Are Lawyer Fees deductible for an EEOC discrimation case

[cobo1976]

What is the name of your state (only U.S. law)? Illinois

In 2008, I made a claim to the EEOC for discrimination by my previous employer. We reached an agreement and I was paid a settlement. The settlement was for $85K. From that I received approx $68K that is reflected on my W2 -- federal and state taxes were taken. My attorney was paid directly $17K and was reported on a 1099 I believe. I've seen that attorney fees paid by me or on my behalf can be taken as a deduction. I've read various sites and can't make a determination if and how to deduct for the $17K that was paid for attorney fees. Can I deduct for this?

 

[davew128]

Why would you get a deduction for attorneys fees? You're being taxed on the net proceeds as it is.

 

[FlyingRon]

Sorry DaveW, that is incorrect. The IRS considers the entire amount income. Attorney's fees are deducted as an itemized deduction. There's a 2% floor PLUS if you trip over the AMT (quite likely with this award) you don't get to deduct the attorney's fees at all when computing the AMT.

 

[tranquility]

While "EEOC discrimination" is not a technical enough description to be *sure*, davew128 is correct. For costs (like lawyer's fees) on discrimination suits the taxpayers gets an "above the line" deduction. It is not the standard miscellaneous deduction subject to the 2% floor.

 

[cobo1976]

tranquility...i'd read that was the case in regards to "above the line," but the W2s I received from my prior employer for the settlement amount does not include the amount that was given to my attorney. I've read that attorney fees are deductible if paid by me, or on my behalf -- in the case the employer paid on my behalf... I just was unsure if I had to gross up my income to reflect the $17K -- but that would defeat the purpose of even doing it. I just don't want to put the $17K above the line and then get audited because of it. That amount has HUGE implications on my refund ... BTW it was a discrimination case on race and retaliation.

 

[tranquility]

See a tax professional. We can't go through the factual scenario her to give true advice without everything in front of us, including the settlement paperwork.