I recd an out of court settlement on my LTD claim. Is it taxable? Can I deduct lawyers fee? Per Aetna and my lawyer, I will not be rec a 1099 or W2.

[feponton]

Per settlement papers, I am responsible for any and all taxes.  There is no 1099 nor W2 and none coming.  I was awarded STD and was non taxable, but when it expired, I was denied LTD.  that's when the lawyer got involved.  The total was $8k, which the lawyer recd $3k leaving me rec $5k.

[RichardG · Accepted solution]

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.