Social security disability

Forum|Forum|2 years ago
February 13, 2024
2 replies
10 views

In 2023 I received SSD status. I also received back from when I filed for SSD. The amount was described as :

Pd by direct deposit - $31288

Attorney fees - $7200

Total additions- $38488

Benefits for 2023- $38488

My question is are the attorney fees taxable to me and since I am disabled why am I paying taxes a on more than 50% of the total amount above?

Mike

ThomasM125

Level 15

Depending on your filing status and total income, you may have to pay tax on up to 80% of social security disability benefits. You can read this IRS article to learn more: Tax on social security benefits

Legal fees for disability claims are not taxable as they are for medical expenses.

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fanfare

Level 15

The deduction for attorney fees by itemizing was eliminated a few years ago.

That is supposed to come back in 2025 if nothing else happens.

That doesn't help you now.

@Mike K 195

Opus 17

Level 15

Legal fees you pay to get a disability determination from the social security administration are not tax deductible for 2018-2025 on your federal return. The entire benefit is included in your income. Up to 85% of your benefit may be taxable depending on your other income, that's just how social security is taxed.

The fees may be deductible on your state return but there are several limitations.

1. You list them as personal legal expenses in the federal miscellaneous deductions section. Even though they are not included on your federal return, they flow to the state return from there.

2. However, the legal fees are only deductible to the extent your disability is taxable. You can't deduct fees from the income if you don't pay tax on the income. For example, in NY state, all SS benefits are tax-free, so the legal fees would not be deductible. If you live in a state where (for example) 50% of your SS benefit is taxable, then 50% of the legal fees are deductible.

3. Then in most states that still allow this, this is an itemized deduction subject to the 2% rule, so you will only get an actual tax benefit if you already itemize your deduction and your legal fees are substantially more than 2% of your taxable income.