I filed a law suit some 3 years ago for unpaid wages for vacation time. I was able to deduct some of the the legal fees in 2017. Now I am about ready to settle the law suit and getting a small fraction of the Legal Fees + Unpaid wages. The legal fees is many times the amount of the unpaid wages. Do I get a W2 or 1099 MISC form from the employer for the entire amount of the settlement (legal fees plus unpaid wages)? Then do I deduct the legal fees that I have not yet claimed? I am not sure how this all works.
Back pay wages are reported on the Form W-2 in the year that they are paid.
Settlement fees are generally reported on the Form 1099-MISC in box 3 or box 14. Either way, the legal fees are considered taxable income to you, and should be reported on line 21 Other Income of the Form 1040 Schedule 1.
You will enter the Form W-2 in the income tax section of your return. To enter the legal fees do the following:
Prior to the Tax Cuts and Jobs Act, legal fees were deducted under the Job Expenses and Certain Miscellaneous Deductions section of the Form 1040 Schedule A. These deductions were reduced by 2% of a taxpayer's gross income. Tax reform has eliminated the Miscellaneous section; therefore, legal fees are generally no longer deductible.
However, you can deduct your above the line legal fees in employment and qualifying whistleblower cases. The amount cannot exceed the income you received from the litigation in the same tax year.
To enter the legal fee in TurboTax do the following:
[Edited
04.10.19 | 12:28 PM]
Back pay wages are reported on the Form W-2 in the year that they are paid.
Settlement fees are generally reported on the Form 1099-MISC in box 3 or box 14. Either way, the legal fees are considered taxable income to you, and should be reported on line 21 Other Income of the Form 1040 Schedule 1.
You will enter the Form W-2 in the income tax section of your return. To enter the legal fees do the following:
Prior to the Tax Cuts and Jobs Act, legal fees were deducted under the Job Expenses and Certain Miscellaneous Deductions section of the Form 1040 Schedule A. These deductions were reduced by 2% of a taxpayer's gross income. Tax reform has eliminated the Miscellaneous section; therefore, legal fees are generally no longer deductible.
However, you can deduct your above the line legal fees in employment and qualifying whistleblower cases. The amount cannot exceed the income you received from the litigation in the same tax year.
To enter the legal fee in TurboTax do the following:
[Edited
04.10.19 | 12:28 PM]
It does not make sense that the money you pay for attorney fees are not deductible after I recover lost wages. I already paid tax on the money I used for attorney fees, had to spend it to recovery wages I was entitled to and on a recovery of $15,000 in wages, I had to spend $40,000 in attorney fees?
GOOD NEWS after further research! You can deduct your above the line deductions for fees in employment and qualifying whistleblower cases but it cannot exceed the income you received from the litigation in the same tax year.
Please refer to the edited version dated April 10, 2019. I have included the steps to enter the legal fees into TurboTax.