1. What are lost wages?
Lost wages in Colorado include all amounts a worker would have earned from work had the worker not been injured.
“Lost wages” can include (without limitation):
Regular pay (hourly or salary),
Overtime pay,
Commissions,
Bonuses,
Self-employment income,
Vacation, personal or sick days, and
Any other lost perks or benefits (such as a car allowance or free meals).
2. The difference between lost wages and lost earning capacity
“Lost wages” usually refers to past income lost as the result of a personal injury. It is the worker’s out-of-pocket losses up until the date of settlement or trial.
Colorado law also allows workers to sue for the income they will be unable to earn in the future due to an accident or injury. This amount is usually referred to as “lost earning capacity” in Colorado.
Proving lost earning capacity can be more complicated than proving lost wages. It often requires testimony from a medical and/or occupational expert in order to account for raises, bonuses and career development.
3. How long do I have to file a claim for lost wages in Colorado?
Colorado’s statute of limitations in personal injury cases is generally three years.1
An experienced injury lawyer can help a potential plaintiff determine how long he or she has to sue for lost earnings in Colorado.
4. How are lost wages calculated in a Colorado personal injury case?
Colorado law requires personal injury plaintiffs to prove the amount of the earnings they claim to have lost.3
When the injury is for a relatively short, fixed period of time, the calculation is fairly straightforward.
But if the plaintiff was due for a raise or paid based on performance, it may require the testimony of a forensic accounting or occupational expert.
A jury may also award prejudgment interest on lost wages of any kind, though it is not required to do so.4
5. Are “lost wages” taxable in Colorado?
Damages for lost wages are taxable in a Colorado personal injury case – at least in theory.
Internal Revenue Code section 104 provides that gross income for tax purposes does not include “the amount of any damages (other than punitive damages) received… on account of personal physical injuries or physical sickness.”5
Courts have generally held this to exclude compensation for lost wages. The lost income would have been taxable if earned and is, therefore, taxable when recovered in a Colorado personal injury lawsuit.6
In practice, however, Colorado personal injury settlements are often a lump sum that is not allocated between physical injuries and lost wages. This can make it difficult to determine whether, or how much, taxes are owed.
Consultation with a tax professional is recommended to determine what, if any, portion of a Colorado personal injury settlement is taxable.
6. Proving lost wages in Colorado
There is no one way to prove lost wages in Colorado. Some of the most common are:
6.1. A “lost wages letter” from a Colorado employer
If the worker has regular employment, the easiest way to prove lost wages is with a combination of past pay stubs and a letter from the worker’s employer.
A “lost wages” letter from a Colorado employer should set forth:
The employee’s job title,
The date on which the employee was hired,
Confirmation that the employee is (or was) an employee as of the date of the injury or accident,
The number of hours the employee normally works (or worked) per week,
The employee’s regular rate and frequency of pay (for instance, $25/hour),
The overtime rate, if any, to which the employee is entitled and the number of overtime hours normally worked per week,
The number of days or hours of work the employee missed (including time missed because of doctor appointments, physical therapy, etc.),
Sick and vacation days the employee had to use for the injury,
Any amounts the employee could reasonably have expected to receive in overtime pay, commissions or bonuses during that period, and
Any other perks the employee would have been entitled but didn’t receive (such as a car allowance).
6.2. Past pay stubs and tax returns
Sometimes it is difficult for an employee to get a letter from his or her employer. Or a person may be self-employed or have irregular income.
In such cases, the worker can establish lost wages by other means, such as past pay stubs and income tax returns.
Workers can use IRS Form 4506 to request copies of their past tax returns from the Internal Revenue Service.
And if the worker has not kept copies of pay stubs, his or her Colorado personal injury attorney can obtain copies during the discovery process.
6.3. Proving lost self-employment income
To recover lost self-employment income in Colorado, the worker will need to prove what he or she would have made during the period in which he or she was unable to work.
Documents that can help establish lost self-employment income include:
Tax return statements for prior years,
Billing statements for the months preceding the accident or injury, or,
If income is seasonal, billing statements for the same period during the preceding years.
If the worker’s income is very high or complicated, a forensic accounting expert witness will often need to testify.
6.4. Lost personal days, sick days and vacation time
A worker who used personal days, sick days or vacation time to cover missed days and/or doctor/therapist appointments can claim them as lost wages.
If not for the defendant’s wrongful act, the worker would have had those days to use whenever he or she liked. The plaintiff may even have been able to cash them out, depending on the employer’s policy
As with other forms of lost wages, the worker will need to prove the time was lost due to the accident or injury in order to recover damages.
6.5. Lost overtime, commissions, or bonuses
Overtime pay, commissions, bonuses and other perks can be claimed as lost wages in Colorado
Common methods of proving this more speculative income include (but are not limited to):
Past pay stubs showing a pattern of overtime pay or bonuses;
A written employment contract;
Proof of an employer’s policies for such income;
employer letter specifying the amount the worker would have been expected to receive; and
Proof that any conditions for earning the extra income were (or would have been) satisfied.
6.6. How can I prove income from tips in Colorado?
Proving lost tips is more difficult than proving lost salary and overtime, but it can be done.
Common ways of proving lost tips in Colorado personal injury cases include (but are not limited to):
An employer’s letter setting forth the amount the employee could have expected to earn;
Proof of income from prior pay periods (for instance, by showing regular bank deposits on the day after payday);
Prior tax returns; or
Reports from a private investigator’s visits to the employer’s workplace.
Note that proving income that was never reported on a tax return could, in theory, expose a worker to a claim for back taxes by the IRS or Colorado Tax Board. Plaintiffs in this situation are advised to consult with a certified public accountant or other tax professional.
6.7. Can I recover for unemployment insurance benefits?
In order to be eligible for unemployment benefits in Colorado, an employee must, among other requirements:
Be physically able to work, and
Be available and actively looking for work.
By definition, someone claiming lost wages was not able to work in the past. In such a case, therefore, the individual would usually be expected to file for Colorado disability benefits rather than unemployment.
In some cases, however – such as where being unable to work may have affected someone’s ability to earn enough base wages for future unemployment benefits – an unemployed individual may be able to claim lost unemployment benefits in a Colorado injury case.
6.8. Special rules in employment-related cases
A worker who was injured on the job in Colorado may be limited to recovery under Colorado workers compensation laws.
If you have any questions, you should contact Malman Law Firm at 303-733-7900 or ilianameza@malmanlawfirm.com.