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Lost wages are calculated by multiplying your established rate of pay by the time you were medically unable to work, then adding everything else the injury cost you in earnings overtime, commissions, tips, bonuses and paid leave you were forced to burn. Two things have to line up: proof of what you earned, and a treating physician’s documentation that you could not work.
Arithmetic is the easy part. Most of the money is lost in the second half.
The Basic Formula
| If you are paid… | The calculation |
| Hourly | Hourly rate × hours missed |
| Salaried | Annual salary ÷ work days per year × days missed |
| Commission | Average commission over a representative period × period missed |
| Self-employed | Documented income the business lost because you could not work |
Working example. You earn $26 an hour on a 40-hour week with regular Saturday overtime averaging 6 hours at time-and-a-half. Your doctor takes you off work for five weeks.
- Regular: $26 × 40 × 5 weeks = $5,200
- Overtime: $39 × 6 × 5 weeks = $1,170
- Three paid sick days used before the off-work note: 24 hours × $26 = $624
- Total claimed wage loss: $6,994
Note what happened with the sick days. You did not go unpaid for them, but you consumed a benefit you had earned and would otherwise still hold. That has value, and it belongs in the claim.
What Counts Beyond Base Pay?
More than people claim. A wage loss figure built only from base pay is usually understated. The full list worth documenting:
- Overtime you regularly worked and can evidence from prior pay periods
- Shift differentials for nights, weekends or on-call
- Commissions and bonuses, including a bonus you became ineligible for
- Tips, where reported income or a consistent pattern supports them
- Paid time off, sick leave and vacation you were forced to use
- Lost promotion or advancement where the timing is documented
- Employer-paid benefits you lost during the absence
- Lost self-employment opportunities a declined contract, a cancelled job
How to Prove Lost Wages
With documents, not estimates. How to prove lost wages comes down to three sources: your employer, your tax records, and your doctor. This is where claims lose value. Assemble these early, because employers get slower to respond as time passes:
If you are employed:
- A wage verification letter from your employer stating your rate, schedule, dates missed, and whether paid leave was used
- Pay stubs for several months before the injury and for the absence period
- W-2s and tax returns for two to three prior years, which establish a pattern including overtime and bonuses
- Your doctor’s work status notes off-work slips, restrictions, return-to-work release
If you are self-employed or a contractor:
- Tax returns including Schedule C, for several years
- 1099s, invoices and client contracts
- Profit-and-loss statements for comparable periods before and after
- Written evidence of declined or cancelled work emails, messages, booking records
- Where the business continued, evidence of what it cost to cover your absence
The document that matters most is the smallest one. Without a treating physician’s record saying you were medically unable to work, or restricted from doing your job, there is no wage claim no matter how clear the time off was. An adjuster will take a gap in medical documentation as evidence you could have worked.
Lost Wages Are Not the Same as Lost Earning Capacity
This is the distinction that carries the most money, and it is routinely missed.
Lost wages are backward-looking: income you can show you did not receive between the injury and your recovery.
Loss of earning capacity is forward-looking: the reduction in what you are now able to earn over your working life. It is a separate category and it does not require being out of work at all.
Someone can return to the same job at the same salary and still have a substantial earning capacity claim if they can no longer work overtime, cannot perform the physical parts of the role, have been moved off a promotion track, or face a shorter working life. The question is what you can earn going forward, not what you are currently being paid.
Establishing loss of earning capacity in Arizona generally takes two experts, and it is the part of a lost wages personal injury Arizona claim that most often goes unclaimed: a vocational expert to define what work you can realistically now do, and an economist to project the difference across your remaining working years and reduce it to present value. Our overview of everything an Arizona injury claim can recover sets the rest of the framework, and pain and suffering runs on different rules again.
What Reduces a Wage Loss Award?
Your share of fault, and liens. Arizona applies pure comparative negligence under A.R.S. § 12-2505, so whatever percentage of fault is assigned to you comes off the wage claim exactly as it comes off everything else with no cutoff barring recovery. On $7,000 of wage loss, a 25% fault assignment removes $1,750.
Medical liens and health plan reimbursement come out of the overall recovery, so the gross settlement and your net differ.
What generally does not reduce it: Arizona applies the collateral source rule, meaning a defendant usually cannot cut damages by showing that short-term disability, sick pay, or another benefit covered part of your loss. An adjuster arguing “you were paid anyway” is making an argument the rule does not support.
Arizona’s constitution also prohibits statutory caps on compensatory damages in injury cases, so nothing limits a wage or earning capacity claim except evidence and available insurance.
If You Were Hurt at Work, the Math Is Different
Workers’ compensation pays a fraction, by formula. Under A.R.S. § 23-1045, temporary total disability compensation is sixty-six and two-thirds percent of the average monthly wage, paid during the period of disability, plus an additional monthly allowance where there are dependents. Temporary partial disability pays the same fraction of the difference between your pre-injury wage and what you can earn while recovering.
Two consequences:
The average monthly wage is the whole ballgame. A.R.S. § 23-1041 defines and caps that figure, and every disability benefit in the claim is a percentage of it. Workers with overtime, second jobs or seasonal earnings frequently see it set too low and the determination can be challenged, within a short window after the Commission’s notice.
It pays nothing for the other third, and nothing for pain and suffering. Where someone other than your employer caused the injury, a separate third-party claim covers full wage loss and the categories compensation ignores. But if you are receiving benefits, A.R.S. § 23-1023 generally gives you one year to bring that claim before it is deemed assigned to the compensation carrier; see how the two claims run on separate tracks and our Arizona workers’ compensation guide.
Are Recovered Lost Wages Taxable?
Generally not, where they are part of a physical injury claim but this is a tax question rather than a legal one. Compensatory damages received on account of personal physical injuries are generally excluded from federal gross income, and the lost wage component usually travels with that treatment. Punitive damages and interest are treated differently, as are claims that do not involve physical injury.
Workers’ compensation benefits are generally not taxable either. Confirm your own position with a tax professional before relying on any of this.
Frequently Asked Questions
How are lost wages calculated in an Arizona personal injury claim? By multiplying your established pay rate by the time a physician documented you were unable to work, then adding overtime, shift differentials, commissions, bonuses, tips and any paid leave you were forced to use. Hourly workers use rate times hours missed; salaried workers use annual salary divided by work days per year, times days missed.
How do I prove lost wages after an accident? With an employer wage verification letter stating your rate and dates missed, pay stubs from before and during the absence, W-2s or tax returns for two to three prior years, and your treating physician’s work status notes. Without medical documentation that you could not work, there is generally no wage claim regardless of the time taken.
Can I claim lost wages if I used sick leave or vacation? Generally yes. You consumed a benefit you had earned and would otherwise still hold, so it has value even though your pay continued. Document the hours used and their rate alongside the rest of the claim.
How do self-employed people calculate lost income? Through tax returns including Schedule C, 1099s, invoices and contracts, and profit-and-loss statements for comparable periods before and after the injury. Evidence of specific declined or cancelled work carries particular weight, as does what it costs to pay someone to cover the absence.
What is the difference between lost wages and loss of earning capacity? Lost wages are backward-looking income you did not receive while recovering. Loss of earning capacity is forward-looking, the reduction in what you can earn over your working life. Someone can return to the same job at the same salary and still have a capacity claim if they can no longer work overtime, perform parts of the role, or advance as expected.
Does workers’ compensation pay my full lost wages in Arizona? No. A.R.S. § 23-1045 pays temporary total disability at sixty-six and two-thirds percent of your average monthly wage, subject to a statutory cap on that wage figure, plus an allowance for dependents. It pays nothing for pain and suffering, which is why a third-party claim matters where someone other than your employer caused the injury.
Getting the Figure Right
A wage loss claim is one of the few parts of an injury case that can be calculated precisely which is exactly why it gets underclaimed. The base pay is obvious. The overtime pattern, the burned leave, the bonus you missed, and the capacity you lost going forward all have to be assembled and documented.
If the figure matters, a phoenix personal injury lawyer can tell you what to request from your employer and your doctor before an offer arrives.
Harris Injury Law, PLLC 1136 E Campbell Ave, Phoenix, AZ 85014 (480) 800-4878
Consultations are free and cases run on a contingency fee, meaning no attorney fee unless compensation is recovered. Request a consultation or meet our attorneys, and note that the filing deadline is generally two years from injury. Every case depends on its own facts; no outcome can be promised or predicted.
This article provides general information about Arizona law and is not legal, tax or accounting advice. Reading it creates no attorney-client relationship. Arizona statutes and tax treatment change. Consult a licensed Arizona attorney about your claim and a tax professional about your tax position.
Reviewed by Jason A. Harris, Harris Injury Law, PLLC.
