I received a W-2 with income from a legal settlement. My attorney tells me that his fees are deductible. How do I enter his fees for a W-2 (not 1099)?

[VictorW9]

No! legal fees are no longer deductible under the new tax reform TCJA. Prior to 2018 it used be deductible under miscellaneous itemized deductions subject to 2% of AGI. However, if the fees are related to a discrimination case you may be able to deduct the fees from gross income.

[rhscpa]

Since you received a W2 from your attorney, I'll assume that this must have had something to do with suing an employer for back pay or something other sort of "lost earnings".  As such, you do get an "above the line" deduction for the attorney's fee.  However, the IRS Form 1040 (and related forms) do not provide any obvious place to put the deduction above the line.  First suggestion, while not optimum, would be to enter the "W2 taxable amount less the legal fees".  Then, attached a letter/statement to explain/reconcile the difference (since the IRS WILL catch this, you'll need to provide an explanation and as much documentation as appropriate).  A second option, IF you itemize your deductions, you could enter the legal fees as a Miscellaneous expense.  But, you'll only receive a deduction to the extent that all your Misc expenses exceed 2% of your Total income.  

I would go with the first suggestion.  However, you must be careful with legal settlements.  If any of the settlement was actually for, say, punitive damages, harassment, or emotional stress....legal fees you pay for that are NOT deductible.  

[VictorW9]

Here's a link to a resource that can walk you along on how to deduct legal fees:

Are employment-related legal fees still deductible in ...

[rhscpa]

I stand corrected by Victor.  Based on the new laws from the TCJ Act, the legal fees are no longer deductible as an Itemized Miscellaneous Expense.  But if there was any element of the settlement that was NOT for lost wages of some sort....., such as physical injury or physical sickness (specifically), that money can be excluded from gross wages.