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Things Adjusters Say: We'll pocket your taxes

This article is part of a series on insurance company's justifications for paying you less than you deserve. Whether through malice or ignorance insurance adjusters often refer to questionable logic and non-existent laws to award you as little money as possible. A personal injury attorney can ensure that you receive full compensation. The consultation is free, and only one click away.

Most people who are involved in an automobile collision end up missing some amount of work. I’ve written before on the types of lost wages you are entitled to be compensated for. If the adjuster and I have agreed on the amount of wages you lost the adjuster will sometimes say something like this:

Attorney: So we agree, Ms. Jones will be paid for 17 hours of lost wages at her hourly rate of $20.00 an hour, $340.00 total.

Adjuster: Yes, 17 hours at $20.00 an hour. And we’ll go ahead and deduct 30% for taxes.

The adjuster’s logic is as follows. Ms. Jones, had she earned wages at her job, would have had to pay taxes on her wages. The amount of money Ms. Jones lost was thus not her pay before taxes, but the amount of pay she would have received after taxes. The adjuster may even argue that Ms. Jones would be committing tax fraud by not letting the insurance company deduct taxes from her compensation. I am telling you today that all of this is crap.

But Ms. Jones would have had to pay taxes on her wages!

Yes, she would have. But at what tax rate? Until Ms. Jones files her taxes for the year she doesn’t know her actual tax rate. The taxes taken out of your paycheck are an estimate, not a final rate. And her rate could be much higher or lower than 30%. It could be 10%. It could be 50%. It could be somewhere in between. The adjuster has no idea what tax rate Ms. Jones will pay on her wages and doesn’t get to speculate.

So does Ms. Jones have to pay taxes on her lost wages? Probably, yes. But the issue of tax rates and taxable income is between Ms. Jones and the IRS, not the insurance company.

But what’s the harm in letting the insurance company withhold money for taxes? Isn’t that what my employer does?

If you are like most people your employer withholds part of your paycheck to pay taxes. At the end of the year, when you file your taxes, you get a credit for the amount your employer paid to the government on your behalf. Every dollar your employer withholds as taxes is a dollar you do not have to pay in taxes at the end of the year. So what is the harm of letting the insurance company do the same thing? Because the insurance company is not withholding money to pay your taxes, they are pocketing the money for themselves. When the adjuster reduces your lost wage claim by 30% for taxes they are not sending the money to the government.

In short, the insurance company is charging you for taxes and then, instead of giving the money to the government, the insurance company is pocketing the money for themselves. Let that sink in for a second.

Don’t be taken advantage of.

The insurance company has an army of lawyers on their side working to pay you as little as possible. Adjusters will, out of ignorance or malice, use a variety of tactics to deny you compensation for the harms you have suffered. A knowledgeable personal injury attorney can stand up for you and make sure you receive fair compensation for your injuries. Call now for a free consultation