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judgment payment & legal fees reporting

An employee client received judgment payment. Form 1099-MISC shows $144,920. It includes gross interest of $2420, which is reduced by attorney fee of $1210. Then a net client payment check of $1210 was received.

Out of $142500 of judgment amount, 50% went to the attorney, and client received $71250. Out of that, client paid $17147 as Attorney Fees. So the client's net share of $54,103 was received by another check. How much should be reported on Form 1040 line 21, line 36 (unlawful discrimination) for legal expense, and Schedule B?

Reply to
mycpacha
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It really depends on exactly what the suit was for, and why the attorney got the money he did. Sometimes attorney's fees are deductible, but other times they are not.

Reply to
Stuart Bronstein

It is deductible on Form 1040 line 21, line 36, as a claim of "unlawful discrimination" as described in IRC §62(e). Amounts to be reported is somewhat confusing.

Reply to
mycpacha

This settlement must have been for compensatory damages and not back pay as the income was reported on a 1099 and not a W-2. You state that it was for unlawful discrimination. The $2420 of interest is not compensatory damages and goes on Schedule B. The 50% legal fee to obtain the interest is a misc. itemized deduction on Schedule A. The rest of the compensatory damages is Other Income and the 50% fee goes on Line 36 as an adjustment to income.

As to the other $17147 paid to the attorney, I would need more information to make a determination where it goes or doesn't go. Why did the attorney get 50% of the award plus another $17147?

Reply to
Alan

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