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kilozulu81
Level 2

Do I pay taxes on the 1099-MISC box 3 amount from a lawsuit or the amount I actually received after the contingency fee (25%)? Suit was against my employer for wages.

 
7 Replies
KrisD15
Expert Alumni

Do I pay taxes on the 1099-MISC box 3 amount from a lawsuit or the amount I actually received after the contingency fee (25%)? Suit was against my employer for wages.

You need to enter the 1099-MISC as it was issued to you. 

You can enter the Legal fees under deductions. 

 

Sign into and open your account

Click Federal

Click Deductions & Credits

Scroll down to and Click "Other"

Scroll down to and Click "Legal Fees" 

 

CLICK HERE for information about legal fees

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Carl
Level 15

Do I pay taxes on the 1099-MISC box 3 amount from a lawsuit or the amount I actually received after the contingency fee (25%)? Suit was against my employer for wages.

@KrisD15 's response is misleading. For a 2018 or 2019 1099-MISC issued to you with an amount in box 3 that is payment for back wages, your legal expenses are not deductible at all. See IRS Publication 529 at https://www.irs.gov/pub/irs-pdf/p529.pdf, pages 3 and 4. To wit:

Miscellaneous Deductions Subject to the 2% AGI Limit

Unless you qualify for an exception, discussed later, you generally can't deduct the following expenses, even if you fall into one of the qualified categories of employment lis-ted earlier.

Appraisal fees for a casualty loss or charitable contri-bution.

Casualty and theft losses from property used in per-forming services as an employee.

Clerical help and office rent in caring for investments.

Credit or debit card convenience fees.

Depreciation on home computers used for invest-ments.

Excess deductions (including administrative expen-ses) allowed a beneficiary on termination of an estate or trust.

Fees to collect interest and dividends.

Hobby expenses, but generally not more than hobby income.

Indirect miscellaneous deductions from pass-through entities.

Investment fees and expenses.

Legal fees related to producing or collecting taxable income or getting tax advice.

kilozulu81
Level 2

Do I pay taxes on the 1099-MISC box 3 amount from a lawsuit or the amount I actually received after the contingency fee (25%)? Suit was against my employer for wages.

The law firm that represented my group in the suit against the FAA sent me a letter that states that their legal fees could be deducted from the gross amount indicated on my 1099 MISC, Box 3.  Because the suit was for back wages AND against the Federal Government it is one of the instances where legal fees are still deductible "above the line".  I understand exactly what they are saying but using TurboTax I cannot figure out how to enter the adjustment.  Receiving the "above the line" adjustment saves me around $1000 in taxes.  Any help appreciate.

kilozulu81
Level 2

Do I pay taxes on the 1099-MISC box 3 amount from a lawsuit or the amount I actually received after the contingency fee (25%)? Suit was against my employer for wages.

The law firm that represented my group in the suit against the FAA sent me a letter that states that their legal fees could be deducted from the gross amount indicated on my 1099 MISC, Box 3.  Because the suit was for back wages AND against the Federal Government it is one of the instances where legal fees are still deductible "above the line".  I understand exactly what they are saying but using TurboTax I cannot figure out how to enter the adjustment.  Receiving the "above the line" adjustment saves me around $1000 in taxes.  Any help appreciate.

KrisD15
Expert Alumni

Do I pay taxes on the 1099-MISC box 3 amount from a lawsuit or the amount I actually received after the contingency fee (25%)? Suit was against my employer for wages.

After you enter the 1099-MISC as "Other Income" you can make a second entry the same way, only this time enter the adjustment amount as a negative number. For the description type "Deductible legal fees". 

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AthensK
New Member

Do I pay taxes on the 1099-MISC box 3 amount from a lawsuit or the amount I actually received after the contingency fee (25%)? Suit was against my employer for wages.

After making the second entry, the total on the page listing the 1099 Misc is changed but when you go back to the listing of income, it shows only the amount of the income, not the income less the expense.  Also the tatal tax bill did not decrease with the negative number entry.  I am using TurboaTax deluxe if it make a difference.

JotikaT2
Expert Alumni

Do I pay taxes on the 1099-MISC box 3 amount from a lawsuit or the amount I actually received after the contingency fee (25%)? Suit was against my employer for wages.

Review your input. 

 

Make sure you entered the legal fees as a negative number. 

 

This is the only way to offset that income.

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