement taxes should not be deducted from Miller's gross wages to determine his net lost wages is consistent with the holdings of other jurisdictions that have considered this issue. See Ramsey v. Burlington Northern & Santa Fe Ry., 130 S.W.3d 646 (Mo.Ct.App.2004) (rejecting defendant's reliance on Liepelt and Madore while relying on Maylie and holding that the trial court did not err in refusing to admit evidence of what employee would have had to pay in railroad-retirement taxes when he did not seek lost retirement benefits); Norfolk Southern Ry. v. Perkins, 224 Ga.App. 552, 481 S.E.2d 545 (1997) (holding that the trial court did not err in refusing to allow defendant to show employee's net income as reduced by the amount of the railroad-retirement taxes); and Norfolk & Western Ry. v. Chittum, 251 Va. 408, 468 S.E.2d 877 (1996) (rejecting defendant's reliance on Liepelt and holding that the trial court did not err in refusing to deduct the railroad-retirement taxes from employee's gross wages in order to establish his net lost wages). Accordingly, we conclude that the trial court did not err in refusing to allow CSX to present evidence as to the amount of Miller's railroad-retirement taxes for the purposes of deducting those taxes from his gross wages in order to establish his net lost wages.