SSDI recovery attorney fees included as income

[campbear1]

 SSDI  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 paying income on $6000 that was paid to the attorney that I never received.    Lumppayout + Attorney fee = total taxable income.    Can this be right?    Not to say that the attorney will pay income tax on the same $6000, Taxed twice. 

[Cynthiad66]

Most lawyers who handle Social Security disability cases charge a standard fee of 25% of your past-due benefits, with a cap of $6,000.

The IRS emphasized that Social Security benefits and Social Security Disability Income (SSDI) do not count as earned income.  rior to the Tax Cuts and Jobs Act, the IRS allowed you to deduct attorney fees as long as the fees were related to a tax issue or to producing taxable income.  

The Tax Cuts and Jobs Act eliminated miscellaneous deductions, which was where Social Security lawyers fees were previously claimed. Even at that, though, your deductions combined would have needed to exceed the standard deduction. For many people, the standard deduction will be higher than any itemized deductions they would have claimed since it is now $12,000 for single filers and $24,000 for those married filing jointly.

The IRS classifies attorney fees as a miscellaneous itemized deduction. ... In the case of a disability claim, the fees are deducted from your back benefits before Social Security pays those benefits to you; therefore, the fees are paid in the year Social Security makes the attorney fees deduction.

[campbear1]

can I write it off and if so were?

[ToddL99 · Accepted solution]

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.

[kboase]

I paid $6000 for attorney fees for SSDI. Do I claim the full -6000, or 85% of -6000 (-5100) since only 85% of my SSDI was taxable?

[Vanessa A]

 Your attorney fees to collect SSDI are not tax deductible. This changed with the tax law changes.  This is considered a personal expense and previously was a miscellaneous itemized expense subject to the 2% of AGI rule.  The only time you can claim attorney fees to get income is when it is earned income.  The IRS does not consider SSDI to be earned income. 

This is an older thread.  For 2022 tax returns, you cannot claim this deduction. 

[puglover41]

I have the same issue. I received a court-ordered lump sum back payment award from SSA for past 5 years. My attorney fees were paid directly to the attorney by SSA from my award amount. My accountant says attorney fees can't be deducted. But attorney said she also received a 1099 for her fees. Is there someplace to include deduction for attorney fees on my tax return?

[DoninGA]

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@puglover41 wrote:

I have the same issue. I received a court-ordered lump sum back payment award from SSA for past 5 years. My attorney fees were paid directly to the attorney by SSA from my award amount. My accountant says attorney fees can't be deducted. But attorney said she also received a 1099 for her fees. Is there someplace to include deduction for attorney fees on my tax return?

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The attorney fees for the SS benefits are not deductible on a federal tax return.

[puglover41]

Ok, thank you.