State News : Illinois

By: Kisa P. Sthankiya

The Illinois Supreme Court issued in Bitner v. City of Pekin 2025 IL 131039  on September 18, 2025 finding that the Illinois Public Employee Disability Act (PEDA), does not prohibit a city from withholding employment taxes from PEDA benefits.

The plaintiffs in the case were both police officers working for the City of Pekin and injured in the line of duty in separate accidents. Both employees received PEDA benefits pursuant to Section 1(b) of PEDA.  Section 1(b) provides:

Whenever an eligible employee suffers any injury in the line of duty which causes him to be unable to perform his duties, he shall continue to be paid by the employing public entity on the same basis as he was paid before the injury, with no deduction from his sick leave credits, compensatory time for overtime accumulations or vacation, or service credits in a public employee pension fund during the time he is unable to perform his duties due to the result of the injury, but not longer than one year in relation to the same injury. (5 ILCS 345/1(b) (West 2018)

During the time that the plaintiffs received PEDA benefits, the City continued to pay the plaintiffs in the same manner as they were paid prior to their injury and withheld employment taxes (Federal, State, Social Security and Medicare).  The plaintiffs filed a suit in circuit court of Tazewell County alleging that by withholding the employment taxes, the City violated the Illinois Wage Payment and Collection Act (Wage Act) (820 ILCS 115/1 et seq. (West 2018).

Cross Motions for Summary Judgment were filed. The circuit court ruled in favor the plaintiff and entered a judgment to recoup the withheld taxes from the City. The ruling was appealed to the appellate court. The appellate court determined that based on the plain language of Section 1(b) did not prohibit the City from withholding unemployment taxes. They did not reach a conclusion on whether the only remedy was to seek a refund of the improperly withheld taxes from the IRS. The appellate court reversed and remanded the case.

The Supreme Court allowed leave to appeal. There were multiple issues decided at the circuit court and appellate level. However, the only issue before the Illinois Supreme Court in the case was whether the Appellate Court erred in its interpretation of Section 1(b).

Relying on language from prior appellate decisions, including Gibbs v. Madison County Sheriff’s Department, 326 Ill. App. 3d 473 (2001), the plaintiffs argued that section 1(b) provides for the “continuation of full pay” and that “full pay” should be interpreted to mean gross pay without employment tax deductions. The Court noted, however, that the phrase “full pay” appears nowhere in Section 1(b). The proper starting point for statutory interpretation, it emphasized, is the plain language of the statute itself. Section 1(b) expressly provides that an eligible employee, “shall continue to be paid by the employing public entity on the same basis as he was paid before the injury, with no deduction from his sick leave credits, compensatory time for overtime accumulations or vacation.” 5 ILCS 345/1(b).

The Court concluded that the phrase “on the same basis” was unambiguous and required disability payments be processed in the same manner as the employee’s pre-injury wages. Thus, if the employer routinely withheld employment taxes before the injury, those same deductions must continue post-injury in order to comply with section 1(b).

The statutory language in section 1(b) also lists specific items that cannot be deducted—sick leave, compensatory time, and vacation credits—but does not mention  employment taxes. Applying the interpretive maxim expressio unius est exclusio alterius, the Court held that the legislature’s express inclusion of certain prohibited deductions impliedly excludes others. Accordingly, the omission of employment tax withholding from the list indicates that such withholdings are permissible.

Plaintiffs argued that this reading produced an absurd or unjust result because, in their view, PEDA benefits are exempt from federal income tax, and therefore the withholding of employment taxes unlawfully reduces the benefit. The Court was unpersuaded by their argument. It observed that plaintiffs had provided no authority—no IRS ruling, federal statute, or regulation—establishing that section 1(b) payments are tax-exempt. Even if such payments were ultimately non-taxable, the Court reasoned, any excess withholding would not deprive the employee of funds owed under the Act. Rather, the proper remedy would be for the employee to claim a tax refund from the IRS or adjust his W-4 withholding status.

Additionally, the Court underscored the administrative practicality of its interpretation. They noted that public employers often face operational challenges in administering pay for police officers and firefighters who move in and out of PEDA status, sometimes for short periods. Requiring employers to continually assess taxability and alter withholding practices would create unnecessary complexity and potential compliance issues. Section 1(b), by directing that pay continue “on the same basis” as before the injury, actually simplifies administration and ensures uniformity. The Court noted that other jurisdictions, such as Massachusetts and North Carolina, have adopted similar frameworks requiring payment of “in the same manner” as regular compensation for disability payments.

The Court held that nothing in section 1(b) prohibits public employers from withholding employment taxes from disability payments. The employer, therefore, did not violate the statute by continuing to process payroll in the same manner as pre-injury compensation. The appellate court’s judgment reversing the circuit court was affirmed.

This decision reinforces that PEDA does not create an enhanced or tax-exempt benefit beyond continuation of ordinary salary. Payments should be issued from the regular payroll system and subject to the same withholdings as the employee’s pre-injury compensation.

The decision also reiterates that questions regarding whether disability payments are taxable, or whether withholdings were appropriate, are matters between the employee and the Internal Revenue Service. Per the decision, ff an employee believes the payments are exempt from taxation, the appropriate recourse is to adjust tax withholding by submitting a new W-4 form or to seek a refund directly from the IRS. This clarification protects municipalities from unwarranted demands for reimbursement and reinforces that PEDA’s purpose is to ensure income continuity, not to provide a tax-exempt benefit.