Disability income

[pasb]

need advise on how to deduct legal fee and worker compensation from disability income

[New York Enrolled Agent]

need advise on how to deduct legal fee and worker compensation from disability income

It might lead to good answers if you re-post with some details of what you’re asking.

[ATSMAN]

I believe TCJA put an end to that until 2025. I had a client last year who could not deduct attorney fees for his SS denial and appeal.

Worker Comp. is generally non taxable unless he is getting Third Party short term sick pay that is taxable. Check the W2 if Box 13 sick pay is checked?

[TAXNJ]

need advise on how to deduct legal fee and worker compensation from disability income

Have you looked at The TaxBook 3-17 for reference?

Lawsuit Settlements and Awards

• All interest on awards is taxable.
• All punitive damages are taxable except in certain wrongful death actions.

The taxpayer should receive Form 1099-MISC reporting any taxable punitive damages or other amounts.

Car accidents and other personal injuries. Compensatory damages received for personal physical injury or sickness are not taxable, including damages for loss of wages or earnings, loss of earning capacity, and for emotional distress caused by a physical injury or sickness. (IRC §104)

Compensatory damages are amounts paid to compensate for actual loss or injury. Punitive damages, on the other hand, are intended to punish or make an example of the defendant.

Emotional distress. Damages for emotional distress are taxable if not caused by physical injury or sickness. Damages are taxable even if the emotional distress causes physical symptoms.

Exception: Damages up to the cost of deductible medical care are excluded from income. ( Pettit, T.C. Memo. 2008-87)

Other claims. Whether a settlement or award is taxable depends on the item the settlement replaces. If the item replaced would be taxable income, the settlement or award is taxable.

Legal fees and court costs. For tax years 2018 through 2025, miscellaneous itemized deductions subject to the 2% AGI limitation are not allowed. Therefore, most legal fees and court costs cannot be deducted. These costs cannot be netted against the settlement.

Exception: Unlawful discrimination claims. A taxpayer may be able to deduct, as an adjustment to income, attorney fees and court costs for actions settled or decided involving a claim of unlawful discrimination, limited to the amount of judgement or settlement included in income. See Write-In Adjustments, page 3-19 .

[pasb]

Taxpayer 60 years old, claim disability, won the case total $93K report on Form SSA -1099 Box 5 , however Box 3 report Workers comp $35K and attorney fee $6000.
i am searching for form to put in Workers comp and attorney fee, assuming schedule A. thank you all for your input

[New York Enrolled Agent]

Taxpayer 60 years old, claim disability, won the case total $93K report on Form SSA -1099 Box 5 , however Box 3 report Workers comp $35K and attorney fee $6000.
i am searching for form to put in Workers comp and attorney fee, assuming schedule A. thank you all for your input

Sounds like bad news. WC is usually income tax free but when it integrated with SS (as this appears to be the case with your taxpayer) it is considered as SS and taxable to the same extent as SS is. See IRC 86(d)(3)

As has been pointed out there will be no deduction for the lawyer fees due to TCJA for 2018-2025. The taxpayer got $93K - tell him he’s better off with it even paying the tax.

[TAXNJ]

Taxpayer 60 years old, claim disability, won the case total $93K report on Form SSA -1099 Box 5 , however Box 3 report Workers comp $35K and attorney fee $6000.
i am searching for form to put in Workers comp and attorney fee, assuming schedule A. thank you all for your input

did you read The TaxBook 3-17 regarding Legal fees and court costs?

Assuming may not be the correct answer!