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Recovering Lost Income 101: Everything You Need to Know

Written by Berkowitz

tablet with recovery on screen

When you suffer a catastrophic accident, you not only have medical expenses, but lost wages too. In some cases, you may be unable to return to work for some time, which means running out of sick leave and having to survive on no income.

Worse, you could be permanently disabled – leaving you with no way to support yourself or your family. Even if you can return to work, you could have a partial disability, which means you cannot perform the same job duties or might have to take on a job with less pay and fewer hours.

Personal injury statutes offer protection for these very situations. When you are severely injured and cannot work, these statutes ensure you receive compensation for both your present and future lost wages.

The Complex Issue of Lost Wage Claims

Requesting compensation for lost wages or loss of future earnings is a very complex area of personal injury law. It requires a thorough understanding of the statutes, tax law, and the economy. No matter what attorney you hire, that attorney most likely employs a tax or economic specialist to ensure accurate calculations for lost wages and future earnings.

Therefore, this is not an area of the law that you can do yourself. Instead, you need a professional that can help accurately calculate your wages. Inaccurate calculations, even by a few dollars per month, could leave you and your family with much less than you need to thrive.

Lost Wages versus Lost Compensation: What is the Difference?

Lost wages and lost compensation are used interchangeably, but these are two different forms of damages.

To start, if you missed work because of your accident, you most likely qualify for lost wages.

What is Lost Income?

Lost income, sometimes referred to as lost wages, refers to your actual wages missed because of your accident. Any salary you would receive for working, but did not because of your accident, qualifies for lost wages.

If you missed 22 days of full-time work, you could claim 22 days of full-time wages you missed in your lawsuit.

What is Lost Compensation?

Lost compensation covers the other financial benefits that come from your employment, but not within the paycheck itself. Lost compensation could be included in your paycheck if you earn these financial benefits at your job. In some instances, self-employed individuals, freelancers, and part-time workers may not qualify for the lost compensation.

Some examples of lost compensation include:

  • Sick Days – During your recovery, you most likely used some of your sick days to avoid losing compensation. You can request a reimbursement of those sick days in their monetary value. After all, it is not fair for you to use your sick days (which you earn slowly) for an accident you did not cause.
  • Pay Bonuses – If you receive bonuses for job performance, and you missed out on this opportunity due to your recovery, your attorney may be able to claim those bonuses. For example, say that you have consistently achieved top sales in your business and earned high bonus payments. When your injury rendered you unable to work, your attorney could argue that you are entitled to reimbursement for both your salary plus any bonuses you would likely have received.
  • Vacation Days – Just like sick days, you can claim the vacation days you lost during your recovery or vacation days you could not acquire because you were at home recovering. Also, any vacation days you had to use while you were recovering could be reimbursed.
  • Employment Perks and Benefits – Lastly, any perks and benefits you receive for working your job, such as free lunches, access to vacation timeshares, and so forth are also compensated.

Most plaintiffs overlook the other areas where they deserve compensation, such as vacation and sick days. A skilled personal injury attorney, on the other hand, does not. Your attorney will specify each of these in his or her demand letter along with documentation justifying why you deserve these forms of compensation.

How Do You Prove Lost Wages?

Proving lost wages and compensation is relatively easy. The more documentation you have, the easier it is to make such claims on your demand letter to the insurer as well. Some forms of documentation to gather and bring to your attorney’s office include:

  • Physician’s Note: Bring along a note from your treating doctor stating how much time you must take off work. The doctor’s note should specify how long you will need to recover and their recommendations for hour restrictions if you can return to work in the future.
  • Verification Letter from Employer: You need a letter from your employer stating the number of days you have missed, benefits lost during that period, and the accumulated value. The letter should also include your current pay level, hours you are authorized to work in each pay period, and any bonuses you missed.
  • Paycheck Stubs and Tax Documents: You must prove all wages you would have earned. The best way to do this is to bring in your last couple of recent paycheck stubs, but also any W-2 statements from the tax year. These establish your base salary, vacation and sick day earnings, and any bonuses or overtime you traditionally earned as well.

How Do You Calculate Lost Income When Self-Employed?

If you are self-employed, calculating your lost wages becomes more complicated. After all, you are the employer so you are not a third party who can legitimately verify your lost wages. Insurance claims adjusters like to scrutinize lost wage claims from self-employed plaintiffs.

However, your attorney can calculate your expected income from averaging the past few years tax returns – especially if your business has a consistent annual income.

Even if your business income is more complicated, your attorney can hire an accountant who specializes in self-employed income estimations to determine how much you would have earned, the estimated amount you lost, and so forth.

The Future Loss of Earnings Claim

Future loss of earnings or a loss of earning capacity is not the same as lost wages. This calculation focuses on wages of the future; not those you have lost while recovering thus far.

These damages are applicable when you are permanently affected in terms of how much you can earn and work. Also, your potential future earning capacity is assessed, even if you have never worked before. For example, a high school student permanently disabled in an accident could still claim future loss of wages, because they would have worked after graduation.

How are Future Lost Earnings Calculated?

The future loss of earnings is calculated differently than your current lost wages. It typically requires hiring several experts (such as an accountant and economist) to help calculate what you would have earned had you not been injured.

Most importantly, this form of damages focuses on your ability to earn money. The courts consider your earning capacity prior to the injury, then the amount your earning capacity was reduced because of your injuries.

Certain factors they consider include:

  • Permanent versus Partial Disability – The courts consider whether you can ever work again or if you are partially disabled. If you can work again, even in a different position, the court will consider your earning capacity at partial status.
  • Limitations to Earning Capacity – Even if you can return to work, you may have limitations. For example, you may be unable to work in specific industries, which could dramatically reduce your income options.
  • Specialty Training and Career Fields – If your employment before the injury was specialized, and something companies pay for generously to retain talent, then you may receive a higher loss of future earning capacity.

Compensation for Lost Opportunities

You do not only calculate your lost wages in these types of damages. In fact, you can request compensation for lost opportunities.

Every job has some sort of opportunity. Whether it is for a bonus, pay increase, or a higher paying position in the company. When you are injured, you miss out on these opportunities, which can further your career and increase compensation.

If you have enough evidence that you qualify, your attorney may work these lost opportunities into the calculation. For example, your boss verifies that he or she was considering you for a management position, but now that you cannot work you will be unable to take that higher paying position.

The Factors that Negatively Impact Lost Wage Claims

Certain factors could reduce your lost wages claim or even bar you from requesting them at all.

  • You contributed to the accident. If you contribute in anyway to the accident, your compensation for lost wages could be reduced by the portion of your contribution or you could be barred entirely from receiving compensation because of your contribution.
  • Your desire to work. You are better off proving that you tried to return to work, even if you cannot. If you have multiple medical experts that testify to your permanent disability, then this may be unnecessary. However, if one expert says you can return to work, while another contradicts the statement, you have a conundrum. Showing the jury that you attempted to return to work can help prove that your injuries rendered you incapable of performing your job .

The IRS and Your Lost Wages

When you earn wages, you pay income tax. Therefore, you may wonder what would happen with your settlement for lost wages or future earnings. While the bulk of your injury settlement is tax-free, any portions designed to compensate for lost wages and future loss earnings are subject to taxation by the Internal Revenue Service (IRS) and state taxing authority.

Speak to an Attorney Regarding Your Lost Wages

If you have been seriously injured and you are unable to return to work, contact a personal injury attorney who can not only explore your options for lost wages, but other damages you may be entitled to as well.

You did not cause the accident; therefore, you should not have to use up your sick leave, vacation pay, and miss out on opportunities as a result. Instead, let an advocate fight for you and ensure you and your loved ones are financially stable while you recover.

Contact Berkowitz and Hanna LLC today to schedule a no-obligation consultation. Contact us online to get started.