Contingent fees let you hire a lawyer without paying anything out of pocket at the start. The attorney takes a percentage of whatever you recover through settlement or verdict, and if the case fails, the lawyer collects no fee. In personal injury work, that percentage typically runs from about 33% if the case settles before suit is filed to 40% if it goes to trial. Those numbers are negotiated, not fixed by law, and the fine print around costs, liens, and taxes often matters as much as the percentage itself.
How the Percentage Works
Under a contingent fee agreement, your lawyer is paid a share of the final recovery rather than an hourly rate. The share usually rises as the case moves through later stages because the lawyer’s time and financial risk grow with each phase. Pre-suit settlement takes the least work. Filing a lawsuit, running discovery, and preparing for trial demand far more. An appeal adds another layer. A well-drafted agreement sets a different rate for each stage, so you know what the lawyer earns depending on when the case resolves.
Treat the percentages as a starting point for discussion. In most matters, no statute fixes them, and firms have room to negotiate.
What the Written Agreement Must Include
A contingent fee arrangement has to be documented in a written contract signed by the client. The ABA Model Rules of Professional Conduct, which underlie attorney ethics rules in nearly every state, require the agreement to spell out the percentage the lawyer takes at each stage, how litigation expenses will be handled, and whether costs come out before or after the attorney’s percentage is calculated.1American Bar Association. Model Rules of Professional Conduct Rule 1.5 Fees That last point can shift thousands of dollars between you and your lawyer.
The agreement must also notify you of any expenses you’ll owe regardless of whether you win. When the case ends, the attorney has to provide a written statement showing the outcome, the total recovery, the fee taken, the costs deducted, and what you receive. A contingent fee that isn’t in writing may be unenforceable, and the lawyer risks discipline from the state bar.1American Bar Association. Model Rules of Professional Conduct Rule 1.5 Fees
Gross Fee vs. Net Fee
Some agreements calculate the attorney’s percentage from the gross recovery. Others subtract litigation costs first, then apply the percentage to the net. The difference is real money.
Take a $100,000 settlement with $5,000 in litigation costs and a 33% fee. Under a gross-fee calculation, the lawyer takes $33,000, costs account for $5,000, and you receive $62,000. Under a net-fee calculation, the lawyer’s cut is 33% of $95,000, or $31,350, costs are still $5,000, and you receive $63,650. A single contractual term creates a $1,650 swing. Negotiate this before you sign.
Litigation costs are the actual out-of-pocket expenses the firm advances: court filing fees, expert witness payments, deposition transcripts, medical record retrieval, postage, copying. Experts alone can run several thousand dollars when specialized testimony is needed. Whichever calculation method your contract uses, those costs get reimbursed to the firm from the settlement proceeds.
Liens That Come Out of Your Recovery
If Medicare, Medicaid, or a private health insurer paid for medical care tied to your injury, they usually have a legal right to be repaid from your settlement. Medicare’s authority comes from the Medicare Secondary Payer Act, which requires reimbursement of any conditional payments Medicare made on your behalf.2Office of the Law Revision Counsel. 42 USC 1395y – Exclusions From Coverage and Medicare as Secondary Payer If repayment isn’t made within 60 days of the final demand, interest starts accruing, and the government can pursue double the amount owed from anyone responsible for the settlement who fails to ensure reimbursement.3Centers for Medicare & Medicaid Services. Medicare’s Recovery Process
Private health plans, particularly self-funded employer plans governed by ERISA, often assert similar reimbursement rights. Your attorney should flag all outstanding liens early and try to negotiate them down, because every dollar going to a lienholder is a dollar not going to you. A $100,000 settlement can shrink dramatically once you subtract a 33% attorney fee, $5,000 in costs, and $20,000 in medical liens.
What Happens If You Lose
If the case is unsuccessful, the lawyer earns no fee. That’s the whole point of the arrangement. But “no fee” doesn’t necessarily mean “no bill.” Litigation costs are a separate line item from the attorney’s fee, and whether you owe them depends on what the agreement says. Some contracts have the firm absorb all costs on a losing case. Others put you on the hook for costs regardless of outcome. The ABA Model Rules require the agreement to clearly notify you of any expenses you’ll owe even if you don’t prevail.1American Bar Association. Model Rules of Professional Conduct Rule 1.5 Fees Read that provision carefully. In a complex case, costs can reach tens of thousands of dollars.
Where Contingent Fees Aren’t Allowed
Two categories of legal work are off-limits for contingent fees under the ABA Model Rules, and most states follow the same prohibitions.1American Bar Association. Model Rules of Professional Conduct Rule 1.5 Fees
The first is domestic relations. A lawyer cannot charge a fee that depends on securing a divorce or that fluctuates based on the alimony, support, or property division the client receives. An attorney with a financial stake in a bigger property award or larger alimony payment could push for outcomes that deepen conflict rather than serve the client’s broader interests.
The second is criminal defense. A defense lawyer cannot charge a fee that hinges on acquittal, dismissal, or a favorable plea. Tying the paycheck to a specific result creates a conflict between the lawyer’s financial interest and the client’s legal interests.
Federal Caps on What a Lawyer Can Charge
Certain federal claims impose hard ceilings on attorney fees no matter what the fee agreement says.
Federal Tort Claims Act
If you’re suing the federal government for negligence under the Federal Tort Claims Act, attorney fees are capped at 20% for a claim resolved through an administrative settlement and 25% for a case that goes to litigation and produces a court judgment or court-approved settlement. A lawyer who charges more than these limits faces a fine of up to $2,000, imprisonment for up to one year, or both.4Office of the Law Revision Counsel. 28 USC 2678 – Attorney Fees; Penalty
Social Security Disability
Attorney fees in Social Security disability cases are limited to 25% of your past-due benefits or a fixed dollar cap, whichever is less.5Office of the Law Revision Counsel. 42 USC 406 – Representation of Claimants As of November 2024, that dollar cap is $9,200.6Federal Register. Maximum Dollar Limit in the Fee Agreement Process; Partial Rescission So even if 25% of your back benefits comes to $15,000, the lawyer cannot collect more than $9,200 under a standard fee agreement.
Tax Treatment You Should Know Before You Settle
Settlement proceeds are taxed differently depending on the type of claim, and the tax treatment of contingent fees catches many people by surprise. You may owe tax on the full settlement, including the portion your lawyer takes.
If your settlement compensates you for physical injuries or physical sickness, the compensatory damages are excluded from gross income.7Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness That exclusion covers the entire compensatory amount, including the share paid to your attorney. Punitive damages in a physical injury case are still taxable, and the IRS allocates attorney fees proportionally between the taxable and tax-free portions.8Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income
Settlements for claims like employment discrimination, breach of contract, or emotional distress not tied to a physical injury are fully taxable. Under the Supreme Court’s holding in Commissioner v. Banks, you must report the entire recovery as gross income, including the share paid directly to your attorney.9Justia Law. Commissioner v. Banks, 543 U.S. 426 (2005) Practically speaking, if you receive a $200,000 employment discrimination settlement and your lawyer takes $66,000, you owe income tax on the full $200,000.
An above-the-line deduction can soften that. If your claim involves unlawful discrimination, whistleblower protections, or certain employment-related claims, you can deduct attorney fees and court costs as an adjustment to income, but only up to the amount of the settlement you included in income that year.10Office of the Law Revision Counsel. 26 USC 62 – Adjusted Gross Income Defined The IRS lists the qualifying claim types in Publication 525, and the deduction is claimed on Schedule 1 of Form 1040.8Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income If your case doesn’t fall in one of those buckets, you could face a real tax bill on money you never touched. Talk to a tax professional before finalizing a settlement in a non-physical injury case.
Firing Your Lawyer Mid-Case
You generally have an absolute right to fire your attorney at any time, with or without a reason. Terminating a contingent fee arrangement raises a question the original contract may not answer: what does the fired lawyer collect?
A growing majority of states limit the discharged attorney to the reasonable value of the work already done, a doctrine called quantum meruit. If the attorney handled three months of investigation and discovery before you switched, the former lawyer can seek payment for that work’s fair value rather than the full contingent fee they would have earned by staying on the case. A minority of states still let the discharged attorney collect the full contingent percentage if the case ultimately succeeds, though that older rule has been losing ground.
Watch for termination clauses in the fee agreement itself. Some contracts require you to pay the full fee value immediately if you terminate. Courts have struck these down as unconscionable when they effectively punish clients for changing lawyers, but if a clause is in your agreement and you don’t challenge it, you could face an unexpectedly large bill. Push back on anything that would make switching lawyers prohibitively expensive.
If You Think the Fee Is Wrong
A signed agreement doesn’t give an attorney unlimited license to collect. Every contingent fee still has to be reasonable, and courts routinely review fee structures during settlement approvals, particularly in class actions and cases involving minors. If a court finds the fee unreasonable, the attorney may be ordered to return a portion.1American Bar Association. Model Rules of Professional Conduct Rule 1.5 Fees
If you believe your attorney’s fee is unreasonable or that costs were improperly deducted, you have options short of a lawsuit. Most state bars run fee arbitration programs designed as a faster, cheaper alternative to court. Under the ABA’s model framework, fee arbitration is voluntary for the client but mandatory for the attorney once the client requests it.11American Bar Association. Model Rules for Fee Arbitration Rule 1 The process is confidential and typically handled by a panel that includes both lawyers and non-lawyers.
Arbitration decisions become binding if both sides agree in writing beforehand. Otherwise, either side can reject the decision and pursue a court trial within 30 days.11American Bar Association. Model Rules for Fee Arbitration Rule 1 If your attorney sues you for unpaid fees without first notifying you of your right to arbitrate, that failure can be grounds for dismissing the lawsuit. Contact your state bar to see how the program works where you live, because the specific rules and timelines vary.