"Above the line" legal fee deduction

[Jim-from-Ohio]

From what I am reading there is still a deduction for legal fees paid for contigency cases on employment lawsuits.. based on your knowledge, can anyone confirm that.. also if it is still in place would it cover an employee that won a contigent fees for actual assault?  

[BobKamman]

Not all employment lawsuits qualify, only those involving "unlawful discrimination."  So what kind of claim are you dealing with?  

[Jim-from-Ohio]

s... harrassment

[BobKamman]

By the employer?  Doesn't sound like discrimination to me, nor does it sound like a case where the settlement would be taxable (physical injury involved).  You only get the deduction if the proceeds are taxable.  But there is a long list of qualifying claims at Code Section 62(e), if you want to ask if any apply. 

[Jim-from-Ohio]

yes. by the employer.. seems to me that if there was a non-disclosure in place for a non s.. harrassement case the above the line deduction is not allowed but found this on the IRS site 

Question:

Does section 162(q) preclude me from deducting my attorney’s fees related to the settlement of my s.... harassment claim if the settlement is subject to a nondisclosure agreement?

Answer:

No, recipients of settlements or payments related to sexual harassment or sexual abuse, whose settlement or payment is subject to a nondisclosure agreement, are not precluded by section 162(q) from deducting attorney’s fees related to the settlement or payment, if otherwise deductible.  See Publication 525, Taxable and Nontaxable Income, for additional information on when all or a portion of attorney’s fees may be deductible.

I will check on the legal paperwork saturday but yes, agreed, if for physical injuries not taxable but that 162q section above gives the implication that the above the line deduction applies even if there is a NDA in place if the damages end up being taxable in the first place.. thank you for your input. 
 

[Jim-from-Ohio]

ok.. paperwork awards two things.

1. w-2 for x amount for lost wages.. so that is clearly taxable and properly withheld

2. lump sum.. labeled for injuries, physical harm, physical damages, pain and sufferiong, punitivive damages

there was no jury so or verdict where the amounts of the lump sum were delineated between physical damages and non-physical damages.. is it up to us (client and me) to allocate the lump sum between taxable and non-taxable?

[BobKamman]

Routine situation.  Very routine.  Thousands of vehicle accidents every day.  Many of the victims lose wages.  If they're lucky the guy who hit them had insurance.  The claim is adjusted or settled or litigated.  More often than not, it includes lost wages as well as medical expenses and "pain and suffering."  No need to allocate.  You got hurt, your compensation for lost wages is not taxable.  

[Jim-from-Ohio]

this one also includes punitive damages but there is no breakdown of how much of the award is for physical damages and how much for punitive. 

[BobKamman]

It might recite that the claims being settled and released include those for punitive damages, but I really doubt that the defendant and insurer are agreeing that those are owed.  Furthermore, if a separate amount is stated, the plaintiff would have a claim for legal malpractice, since punitive damages are always taxable.  

[Jim-from-Ohio]

understood. thanks