Receiving Payment for Medical Expenses and Lost Wages

When an injury occurs due to another party’s actions, the resulting medical bills and time away from work can create financial strain. The process of receiving payment for these losses involves pursuing economic damages, which are specific, calculable losses intended to restore the injured person to their prior financial position. This compensation addresses the direct monetary impact of an accident, from immediate hospital care to long-term income loss. Navigating this process begins with identifying every recoverable cost.

Identifying Recoverable Medical Expenses

Past Medical Expenses

Compensation for medical costs covers a wide array of treatments and services you have already received. These are the tangible, documented expenses incurred from the moment of injury. Recoverable past expenses can include:

• Ambulance transportation and emergency room care
• Hospital stays and surgical procedures
• Diagnostic tests like X-rays, MRIs, and lab work
• Physical therapy, chiropractic adjustments, and appointments with specialists
• Prescription medications and necessary medical supplies, such as crutches or braces

Future Medical Expenses

A claim can also include the anticipated costs of medical care that will be necessary in the future due to long-term or permanent injuries. These expenses are calculated based on professional medical opinions regarding the likely course of your recovery. Future medical expenses might cover planned surgeries, long-term rehabilitation, or chronic pain management programs. They can also account for the cost of durable medical equipment or home modifications needed to accommodate a disability.

Determining Lost Income and Earning Capacity

Past Lost Wages

Recovering lost income encompasses all forms of compensation you would have earned had the injury not occurred, not just base salary or hourly pay. This includes verifiable lost opportunities for overtime, performance-based bonuses, and commissions. The claim for past lost wages also covers the use of paid time off that was depleted due to the injury. If you used sick days or vacation time for recovery, the value of that time is recoverable.

Loss of Future Earning Capacity

Loss of future earning capacity compensates for a diminished ability to earn income over your working life. This applies when a permanent injury prevents you from returning to your previous job or limits your ability to perform work with the same effectiveness. Calculating this loss involves an assessment of your skills, education, and career path, considering potential promotions you would have likely received. This calculation often requires analysis from vocational experts and economists to determine the difference between what you would have earned and what you can now expect to earn.

Required Documentation and Calculation

For Medical Expenses

Substantiating a claim for medical expenses requires itemized bills from every medical provider, detailing each service and its cost. You will also need pharmacy receipts for all related prescriptions. Health insurance statements, known as Explanation of Benefits (EOB) forms, show what your insurer was billed, what they paid, and your remaining out-of-pocket responsibility. Doctor’s reports and medical records are also needed to confirm that the treatments were necessary and resulted from the injury.

For Lost Wages

To prove lost wages, you will need documents that verify your employment and income, such as pay stubs, W-2 forms, and recent tax returns. A formal letter from your employer is also important evidence. This letter should verify your job title, rate of pay, and the specific dates you were absent from work. If applicable, it should also confirm any lost opportunities for overtime or bonuses. For self-employed individuals, documentation might include invoices and tax records showing a history of earnings.

For Loss of Earning Capacity

Documenting a loss of earning capacity often requires specialized reports. While your past income records are a starting point, the focus is on projecting future losses. This necessitates a report from a vocational expert who can assess how your injuries limit your ability to perform your job. An economist may also be retained to calculate the present-day value of your total future economic loss, analyzing factors like your age, work-life expectancy, and career progression.

Sources of Compensation

Insurance of the At-Fault Party

The most common source of compensation is the liability insurance policy of the person or entity responsible for the injury. For a car accident, this is the at-fault driver’s auto insurance; for a slip-and-fall, it might be a property insurance policy. The process involves filing a claim with the insurer, who will investigate to determine liability and damages. Based on their findings, they may offer a settlement to cover your documented economic losses up to the policy limits.

Your Own Insurance Policies

In some situations, you may turn to your own insurance policies for payment. In a car accident, your Personal Injury Protection (PIP) or Medical Payments (MedPay) coverage can pay for initial medical expenses and lost wages, regardless of fault. Another source is your Uninsured or Underinsured Motorist (UIM) coverage, which applies if the at-fault driver has no insurance or not enough to cover your damages. Your health insurance can also pay for medical bills, though they may seek reimbursement from any settlement you receive.

Workers’ Compensation

If your injury occurred while performing work-related duties, the primary source of compensation is a workers’ compensation insurance policy. This is a no-fault system, meaning you do not need to prove that your employer was negligent to receive benefits. Workers’ compensation covers all reasonable and necessary medical treatment for the work injury. In addition to medical care, it provides wage replacement benefits, calculated as a percentage of your average weekly wage, subject to certain state maximums.

Tax Treatment of Settlements and Awards

According to the Internal Revenue Service (IRS), money you receive for personal physical injuries is generally not considered taxable income. This tax-free treatment applies to the portions of a settlement that compensate you for medical expenses and lost wages. As outlined in Section 104 of the Internal Revenue Code, these payments are intended to make you whole again, not generate income, and are not reported on your tax return.

There are specific exceptions to this rule. If a portion of your settlement is designated as punitive damages, which are intended to punish the wrongdoer, that amount is taxable. Any interest that has accrued on the settlement before you receive it is also considered taxable income. If you previously deducted medical expenses on your taxes and are then reimbursed, you must report that portion as income to prevent a double tax benefit.