Yes, in many cases you can deduct the attorney fees you incurred to get your Long Term Disability benefits back from an insurance company. This is possible as long as the benefits you recovered are taxable income.
The deduction still applies because these fees qualify as an above-the-line deduction under the Internal Revenue Code, not as a miscellaneous itemized deduction. That distinction matters because Congress eliminated miscellaneous itemized deductions in 2017 and made that change permanent in 2025.
However, the above-the-line deduction for disability benefit claims was left untouched. The rules work differently for Social Security Disability claims. A Long Term Disability lawyer at Marc Whitehead & Associates can explain when your benefits are taxable, how the deduction works, and how to claim it correctly.
Why This Question Comes Up Every Tax Season
Many disabled workers file for Long Term Disability insurance benefits after an injury or illness. Most obtain coverage through an employer-sponsored benefits plan with carriers like Unum, Cigna, Hartford, Aetna, Prudential, MetLife, Lincoln Financial, or New York Life.
Unfortunately, many of these claims are denied outright, or benefits are paid for a while and then cut off. Claimants then hire an attorney to fight back, and have to deal with significant fees.
Most of these claims fall under a federal law called the Employee Retirement Income Security Act, or ERISA.
ERISA is administered by the U.S. Department of Labor’s Employee Benefits Security Administration, and denied benefit suits are filed in federal district court. Whether your benefits are reinstated monthly or resolved through a lump sum buyout, you will have incurred attorney fees and expenses.
Expenses include the cost of obtaining medical records and expert reports, and court filing fees. A Marc Whitehead & Associates attorney can provide more information on this matter and explain if you can deduct your attorney fees from taxes you incurred to get disability benefits back.
For a free legal consultation, call (800) 562-9830
Are Your Disability Benefits Taxable?
Whether your disability benefits are taxable depends on who paid the insurance premiums and whether those dollars were taxed already. This is an important question, because if your benefits are not taxable, there is no fee deduction to take.
If you paid the premiums personally with money that was already taxed, your benefits are generally tax–free. There is nothing to deduct, but also nothing that you owe. If your employer paid the full premium and did not include that cost in your gross income, your benefits are taxable. If you split the premium with your employer, your tax liability is split the same way.
It’s important to note that if you paid your share through a cafeteria or medical reimbursement plan using pretax dollars, that portion of your benefit is taxable.
Reach out to Marc Whitehead & Associates today to find out if your disability benefits are taxable and if you can deduct attorney fees from taxes incurred to get disability benefits back.
Are Attorney Fees and Expenses Still Deductible?
Attorney fees are no longer deductible as a miscellaneous itemized deduction. The Tax Cuts and Jobs Act of 2017 eliminated that category, and before 2018 you could only deduct fees exceeding 2% of your adjusted gross income anyway. That suspension was originally set to expire December 31, 2025. The One Big Beautiful Bill Act, signed July 4, 2025, made it permanent, so miscellaneous itemized deductions are not coming back.
The good news is that fees tied to recovering disability income payments may still be deducted, or, if court-awarded, excluded from your income entirely. If you have more questions about this matter, a lawyer from Marc Whitehead & Associates can offer answers, explaining whether you can deduct your attorney fees from taxes you incurred when getting disability benefits back.
Disability Income Claims Qualify for Above-the-Line Deductions
Above-the-line deductions come from IRC Section 62 and reduce your gross income before you ever reach adjusted gross income. Below-the-line deductions, including the standard deduction and itemized deductions, come after.
Because above-the-line deductions are applied first, the repeal of miscellaneous itemized deductions has no effect on them whatsoever. IRC Section 62(a)(20) and (21) allow you to deduct fees and costs in discrimination suits, which includes disability income benefit awards
Section 62(e)(18) defines unlawful discrimination broadly enough to cover claims for wages, compensation, or benefits arising from the employment relationship. It’s important to understand that your above-the-line deduction cannot exceed the income you received from the litigation in that same tax year.
How to Actually Claim the Deduction on Your Return
While an attorney can assist you with deducting attorney fees on taxes you incurred to get disability benefits back, it’s helpful to familiarize yourself with the process. If your recovery qualifies, you claim this deduction on Schedule 1 of Form 1040, on the line for attorney fees and court costs in unlawful discrimination claims.
This deduction applies to benefits recovered from an employer-sponsored plan governed by ERISA, because those claims arise from the employment relationship. Recoveries under an individual policy you purchased yourself, or a routine Social Security Disability award, generally do not qualify.
Because the outcome depends on how your claim was pleaded and resolved, have a CPA confirm your treatment before filing. Many taxpayers and preparers never find this line because it sits among the write-in adjustments. The IRS instructions direct you to enter the amount and identify it with the notation “UDC,” short for unlawful discrimination claim.
Most Seasonal Tax Preparation Services Do Not Understand This Deduction
At Marc Whitehead & Associates, it’s our opinion that tax preparers at storefront services like H&R Block and Jackson Hewitt frequently do not know how to apply this above-the-line deduction. Every tax season we field calls from clients who received bad advice.
These are seasonal preparers, not Certified Public Accountants or tax attorneys, and in the off-season they work other jobs. They are simply not equipped for complex issues like IRC Section 62(a)(20) and (21).
We recommend working with a credentialed CPA who has handled benefit recovery cases before. The American Institute of Certified Public Accountants and the IRS Directory of Federal Tax Return Preparers both let you verify a preparer’s credentials before you hand over your return.
Reach out to our team at Marc Whitehead & Associates today to get legal assistance and learn more about whether you can deduct attorney fees from taxes you have incurred to get your disability benefits back. Our team is here to provide the guidance you need and assist you in getting the benefits you’ve already paid for.
Disability Attorney Fee Deduction FAQs
Tax season raises plenty of questions, especially when claimants realize their recovery may be taxable and their legal fees may be deductible. Here are several questions the team at Marc Whitehead & Associates has received from individuals like yourself in the past:
Can I Deduct Attorney Fees for a Social Security Disability Claim?
Attorney fees for a standard Social Security Disability claim are generally not deductible, even when part of your backpay is taxable. The above line deduction discussed on this page applies to claims arising from the employment relationship, and a routine SSDI application or appeal before the Social Security Administration does not fall into that category.
Historically, these fees were claimed as miscellaneous itemized deductions, but that category was eliminated in 2017 and permanently repealed in 2025. The analysis is different for Long Term disability claims against an insurer under an employer-sponsored plan. Because the distinction is fact-specific, have a CPA review your particular recovery before filing.
Are My Case Expenses Deductible, or Only the Attorney Fees?
Both your attorney fees and your case expenses may be deductible when your recovery qualifies. IRC Section 62(a)(20) covers attorney fees and court costs paid in connection with a qualifying claim, not just the fees themselves.
What if My Case Settled in a Lump Sum Instead of Monthly Benefits?
A lump sum settlement is treated the same way as reinstated monthly benefits for purposes of this deduction. What matters is whether the recovery is includable in your gross income, not the form the payment takes.
The important limitation is timing. Your deduction cannot exceed the amount you included in income for that tax year, so a settlement paid across two tax years requires careful coordination between your attorney and your accountant.
Do I Need to Itemize to Take This Deduction?
You do not need to itemize to take this deduction, which is what makes it so valuable. Above-the-line deductions are subtracted from gross income before you ever choose between the standard deduction and itemizing.
This means you can claim the full standard deduction and still deduct your qualifying disability related attorney fees. Many taxpayers assume the 2017 law wiped out every fee deduction, and as a result, they leave money on the table. At Marc Whitehead & Associates, we will help you fight for what you deserve.
Find Out if You Can Deduct Attorney Fees on Taxes Incurred To Get Disability Benefits Back
Fighting an insurance company for benefits you already paid for is exhausting, and learning at tax time that you may owe money on what you recovered only makes the situation worse. You should not have to handle these matters alone, without the help of a skilled disability attorney.
Founded in 1992, Marc Whitehead & Associates brings 120 years of combined experience to your case. Marc Whitehead is double board-certified in disability and litigation, and our firm has earned more than 2,500 five-star reviews from the clients we’ve served.
Disability is all we do. We wrote the book on the subject. We would welcome the chance to review your denied claim and explain your options. Schedule a free consultation with us today to get the help you deserve and learn more about whether you can deduct your attorney fees from taxes incurred to get disability benefits back.
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