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campbear1
Level 2

SSDI recovery attorney fees included as income

 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. 

1 Best answer

Accepted Solutions
ToddL99
Expert Alumni

SSDI recovery attorney fees included as income

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.

 

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3 Replies
Cynthiad66
Employee Tax Expert

SSDI recovery attorney fees included as income

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 (SSDIdo 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
Level 2

SSDI recovery attorney fees included as income

can I write it off and if so were?

ToddL99
Expert Alumni

SSDI recovery attorney fees included as income

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.

 

View solution in original post

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