The Illinois Supreme Court’s recent decision in Bitner v. City of Pekin, 2025 IL 131039, delivered a significant clarification for municipalities and public entities across the state regarding the compensation of injured public safety employees. The ruling settles a dispute over the interpretation of the Illinois Public Employee Disability Act (PEDA), directly impacting how Illinois municipalities process and pay duty-related disability benefits.

The case originated as a result of two Pekin police officers suffering on-the-job injuries, and a dispute over how their PEDA benefits would be paid and taxed. The city withheld employment taxes, including federal and state income taxes, Social Security taxes, and Medicare taxes. The officers filed a complaint against the city, alleging that the city was prohibited from withholding employment taxes from payments made to injured employees under section 1(b) of PEDA.

At the heart of Bitner was a question of statutory interpretation: Does PEDA prohibit a public employer from withholding employment taxes—such as federal/state income tax, Social Security, and Medicare—from payments made to an employee injured in the line of duty?

The Illinois Supreme Court ultimately sided with the City of Pekin, affirming the appellate court’s judgment. The Court reasoned that the plain language of PEDA does not prohibit the withholding of employment taxes, pointing out that the statute specifically names sick leave credits, compensatory time, and service credits as the only prohibited deductions. The Court concluded that by explicitly listing what cannot be deducted, the legislature did not intend to prohibit tax withholding.

Additionally, the Court stressed that whether the PEDA payments are ultimately taxable under federal or state law is a matter for the Internal Revenue Service (IRS) and the Illinois Department of Revenue to determine on a case-by-case basis, and that an employer is not liable to an employee for amounts properly withheld and paid over to the government. Therefore, the proper venue for an employee to dispute the taxability of PEDA benefits would not be via a lawsuit against the municipality, but instead through seeking a refund directly from the state and federal tax authorities.

For Illinois’s local governments, Bitner v. Pekin reinforces a straightforward interpretation of a key public employee benefit statute, allowing them to administer PEDA benefits with greater confidence while maintaining standard payroll procedures.

For more information about this article, please contact Tressler attorney Jim Hess at jhess@tresslerllp.com.

About the Author

Jim represents various local government entities, primarily focusing on day-to-day operations for cities, villages, fire protection districts, park districts, and library districts. Jim’s practice includes handling intergovernmental agreements, ordinances, contract negotiations, administrative proceedings, demolition issues, employment, Open Meetings Act issues, Freedom of Information Act matters, tort liability defense, and ethics. Jim also handles a variety of land use matters, including Tax Increment Financing districts, redevelopment agreements, annexations, and comprehensive planning. Click here to read Jim’s full attorney bio.