What if an accident or injury prevents you from being able to work and earn an income like you could before?
As an individual injured through no fault of your own, the law may entitle you to pursue compensation for both the immediate costs of the injury as well as future impacts on your finances.
A significant category of losses that the law allows injury victims to seek recovery for is loss of future earnings, also called loss of earning capacity.
If an accident has reduced your ability to work and earn the same income you received before the injury, continue reading to understand how lawyers calculate the compensation you may recover.
Establishing Your Earnings History as the Starting Point
First, an experienced personal injury attorney will thoroughly document your earnings history. This accounting provides a baseline for projecting where your income could have grown had you not suffered the disabling injury.
Primary documents that evidence your past earnings include:
- Tax returns – Federal and state returns showing your gross earnings and after-tax net income year-to-year.
- Pay stubs – Paycheck statements further substantiate your exact wage or salary at the time of the injury.
- W-2s – These Forms break down your annual earnings, taxes paid, etc., that your employer issues.
Additional items of proof, like work contracts stipulating your compensation, could also come into play, depending on your situation.
The key here is to gather as much tangible evidence of your actual earnings stream leading up to when the personal injury occurred. That sets the foundation for the financial modeling experts to project your future lost income.
Accounting for Your Remaining Worklife Expectancy
The next variable considered is the number of working years you likely had left if not for suffering the permanent disability or long-term effects forcing you out of your occupation.
Worklife expectancy tables factor in elements like:
- Your age – Older plaintiffs have fewer expected working years than younger plaintiffs, with statistical data backing this up.
- Average retirement age – Retirement patterns based on your career field and education level also come into play. Was early retirement common, or did most work well into their 60s?
- Gender – Unfortunately, residual gender discrimination and time off for family reasons can influence the average length of careers as well.
An economist or vocational rehabilitation consultant uses empirical data and individual aspects of your situation to gauge your lost work-life expectancy tailored to you.
Accounting for Wage Growth That You’ll Miss Out On
If the injury or disability had not happened, you likely would have continued benefiting from pay increases over the remainder of your career. So, the assumed growth rate in earnings is vital in adequately capturing your actual losses.
Typical growth rates applied in these lost future earnings calculations by finance experts range from:
- 2% to 5% per year – Representing cost of living adjustments, performance-based raises, promotions or job changes to higher paying roles, etc.
Higher growth rates would apply to plaintiffs who work in rapidly advancing fields. Historical income data and trends specific to your occupation can further bolster growth.
Converting Future Losses to Today’s Dollars
Since the future losses being calculated will occur over many years, the law requires quantifying what that future stream of lost earnings would be worth if paid today as a lump sum.
This calculation is called the “discount rate.”
Essentially, it accounts for the time value of money – a dollar today can earn interest over time, unlike future dollars.
Typical discount rates applied can range from:
- 2% to 4% – Where the rate falls in this band depends on current economic conditions.
The discount rate converts future losses from multiple years into one net present value figure so your attorney can seek full recovery today.
Deducting Taxes on Earnings to Arrive at After-Tax Value
One final adjustment is deducting the income taxes you would have paid on those future earnings.
This adjustment shows the after-tax value of your losses. The goal is to calculate the net income that would have gone into your pocket each year.
Rather than basing this on the highest possible tax bracket, economists can apply an average effective tax rate over your earnings history. The after-tax figures paint the most realistic picture of your real financial harm.
Personal Injury Attorneys Pursue Maximum Available Compensation
A quality personal injury law firm will hold the financial resources to retain highly qualified damages experts from multiple specialties to build your case accurately.
Economists, vocational rehabilitation consultants, accountants, academic researchers, and other professionals can strengthen the available evidence, proving the full extent of your lost future income.
Do you need your earnings calculated after an injury?
If you or a loved one suffered an accident expected to impact your long-term earning capacity and career potential, reach out to a personal injury lawyer in the Nevada or Utah area to discuss your situation.
Your legal counsel can:
- Advise whether you should pursue a future wage loss claim.
- Employ the best experts to assess and testify.
- Guide you through collecting the documentation necessary to verify the compensation you deserve.
The dedicated Nevada and Utah personal injury lawyers of Benjamin Durham Law can examine your case and maximize available compensation to redress your permanent disabilities, loss of enjoyment of life, and reduced earnings far into the future.
