Federal law (Internal Revenue Code (IRC) section 62(a)(20)) allows a deduction for attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in IRC section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act.
This deduction may be claimed as an adjustment to federal income on Form 1040 (line 36 of the 2008 form).
This federal treatment of attorney fees and court costs for these unlawful discrimination claims also applies for Wisconsin tax purposes. Full-year Wisconsin residents would file federal Form 1040 and include the amount of the judgment or settlement in income and claim the fees and costs as an adjustment to income. These amounts would then carry over to the Wisconsin Form 1.
Effective for taxable years beginning in 2008, part-year residents and nonresidents of Wisconsin may claim the attorney fees and court costs for unlawful discrimination claims as an adjustment to income on Form 1NPR only if the judgment or settlement resulting from the claim is taxable to Wisconsin.
March 6, 2009