Are Attorney Fees for Social Security Benefits Deductible?
If you are appealing a Social Security disability claim, or are involved in Social Security litigation, you can hire an attorney to represent you. Social Security disability lawyers can get appeals filed on time, speak on your behalf to the agency and appear at a Social Security hearing, if necessary, to win your case. Fees that you pay for these services are no longer deductible, although you can claim them if you're still filing your 2017 taxes.
You can no longer claim legal fees on your taxes, but the standard deduction has been increased to compensate.
Social Security Attorney Fees
Prior to the Tax Cuts and Jobs Act, the IRS allowed you to deduct attorney fees as long as the fees were related to a tax issue or to producing taxable income. If you hire an attorney to figure your taxes or appeal to the IRS over back taxes owed, then the charge for the time spent on these matters is no longer deductible.
The Adjusted Gross Income Exception
If you filed for an extension on your 2017 taxes, you can still claim your Social Security-related attorney fees, as long as they directly related to generating income. The IRS classifies attorney fees as a miscellaneous itemized deduction. You may not claim the standard deduction as well as attorney fees; you must itemize on Schedule A of Form 1040. In addition, you can only deduct the portion of the fees that exceed 2 percent of your adjusted gross income. You may only deduct the fees in the year they were charged to you. In the case of a disability claim, the fees are deducted from your back benefits before Social Security pays those benefits to you; therefore, the fees are paid in the year Social Security makes the attorney fees deduction.
The 2018 Tax Law Changes
The Tax Cuts and Jobs Act eliminated miscellaneous deductions, which was where Social Security lawyers fees were previously claimed. Even at that, though, your deductions combined would have needed to exceed the standard deduction. For many people, the standard deduction will be higher than any itemized deductions they would have claimed since it is now $12,000 for single filers and $24,000 for those married filing jointly.
Claiming Legal Fees on 2017 Taxes
If you're filing your 2017 taxes, your legal fees will need to exceed 2 percent of your adjusted gross income, but be above the $6,350 standard deduction. You will need to itemize to get the deduction.
- Internal Revenue Service: Publication 529 Miscellaneous Deductions
- Forbes: What Your Itemized Deductions On Schedule A Will Look Like After Tax Reform
- Forbes: New Tax On Lawsuit Settlements -- Legal Fees Can't Be Deducted
- Business Insider: Here's How Your Tax Bracket Will Change in 2018
- Internal Revenue Service: Schedule A: Itemized Deductions
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.