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If you were paying for the disability policy with after-tax dollars (and it sounds like that's the case), then the settlement is not taxable income. In that case the attorney fees are not deductible. If your employer was paying for the policy or the premiums were withheld from your pay on a pre-tax basis, then the settlement funds are considered income and you can deduct the attorneys fees as a miscellaneous expense.
If you were paying for the disability policy with after-tax dollars (and it sounds like that's the case), then the settlement is not taxable income. In that case the attorney fees are not deductible. If your employer was paying for the policy or the premiums were withheld from your pay on a pre-tax basis, then the settlement funds are considered income and you can deduct the attorneys fees as a miscellaneous expense.
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