Since you received a W2 from your attorney, I'll assume that this must have had something to do with suing an employer for back pay or something other sort of "lost earnings". As such, you do get an "above the line" deduction for the attorney's fee. However, the IRS Form 1040 (and related forms) do not provide any obvious place to put the deduction above the line. First suggestion, while not optimum, would be to enter the "W2 taxable amount less the legal fees". Then, attached a letter/statement to explain/reconcile the difference (since the IRS WILL catch this, you'll need to provide an explanation and as much documentation as appropriate). A second option, IF you itemize your deductions, you could enter the legal fees as a Miscellaneous expense. But, you'll only receive a deduction to the extent that all your Misc expenses exceed 2% of your Total income.
I would go with the first suggestion. However, you must be careful with legal settlements. If any of the settlement was actually for, say, punitive damages, harassment, or emotional stress....legal fees you pay for that are NOT deductible.
