                     FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

JACK A. RIVERA,                             
                Plaintiff-Appellant,
                 v.                                No. 03-17261
BAKER WEST, INC., an Arizona
corporation; BAKER CONCRETE                         D.C. No.
                                                 CV-02-02082-EHC
CONSTRUCTION, INC., an Arizona
                                                    OPINION
corporation, dba Baker Concrete,
Inc.,
              Defendants-Appellees.
                                            
         Appeal from the United States District Court
                  for the District of Arizona
          Earl H. Carroll, District Judge, Presiding

                     Submitted June 17, 2005*
                     San Francisco, California

                     Filed December 13, 2005

        Before: Richard C. Tallman, Jay S. Bybee, and
                Carlos T. Bea, Circuit Judges.

                     Opinion by Judge Bybee




  *The panel finds this case appropriate for submission without oral argu-
ment pursuant to FED. R. APP. P. 34(a)(2).

                                 16285
16288           RIVERA v. BAKER WEST, INC.


                       COUNSEL

William D. Howell III, The Howell Law Firm, LLC, Phoenix,
Arizona, for the plaintiff-appellant.

Rebecca Winterscheidt, and Leslie A. Smith, Snell & Wilmer,
LLP, Phoenix, Arizona, for the defendants-appellees.
                  RIVERA v. BAKER WEST, INC.               16289
                          OPINION

BYBEE, Circuit Judge:

   Jack Rivera (“Rivera”) appeals the district court’s order
dismissing his suit against Baker Concrete Construction, Inc.
(“Baker”). Rivera argues that Baker improperly withheld
approximately fifteen thousand dollars in state and federal
employment taxes from a check that was paid to settle his
claim for unlawful workplace discrimination and wrongful
termination and, therefore, that the district court erred in dis-
missing the suit on the basis of the settlement. Rivera’s argu-
ment is twofold: first, he argues that the settlement proceeds
paid by Baker were intended to reimburse Rivera for personal
physical injuries and should therefore be excluded from his
gross income under 26 U.S.C. § 104(a)(2); second, he argues
that, even assuming the settlement proceeds represent lost
wages, an award of back pay under Title VII is not subject to
income tax withholding.

   We conclude that the district court did not clearly err in
finding that the settlement proceeds were not intended to
compensate for personal physical injuries, but instead repre-
sented lost wages. Because the district court reasonably clas-
sified the settlement proceeds as back pay, the district court
properly held that Rivera’s settlement proceeds were subject
to withholding. Accordingly, we affirm the district court’s
decision granting Baker’s motion to dismiss.

             I.   FACTS AND PROCEEDINGS

   In October 2002, Rivera filed a complaint against Baker
alleging: (1) that he was subjected to a hostile work environ-
ment as a result of discrimination based on his race and
national origin; (2) that he was wrongfully terminated by
Baker; and (3) that his employer subsequently provided unfa-
vorable references, all in violation of 42 U.S.C. §§ 1981,
1983, 1985, 2000e-2, 2000e-3, and 2000e-16. The parties
16290               RIVERA v. BAKER WEST, INC.
appeared before a magistrate judge for a settlement confer-
ence and reached a settlement agreement. The executed settle-
ment agreement provided in Section I that Baker would pay
Rivera the “sum of forty thousand ($40,000) less all lawfully
required withholdings.”

   Baker issued Rivera a check in the amount of $25,140,
retaining $14,860 as a “lawfully required withholding.” The
amount withheld included $10,000 in federal income tax,
$3,060 in Federal Insurance Contributions Act (“FICA”) tax,
and $1,800 in state income tax. Baker then filed a motion for
dismissal with prejudice because Rivera cashed the $25,140
settlement check but had not dismissed his claims. Rivera
opposed the motion, arguing that the settlement terms were
not defined in the agreement, and that taxes should not have
been withheld. Rivera requested that the district court enforce
the settlement agreement and order Baker to pay the withheld
settlement amount to Rivera.

   The district court granted Baker’s motion to dismiss. The
court found that “the settlement agreement signed by both
parties [did] not state whether the settlement sum constituted
payment for lost wages or back pay.” It also found that Rive-
ra’s complaint did not allege damages for “emotional distress
or any other exception that would warrant classifying the set-
tlement sum as anything other than an award for back pay.”
The court concluded that the settlement sum was lawfully
classified as taxable wages and that Baker’s withholding was
proper. This appeal followed.

              II.    STANDARD OF REVIEW

   We review questions of law de novo, Milenbach v. Com-
missioner, 318 F.3d 924, 930 (9th Cir. 2003), and review
findings of fact for clear error, Nunes v. Mueller, 350 F.3d
1045, 1051 (9th Cir. 2003).
                 RIVERA v. BAKER WEST, INC.             16291
                    III.   DISCUSSION

  Rivera makes two principal arguments: (1) that the district
court improperly found that the parties’ settlement repre-
sented back pay because it encompassed emotional distress
and mental anguish allegedly suffered as a result of Baker’s
conduct, and (2) that the district court erred because lost
wages recovered under Title VII are not subject to income tax
withholding. We discuss each in turn.

A.   Classifying Settlement Proceeds As Income

   [1] The Internal Revenue Code defines gross income as “all
income from whatever source derived,” except as excluded by
other provisions of the Code. 26 U.S.C. § 61(a) (2004). Sec-
tion 104(a)(2) provides an exclusion for “the amount of any
damages (other than punitive damages) received (whether by
suit or agreement and whether as lump sums or as periodic
payments) on account of personal physical injuries or physical
sickness.” 26 U.S.C. § 104(a)(2) (emphasis added); see also
26 C.F.R. § 1.104-1(c). The italicized language of the
§ 104(a)(2) exclusion was added by the Small Business Job
Protection Act of 1996, Pub. L. 104-188, § 1605, to make
clear that only damages for physical injuries or sickness, and
not damages for emotional distress, were excluded from the
definition of income. See Mayberry v. United States, 151 F.3d
855, 858 n.2 (8th Cir. 1998). Prior to this amendment, the
Supreme Court held in Commissioner v. Schleier, that a tax-
payer seeking to exclude money damages from income bears
the burden of proving that the exclusion applies. 515 U.S.
323, 336-37 (1995) (involving damages received pursuant to
a settlement agreement disposing of the plaintiff’s age dis-
crimination claims).

   [2] The 1996 amendment does not affect the allocation of
the burden of proof discussed in Schleier. Thus, in order for
Rivera’s settlement proceeds to qualify for a § 104(a)(2)
exclusion, he must show that: (1) “the underlying cause of
16292                RIVERA v. BAKER WEST, INC.
action giving rise to the recovery is ‘based upon tort or tort
type rights;’ ” and (2) “the damages were received ‘on
account of personal [physical] injuries or [physical] sick-
ness.’ ” Schleier, 515 U.S. at 337 (alteration added) (quoting
United States v. Burke, 504 U.S. 229, 234 (1992)). We con-
clude that Rivera has failed to satisfy the second requirement,
that the damages were received on account of personal physi-
cal injuries or physical sickness, and therefore do not address
whether the post-1991 version of Title VII contemplates the
types of damages associated with tort and tort-like claims.1

   [3] The second requirement of the Schleier test “can only
be satisfied if there is ‘a direct causal link’ between the dam-
ages and the personal injuries sustained.” Banaitis v. Comm’r,
340 F.3d 1074, 1080 (9th Cir. 2003) (quoting Fabry v.
Comm’r, 223 F.3d 1261, 1270 (11th Cir. 2000)), abrogated
on other grounds by Comm’r v. Banks, 543 U.S. 426 (2005).
Thus, when damages are paid through a settlement agreement,
we will look first to the underlying agreement to determine
whether it expressly states that the damages compensate for
“personal physical injuries or physical sickness” under
§ 104(a)(2). See Pipitone v. United States, 180 F.3d 859, 863
(7th Cir. 1999). If the agreement lacks express language spec-
ifying the purpose of the compensation, we will then examine
the intent of the payor. See id. at 864; Kurowski v. Comm’r,
917 F.2d 1033, 1036 (7th Cir. 1990); Knuckles v. Comm’r,
349 F.2d 610, 613 (10th Cir. 1965). The payor’s intent can be
“based on all the facts and circumstances of the case, includ-
ing the complaint that was filed and the details surrounding
the litigation.” Allum v. Comm’r, 90 T.C.M. (CCH) 74 (2005).

  [4] First, examining the agreement, we conclude that it
  1
   Congress amended Title VII in the Civil Rights Act of 1991, Pub. L.
102-166, § 1745, to provide non-economic based remedies. In United
States v. Burke, 504 U.S. 229, 241 (1992), the Supreme Court held that the
pre-1991 version of Title VII did not contemplate the types of damages
associated with tort and tort-like claims.
                  RIVERA v. BAKER WEST, INC.              16293
does not expressly state that the damages paid to Rivera com-
pensate for personal physical injuries or physical illness.
Rivera has not pointed to a provision of the agreement that
supports a contrary conclusion. The settlement agreement lists
only the amount of the settlement and does not describe the
specific personal injuries Rivera may have sustained. To the
extent the agreement betrays the nature of the settlement, the
inferences run against Rivera or, at best, are neutral. The set-
tlement agreement provides that Baker would pay Rivera
$40,000 “less all lawfully required holdings.” If, as Rivera
claims, the $40,000 compensated him for personal physical
injuries or physical sickness, the phrase “less all lawfully
required holdings” is not only surplusage, but quite mislead-
ing. The phrase, however, is entirely consistent with Baker’s
insistence that the settlement compensated Rivera for back
pay. Nevertheless, the settlement agreement falls short of
expressly identifying the nature of the injuries redressed.

   [5] Second, if there is no express evidence of the parties’
intent in the settlement agreement, we look to the intent of the
payor. Baker argues that it did not intend the award to com-
pensate for personal physical injuries or physical sickness, but
rather to dispose of Rivera’s back pay claim. Once again,
Baker points to language in the settlement agreement stating
that Baker would pay Rivera $40,000 “less all lawfully
required withholdings.” This language is the best (and only)
available evidence of the payor’s intent, save Rivera’s bare
assertion to the contrary, and it suggests that Baker intended
some or all of the damages to constitute back pay. For reasons
stated above, the inference is a reasonable one: “[t]he with-
holding of taxes is a significant factor suggesting the
employer intended a payment to constitute severance pay.”
Pipitone, 180 F.3d at 864 (citing Nagourney v. Comm’r, 57
T.C.M. (CCH) 954, 957 (1989), aff’d without published opin-
ion, 904 F.2d 700 (4th Cir. 1990)). While this provision is not
conclusive proof of Baker’s intent, the agreement’s failure to
specify an amount attributable to personal injuries creates a
presumption that Baker intended that the amount constitute
16294                 RIVERA v. BAKER WEST, INC.
back pay, and, therefore, the entire amount is not excludible.
Id. at 864-65 (quoting Wise v. Comm’r, 75 T.C.M. (CCH)
1514, 1517 (1998)). Rivera has failed to present evidence to
rebut this presumption.2

   [6] We hold that the district court properly found that the
settlement agreement encompassed only damages for lost
wages. We therefore conclude that the district court did not
clearly err by classifying the settlement proceeds as lost
wages not entitled to a § 104(a)(2) exclusion.

B.    Withholding Taxes from Settlement Proceeds

   Rivera argues that, even if his settlement award was income
to him, awards for back pay under Title VII are not subject
to income tax withholding. We disagree, and hold that the set-
tlement proceeds paid to compensate Rivera for his lost wages
are subject to income tax withholding.
  2
     Rivera argues that his discrimination claim was a “personal injury
claim” and that Baker knew or should have known of the nature of his
claim, but the record offers no support whatsoever for his argument. First,
the complaint does not allege that he suffered any physical injury or physi-
cal sickness. Second, Rivera did not reveal in his Rule 26 disclosure state-
ment any personal physical injury or physical sickness as a “category of
damages” for which he sought relief. See FED. R. CIV. P. 26(a)(1)(C) (“a
party must, without awaiting a discovery request, provide to other parties
. . . a computation of any category of damages claimed by the disclosing
party [and the documents] on which such computation is based”). Finally,
Rivera has failed to produce any evidence regarding the settlement confer-
ence during which the parties allegedly discussed Rivera’s emotional dis-
tress and mental anguish. Rivera has offered nothing that challenges, much
less refutes, the presumption created by the language of the settlement
agreement. See Lindsey v. Comm’r, 422 F.3d 684, 689 (8th Cir. 2005)
(“Lindsey fails to establish the second criterion, because he has not identi-
fied what percentage of the settlement damages is allocable to physical
injury or physical sickness, and the record lacks any evidentiary basis for
concluding a specific portion of the . . . settlement payment is allocable
to Lindsey’s physical injury or physical sickness.”).
                  RIVERA v. BAKER WEST, INC.               16295
   [7] The Internal Revenue Code defines “wages” as “all
remuneration for employment, including the cash value of all
remuneration (including benefits) paid in any medium other
than cash.” 26 U.S.C. § 3121(a) (1998). It specifically
excludes from that definition any payments made by the
employer on account of sickness or accident disability, medi-
cal or hospitalization expenses, or death. Id. at
§ 3121(a)(2)(A)-(C). The Fourth Circuit has observed that the
“language in the Internal Revenue Code and the Treasury
Regulations . . . is expansive,” and has held that certain settle-
ment payments “fit easily within FICA’s broad definition of
‘wages’ as ‘all remuneration for employment unless specifi-
cally excepted.’ ” Hemelt v. United States, 122 F.3d 204, 209
(4th Cir. 1997) (citing 26 U.S.C. § 3121(a) and 26 C.F.R.
§ 31.3121(a)-1(b)).

   [8] The Internal Revenue Code defines “employment” to
include “any service, of whatever nature, performed . . . by an
employee for the person employing him.” 26 U.S.C.
§ 3121(b). The Supreme Court and Fourth Circuit have
emphasized the broad, inclusive nature of “employment.” See
Soc. Sec. Bd. v. Nierotko, 327 U.S. 358, 365 (1946); Hemelt,
122 F.3d at 209. “ ‘[S]ervice’ as used by Congress in this
definitive phrase means not only work actually done but the
entire employer-employee relationship for which compensa-
tion is paid to the employee by the employer.” Nierotko, 327
U.S. at 365-66. The Code does not distinguish between back
pay based on, for example, contract claims, and back pay
based on Title VII claims.

   At least three circuits have held that settlement payments
based on Employee Retirement Income Security Act
(“ERISA”) claims are “wages” and require payments to be
withheld for tax purposes. See, e.g., Gerbec v. United States,
164 F.3d 1015, 1025-27 (6th Cir. 1999) (holding that a por-
tion of the ERISA settlement “may be subject to federal
income taxation as well as FICA taxation” and that “any dam-
ages attributable to wages [the taxpayers] would have
16296             RIVERA v. BAKER WEST, INC.
received had they not been wrongfully terminated should also
be subject to the FICA taxes they would have paid on those
wages had they not been wrongfully terminated”); Mayberry,
151 F.3d at 860 (holding that an ERISA settlement was not
excludible from gross income and was “wages” subject to
FICA taxes); Hemelt, 122 F.3d at 209-10 (holding that settle-
ment payments for ERISA claims approximate recovery for
lost wages and are properly defined as wages for FICA with-
holding purposes). Moreover, one court analogized ERISA
claims to “claims under Title VII and the ADEA,” because
they are all “designed to approximate[ ] recovery for lost
wages and other economic harms.” Hemelt, 122 F.3d at 209.

   [9] Like the ERISA claims at issue in Gerbec, Mayberry,
and Hemelt, Rivera’s claims stem from his employer-
employee relationship with Baker. The settlement payments
are compensation for back pay and lost wages; the fact that
Rivera alleged that back pay was owed him because of viola-
tions of federal discrimination laws is incidental to whether
his back pay constitutes wages subject to withholding. We
conclude that Rivera’s back pay and lost wages constitute
“wages” for taxable withholding purposes, and the district
court properly held that these settlement payments were sub-
ject to withholding. See 26 U.S.C. § 3121(a); 26 C.F.R.
§ 31.3121(a)-(1)(i).

   [10] Even though Rivera is not currently employed by
Baker, his “wages” from the settlement agreement are still
subject to taxable withholding. “[R]emuneration for employ-
ment . . . constitutes wages even though at the time [the wages
are] paid the relationship of employer and employee no longer
exists between the person in whose employ the services were
performed and the individual who performed them.” 26
C.F.R. § 31.3121(a)-(1)(i); see also Gerbec, 164 F.3d at 1026
(“We conclude that it would be improper to exempt Plaintiffs
from mandatory FICA taxes merely because they were not
employees of [their company] at the time the payments were
made and because the payments were not in return for actual
                      RIVERA v. BAKER WEST, INC.                     16297
services performed.”). Baker properly withheld the tax from
Rivera’s settlement payments, even though he was not cur-
rently in Baker’s employ at the time the settlement was paid.
In fact, Baker might have been liable for failing to withhold
the necessary taxes. See, e.g., 26 U.S.C. § 3402(a)(1)
(“[E]very employer making payment of wages shall deduct
and withhold upon such wages a tax determined in accor-
dance with tables or computational procedures prescribed by
the Secretary.”); § 3403 (“The employer shall be liable for the
payment of the tax required to be deducted and withheld
under this chapter . . . .”); see also Bright v. Bechtel Petro-
leum, Inc., 780 F.2d 766 (9th Cir. 1986) (holding that the duty
to withhold is mandatory, rather than discriminatory, in
nature).

   [11] Rivera is not without recourse, either as to the fact or
the amount of income tax withheld.3 He remains free to seek
a refund for wrongfully withheld taxes via a direct claim to
the Internal Revenue Service. Nonetheless, we hold that
because the settlement proceeds were properly classified as
lost wages, the district court correctly deemed the proceeds
subject to income tax withholding.

                         IV.    CONCLUSION

   For the foregoing reasons, we affirm the judgment of the
district court.

   AFFIRMED.




  3
   Rivera also argues that the amount of tax withheld by Baker was
improper. Rivera waived this claim by failing to raise it before the district
court.
