How to Calculate Lost Income

If you were seriously injured in an accident, you may be unable to return to work. This can take a devastating toll on your personal finances. If your injuries were caused by the negligence of another person or entity (such as a business or government agency), you have a right to be compensated for the income you lost while recovering from your injuries.


There are two ways to recover money damages for lost income after an accident: one is to file a personal injury claim with the at-fault party’s insurance company. The other is to file a personal injury lawsuit against the at-fault party in court.

This page provides basic information about calculating lost income for the purposes of negotiating a personal injury settlement with an insurance company. It may not apply to you, and is not a substitute for consulting with an experienced personal injury lawyer. Only a licensed attorney in your area can give you legal advice about your situation.

The Difference Between Lost Wages and Lost Compensation

In addition to lost wages, you may be entitled to lost compensation in your personal injury settlement. It is important for you to understand the difference between lost wages and lost compensation, so that you do not undervalue your personal injury claim while negotiating a settlement with the insurance company.


The term lost income refers to both lost wages and lost compensation. Lost wages is the amount of money your employer pays you for your work, which typically comes in the form of a company check or direct deposit to your bank account. Most people are paid by their employers weekly, bi-weekly, or monthly.

Lost compensation is any other financial benefits of your employment, plus your earning capacity. For the purposes of a personal injury claim, lost compensation may include any sick or vacation days you used while recovering from your injury, pay bonuses you would have earned, and any other perks of employment you did not receive during your recovery period.

Other types of employment compensation may include:

  • SICK DAYS: If you used any of the sick days you had accumulated to recover from your injury, you have a right to be reimbursed for the monetary value of those days. You should not have to use valuable sick days to recover from an injury caused by the negligence of another person or entity. You will no longer have those sick days if you need to stay home to recover from another ailment, such as a cold or food poisoning. Each sick day you used is equivalent to losing a day’s wages.
  • VACATION DAYS: Like sick days, using a vacation day to recover from your injuries is equivalent to losing a day’s wages. When calculating lost income in your demand letter, be sure to add up any vacation days you used during your recovery period and multiply this figure by your daily wage.
  • PAY BONUSES: Many employers offer their employees pay bonuses based on job performance. For example, you may receive a bonus if you had the highest sales for the month. If you were in contention for a pay bonus, and your injuries prevented you from receiving the bonus, you can demand reimbursement for the amount of the bonus. It is important to understand that you must have actually been in contention for the bonus. You will have to show the insurance company that it was highly likely you would have received the bonus had you not been injured.
  • EMPLOYMENT PERKS AND BENEFITS: Many employees enjoy other perks and benefits of employment. Perhaps your employer takes you out to lunch every Friday, or you have access to the company’s vacation condo one weekend per year. If you missed out on any employee perks and benefits because of your injuries, you have the right to be compensated these losses.

Many personal injury claimants over look these forms of lost compensation when negotiating a settlement with an insurance company. Typically, insurance companies refer to both lost wages and lost compensation as “lost income.” As long as you understand the difference between the two, you can include both in your demand letter. This can significantly increase the amount of your final personal injury settlement.

Proof of Lost Income

Without adequate proof of lost income, the insurance company will not be willing to offer you compensation for lost wages and lost compensation. You will need to provide evidence that any time you spent away from work was justified based on the severity of your injuries and the course of treatment recommended by your doctor. There are two key pieces of evidence you need to gather in order to secure compensation for lost income: a prescription taking you off of work, and a letter from your employer detailing the amount of wages and compensation you lost as a result of your injuries. You can also include past paychecks or W-2’s to establish the amount of your lost wages.Proof-of-Lost-Income

Letter from Your Employer

The insurance company will also require legitimate proof of the income and compensation you lost as a result of your injuries. You should ask your employer for confirmation of lost wages and compensation in the form of a written letter signed by your manager. The letter from your employer should discuss:

  • The total amount of work you missed as a result of your injuries;
  • Your hourly pay or salary at the time you were injured;
  • The number of hours you normally worked during each pay period, including the average amount of overtime you worked;
  • The amount of vacation and sick days you used while recovering; and
  • Any additional compensation you would have received during your recovery period (such as bonuses, promotions, and perks).

How to Calculate Lost Income if You Are Self-Employed

If you are self-employed, you may have a more difficult time gathering proof of lost income. It is important for you to understand that you are entitled to recover compensation for lost income just like all other types of employees. But claims adjusters often treat lost income claims from self-employed people with suspicion.

If your business is not very complicated, you should be able to calculate your lost income using your tax returns for the past several years. If your business has been relatively steady, you can average your tax returns from the past two or three years and use this as a basis for calculating lost income. If your business has been growing steadily, you can include the average rate of growth in your lost income calculation.

If your business is more complicated, you may need to hire an accountant or personal injury lawyer to help you calculate your lost income. An experienced personal injury lawyer will be familiar with how to calculate lost income for self-employed people, and may work with a forensic accountant to get a better idea of how much income you would have earned had you not been injured. To learn more about hiring a personal injury lawyer, visit:

Frequently Asked Questions about Hiring an Attorney

Questions to Ask When Interviewing Attorneys

Choosing an Attorney: The Professional Awards and Affiliations That Matter

Other Things to Keep in Mind When Calculating Lost Income

There are a few other things you should keep in mind when calculating lost income. The first is to tell the truth about your salary and compensation. Do not “pad” your income in an effort to obtain a higher settlement. If you lie to an insurance company, you may suffer serious legal consequence.

You should also remember that lost income is part of your special damages. When you calculate your settlement demand, you will use a multiple of your special damages to arrive at this figure. The more reliable proof you have of your lost income, the higher your final settlement will be.

Next: How to Request Medical Records

Disclaimer: Information provided on this site is NOT formal legal advice. It is generic legal information. Under no circumstances should the information on this site be relied upon when deciding the proper course of a legal action. Always get a formal case evaluation from a licensed attorney if you think you might have a personal injury lawsuit.