City Could Withhold Employment Taxes from PEDA Benefits
The Illinois Supreme Court issued an opinion this week finding that the Illinois Public Employee Disability Act (commonly referred to as PEDA), does not prohibit a city from withholding employment taxes from payments made under the PEDA statute. Bitner v. City of Pekin.
Two former police officers had applied for and were granted PEDA benefits after they were injured in the line of duty. PEDA provides that eligible employees who suffer an injury in the line of duty that causes them to be unable to perform their duties are entitled to be paid by their employer on the same basis as before their injury for a period up to a year. PEDA also states that no deduction can be made for sick leave credits, compensatory time for overtime accumulations or vacation, or service credits in a pension fund while the employee is receiving PEDA benefits. The officers filed a lawsuit, claiming that PEDA prohibited the city from withholding employment taxes (federal and state income taxes, social security taxes, and Medicare taxes) from their PEDA benefits. The trial court ruled in favor of the officers, but on appeal, the appellate court ruled in favor of the city, and the officers appealed to the Illinois Supreme Court.
The Illinois Supreme Court analyzed the language of section 1(b) of PEDA, and determined that there was no express language prohibiting an employer from withholding employment taxes, unlike the express prohibition in PEDA for leave deductions. The Court also held that the officers failed to provide any evidence that PEDA payments were exempt from federal income tax, and did not point to any statute or IRS ruling that prohibits a government employer from withholding taxes from PEDA payments. As a result, the Court held that employees receiving PEDA benefits could seek a refund or adjust their tax withholding to address the tax issue, rather than requiring employers to determine whether an employee has or does not have a tax liability. In sum, the Illinois Supreme Court found in favor of the city, holding that PEDA did not prohibit the city from withholding employment taxes from the PEDA benefits paid to the two officers.
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