Where on my tax return do I deduct attorney fees for lump sum award for back years disability from SSA?

[puglover41]

I received a lump sum disability award for 7 back years, court-ordered (after exhausting appeals within Social Security Admin). SSA sent me a 1099 that includes attorney fees that SSA paid directly to my attorney. My attorney emailed me: "Yes, the attorney fees I received on your case are included in my 1099 from SSA." Doesn't make sense that the IRS can collect taxes TWICE on same attorney fees -- both from me AND from the attorney. Where on my tax return can I deduct attorney fees?

[JulieS]

No, since the Tax Cuts and Jobs Act of 2017, you are no longer allowed to deduct legal fees on your federal tax return unless they are related to business income. 

Click here to learn more. 

If you file a state tax return, you may be able to use the deduction for your state return only. This is how to enter the amount in TurboTax:

1. Open your tax return and click on Federal Taxes, then Deductions & Credits.
2. Scroll down to Other Deductions and Credits, expand the section.
3. Click Start or Revisit to the right of Legal Fees.
4. Enter the amount of your legal fees and click Continue. 
    

[puglover41]

Thanks! What I'm stuck on is how the IRS can collect taxes TWICE on the attorney's fees -- both from me AND from my attorney. SSA sent us BOTH 1099s for the attorney fees. My attorney emailed me: "Yes, the attorney fees I received on your case are included in my 1099 from SSA." Surely, the IRS can't collect taxes from both of us, right?

[Hal_Al]

Q. Where on my tax return do I deduct attorney fees for lump sum award for back years disability from SSA?

A. There is no allowable deduction for that.

Q.  So, the IRS can collect taxes TWICE on the same attorney fees?

A. Yes. But they don't "see it" that way.  It was income to you, so it's taxable to you. You then paid your lawyer (no different than paying your doctor or plumber)  for personal services.  So the lawyer then has his own income to pay taxes on.

But, for you there is a special tax calculation, on lump sum distributions, for back years. For most people, this greatly reduces the tax on the large amount received in a single year. 

[PattiF]

Unfortunately, the IRS can collect taxes from both of you. As JulieS mentioned above, the deduction is no longer available since 2017 and the passage of the Tax Cuts and Jobs Act. @puglover41 

[puglover41]

Thank you. Seems odd that the IRS can collect tax twice on a single sum paid, but OK. Appreciate your response.

[puglover41]

Oh I see. Well, hard to swallow, but I understand the analogy. Seems a not-good SSA / IRS practice for disability awardees. Thanks, appreciate your response.

[jk2024]

Could SSDI legal fees be deductible as a self-employed business expense for disabled individuals with self-employment income? Thank you so much for your time @JulieS @Hal_Al & @PattiF 

[hmlobel]

There is an above the line deduction from gross income for suits involving unlawful discrimination. See this note from Marc Whitehead and Associates online: "IRC Section 62(a)(20) and (21) allow a taxpayer to deduct costs and attorney fees involving discrimination suits including those relating to disability income benefit awards."