June 1, 2020
How do I prove lost wages in my personal injury case?
If you are injured by another person’s negligence, a component of your damages is lost wages. There can be lost wages in the past and the future. There also may be a loss of earning capacity resulting from serious injuries which I will explain in another blog another day. Proving a specific amount of lost wages can be easy or difficult depending on where you have worked before the accident that caused your injuries. If you were a full-time employee for a legitimate company, the process is straightforward. If you were self-employed, proving lost wages can be more difficult.
For lost wages in the past, your payroll records are requested for a certain period of time prior to the accident using an authorization signed by you the employee. This assumes you were a regular employee. A letter from a supervisor or from the Human Resources department setting forth your job title, description, gross income amount per month or week, hours worked per week, and hours missed because of the accident is very helpful when attempting to settle a negligence case without litigation. If litigation becomes necessary, the employer records must be requested in a certain format from the custodian of records making them admissible as evidence in court. If the employment records reflect a steady normal income for a reasonable period of time prior to the accident, then that will become the standard to use in calculating past lost wages. Keep in mind that there is a difference between work missed because of a doctor’s order or because you did not feel well enough to go to work. When you are attempting to negotiate a settlement without litigation, the insurance adjuster will likely discount any time missed from work without a verified doctor’s order. If after your medical treatments, you return to work earning the same amount of money as before the accident, then your past lost wage claim is easy to prove. This assumes you also have returned to work performing the same duties as before without restrictions.
If the accident caused severe enough injuries, you may suffer future lost wages. For example, you may have undergone a certain type of surgery and the doctor believes it will be 6 months before you can return to work in a normal capacity. If you are trying to settle your case without litigation, then earnings lost for the next 6 months would be considered future lost wages. If you are a regular employee, the 6-month calculation is straightforward. Depending on the type of injuries sustained, there may be many reasons or explanations to support a future lost wage claim.
If you are self-employed or a contract employee, you will need to gather your federal income tax returns for the past couple of years. If you do not have these, you can get them directly from the IRS. You are not required to produce the entire returns which would violate your right to privacy. You would simply produce the first page of each 1040 form or other forms that reflect your gross income. You will also need to produce a financial statement for the current year that reflects current income. Either you or your accountant may prepare such a statement. This will be used to calculate the loss of income for the current year. The combination of the financial statement and prior year earnings can be used to calculate any future lost wages or income.
Keep in mind that the recovery of lost wages is taxable. Therefore, if you receive any reimbursement specifically for lost wages you must report this income to IRS on your tax return for the year in which the claim was paid. If the recovery is a substantial amount, you should seek advice from a CPA or a qualified tax consultant with regard to the reporting of this income.