How to Calculate Loss of Income After Injury in 2026

Table of Contents

• What Counts as Loss of Income After an Injury
• Loss of Earning Capacity vs Lost Wages: Key Differences
• Step-by-Step: How to Calculate Lost Wages for Hourly and Salaried Workers
  • Hourly Employees: Tracking Hours and Overtime
  • Salaried Employees: Prorating Annual Salary and Benefits
• How to Prove Lost Wages for Self-Employed and Gig Workers
  • Step 1: Reconstruct Your Pre-Injury Income Pattern
  • Step 2: Separate Business Expenses From Lost Income
  • Step 3: Document Lost Contracts and Clients
  • Step 4: Account for Seasonality and Growth
  • Step 5: Value Your Own Labor and Lost Business Opportunities
• Documentation for Lost Income Claim: What You Need to Gather
• Calculating Future Loss of Earnings and Earning Capacity
  • Step 1: Establish Your Baseline Earning Capacity
  • Step 2: Apply Work-Life Expectancy
  • Step 3: Subtract What You Can Still Earn
  • Step 4: Reduce to Present Value
  • Partial Disability and Reduced Earning Capacity
• Common Mistakes That Reduce Your Lost Income Claim
• Frequently Asked Questions

Last Updated: September 26, 2026

What Counts as Loss of Income After an Injury

Loss of income after an injury is the money you would have earned but could not because of your injuries. This guide explains how to calculate loss of income after injury, step by step. (Source: Bureau of Labor Statistics data)

You can claim two main types of income loss:

• Lost wages: pay you already missed while recovering
• Lost earning capacity: money you may lose in the future

Loss of Earning Capacity vs Lost Wages: Key Differences

Lost wages are past income you can document. Loss of earning capacity is the future income you may never earn because of your injury.

Here is how they compare:

Factor	Lost Wages	Loss of Earning Capacity
Time period	Past missed work	Future earning potential
Proof needed	Pay stubs, time records	Medical records, vocational expert
Typical claim	Hourly or salaried workers	Serious or permanent injuries
Calculation	Hours missed x hourly rate	Career trajectory and age

That second category is often worth far more.

Step-by-Step: How to Calculate Lost Wages for Hourly and Salaried Workers

Start by adding up the hours or days you missed. Then multiply by your pay rate. Add overtime, bonuses, and benefits you lost.

Here are the basic steps:

1. List every day or shift you missed
2. Find your hourly rate or weekly salary
3. Add overtime, tips, and commissions you lost
4. Add the value of benefits like health coverage
5. Subtract any sick leave or disability pay you received

Hourly Employees: Tracking Hours and Overtime

For hourly workers, the math is simple at first glance. Multiply missed hours by your hourly rate.

Salaried Employees: Prorating Annual Salary and Benefits

For salaried workers, divide your annual salary by the number of workdays in the year. Then multiply by the days you missed.

Then add what most people forget:

• Bonuses you would have earned
• Commissions already in progress
• Retirement contributions
• Paid time off you had to use

How to Prove Lost Wages for Self-Employed and Gig Workers

If you are a 1099 contractor, a business owner, or a gig worker, the standard “hours missed times hourly rate” formula does not fit. You have no employer to confirm your schedule, no W-2, and often no single steady paycheck. That does not mean your lost income is worth less, it means you have to build the record yourself.

Step 1: Reconstruct Your Pre-Injury Income Pattern

Insurers and courts look for a reliable pattern, not a single good month. Pull three to five years of tax returns, profit and loss statements, and 1099 forms. Then calculate a monthly average of your net income, not gross revenue. A contractor who billed $200,000 but paid $120,000 in materials and subcontractors has a net income of $80,000, and that net figure is the ceiling for the claim.

Step 2: Separate Business Expenses From Lost Income

This is the mistake that sinks self-employed claims. You cannot claim gross revenue you never earned. If you could not work, you also did not incur the fuel, supplies, or subcontractor costs you would have paid to earn that revenue. The claim is for net profit, what you would have put in your pocket.

• Gross revenue you would have billed
• Ordinary and necessary business expenses you avoided
• Net profit lost

Step 3: Document Lost Contracts and Clients

Unlike an employee, you can point to specific work you turned down or lost. Gather:

• Signed contracts or statements of work for jobs you could not perform
• Written estimates or proposals you submitted before the injury
• Emails or messages from clients who moved on because you were unavailable
• A written statement from repeat clients confirming your typical volume and rates

Step 4: Account for Seasonality and Growth

Many self-employed workers have seasonal income. A landscaper in a northern state earns little in winter; a retailer earns most in the fourth quarter. If your injury fell in your busy season, the lost income is higher than a simple annual average suggests. Conversely, do not inflate a slow season. An economist can adjust your average for the months you actually missed.

Step 5: Value Your Own Labor and Lost Business Opportunities

If you are a business owner, your injury may have cost you more than your own paycheck. You may have paid someone else to do your work, lost a major contract, or been unable to expand. Those are recoverable losses, but they require separate documentation: payroll records for replacement workers, canceled contracts, and a clear causal link to the injury.

Documentation for Lost Income Claim: What You Need to Gather

The strength of your claim rests on paperwork. Start collecting documents early, before memories fade and records get harder to find.

Gather these records:

• Pay stubs from before and after the injury
• W-2 forms and tax returns
• Employment records and work history
• A physician statement on your work limits
• Medical documentation linking your injury to missed work
• A letter from your employer about missed time

Calculating Future Loss of Earnings and Earning Capacity

Future loss of earnings is the hardest part of a claim to calculate, and it is usually the largest. It asks a forward-looking question: what would you have earned over your remaining working life if the injury had never happened? Unlike lost wages, there is no pay stub to point to. You have to build the number from evidence and accepted economic methods.

Step 1: Establish Your Baseline Earning Capacity

The baseline is what you were reasonably capable of earning before the injury, not just what you were paid. Start with your most recent W-2 or, for the self-employed, your net profit from the last three to five years. Then adjust upward for things the injury erased:

• Promotions you were on track for. A written performance review, a supervisor’s statement, or a documented promotion timeline supports this.
• Raises and cost-of-living adjustments. A career that would have grown at 3% a year is worth more than a flat salary.
• Fringe benefits. Employer-paid health insurance, retirement matching, a company vehicle, and continuing education all have dollar value. The Bureau of Labor Statistics publishes an Employer Costs for Employee Compensation series that economists routinely use to value benefits as a percentage of wages.
• Overtime and shift differentials you regularly worked.

Step 2: Apply Work-Life Expectancy

Courts do not assume you would have worked until a fixed retirement age. They use statistical work-life expectancy tables, often derived from Bureau of Labor Statistics data, that estimate how many more years a person of your age, sex, and education level is likely to remain in the workforce. A 35-year-old with a college degree typically has a longer work-life expectancy than a 55-year-old in a physically demanding trade, and the tables reflect that.

Step 3: Subtract What You Can Still Earn

This is the mitigation offset. If you can retrain into a lower-paying job, the claim covers the gap between your pre-injury and post-injury earning capacity, not your entire old salary. A common pattern is a worker who moves from a $70,000 field role to a $45,000 desk role, the claim is built around the $25,000 annual difference, projected forward.

Step 4: Reduce to Present Value

A dollar earned in 2040 is not worth a dollar today. Courts reduce future losses to present value using a discount rate, which is why economists talk about the “total offset” method, assuming wage growth and the discount rate roughly cancel out, or a net discount rate that reflects the difference. This is where actuarial tables, inflation assumptions, and life expectancy data all come together.

Partial Disability and Reduced Earning Capacity

Most guides focus on total inability to work. The harder and more common scenario is partial disability: you can still work, but you earn less, work fewer hours, or are limited to a different occupation. The calculation is the same four steps above, but the baseline and the post-injury capacity are compared directly.

Common Mistakes That Reduce Your Lost Income Claim

Most claims lose value for the same few reasons. Avoid these and you protect your recovery.

• Returning to work too soon and hiding your limits
• Missing doctor visits, which weakens the medical link
• Failing to report all income sources, including side work
• Waiting too long to start documenting losses
• Accepting a quick settlement before you know your full loss

Frequently Asked Questions

Does an injury settlement count as income?

No, personal injury settlements are generally not considered taxable income by the IRS. The portion of a settlement that covers physical injuries or sickness is excluded from gross income under Internal Revenue Code Section 104(a)(2). However, any portion awarded for lost wages may be taxable, and punitive damages are always taxable. Consult a tax professional to understand how your specific settlement is treated.

What is the difference between lost wages and loss of earning capacity?

Lost wages are the specific income you missed from time off work due to your injury, such as hourly pay, salary, or commissions. Loss of earning capacity is broader: it compensates for your reduced ability to earn in the future, even if you return to work. For example, a surgeon with a hand injury may earn the same salary now but face limited career growth. Both are recoverable economic damages in a personal injury claim.

How do you calculate lost income for self-employed individuals?

For self-employed workers, lost income is calculated by comparing your business income before and after the injury. Gather profit and loss statements, tax returns (Schedule C), 1099s, and client contracts. If your income varies, a vocational expert or forensic accountant can average your earnings over several years. Document missed jobs, canceled contracts, and out-of-pocket expenses like subcontractor pay. This documentation for lost income claim is critical because there are no pay stubs.

Can I recover lost bonuses and benefits in an injury claim?

Yes, you can recover bonuses, commissions, overtime pay, sick leave, vacation time, and fringe benefits like health insurance or retirement contributions if you can prove they were lost due to the injury. Provide your employment contract, bonus history, and employer verification. For future bonuses, you may need a vocational expert to testify about your career trajectory and pre-injury income patterns. Keep all records of expected payments.

---

Calculating loss of income after an injury is complex, and insurers rarely volunteer the full amount you deserve. Abkarian Law Group has spent over 34 years fighting for injured clients, with a 99% success rate on accepted cases and no upfront costs on personal injury cases. Our bilingual team handles your documentation, works with vocational experts, and pushes back on lowball offers. Get a free consultation with Abkarian Law Group and find out what your claim is really worth.