Question: My SSA-1099 disability award included the attorney ( I hire) fees payout as part of my income even though it was paid out directly to the attorney, So I'm going to be taxes on $16922.25 that was paid to the attorney that I never received. Lump payout + Attorney fee = total taxable income in box 3. Can this be right? Not to say that the attorney will also pay income tax on the same $16922.25, Taxed twice.
REPLY BY EXPERT ToddL99 ---
Yes, you can deduct the attorney fees included as part of your SSDI income.
To enter the adjustment:
Go to Less Common Income, Miscellaneous Income and Other reportable income. Enter "Lawsuit settlement" in the Search Box and Select "Jump to lawsuit settlement" "to get to this screen ("Lawsuit settlement" is just an effective search term to get to this interview screen)
Continue to the screen "Other Taxable Income". Enter the description as "Attorney Fees" and the amount as a negative number. Entering "-$ XXXX" here will offset the attorney fees included in your SSDI award. These are NOT wages.
A corresponding negative amount will be entered on line 8 of Schedule 1.
