“How are my no-fault benefits calculated if I am self-employed?”
The Michigan No-Fault Law states that an insured person will receive 85% of his or her gross income for up to three years from the date of the accident, provided that the insurance company agrees that the person is off work due to the accident. It is easy to figure out what 85% of a person’s gross pay is if that person takes home a regular paycheck. But how do the calculations work for people who are self-employed, or who are independent contractors who don’t draw a check from an employer?
The basic rule for self-employed people is that net wage loss is calculated by deducting business expenses from gross income. The amount that is left over is the basis for making the 85% payment. Independent contractors, on the other hand, can apply for work loss benefits based upon their record of earnings for a reasonable time before the accident. They can also present evidence of lost opportunities for work during the time they will be disabled.
A common dilemma that many self-employed people face in no-fault wage loss situations is that the amount of “income” they receive is not significant. It is to the advantage of a small business owner to “expense” as many costs as possible to the business, so that the taxable consequences to the business are favorable, and the personal tax consequences to the owner are minimized. However, the benefit of minimizing personal income for tax purposes becomes a negative when it is time to base no-fault reimbursement on your claimed wages.
Many of these cases come down to a battle between the accountant for the insurance company and the accountant a lawyer hires to examine the books of his or her client. It is important that you have detailed and clear records of your business bookkeeping and accounting if you want to argue with your car insurance company about how much wage loss reimbursement you should receive, if you are self-employed or are an independent contractor.