Are Surrogacy Expenses Tax Deductible for US Citizens?

Surrogacy can be a rewarding but costly journey for many intended parents. One common question is whether the expenses associated with surrogacy are tax deductible. This article explores the complexities of surrogacy expenses in the context of US tax law.

Understanding Surrogacy Costs

  1. Medical Expenses: IVF treatments, prenatal care, and delivery costs.

  2. Legal Fees: Contracts between intended parents and the surrogate, parental rights documentation.

  3. Agency Fees: Fees paid to surrogacy agencies for matching services and support.

  4. Surrogate Compensation: Payments made to the surrogate for her time and effort.

IRS Rules on Medical Expenses

According to the IRS, medical expenses are deductible if they are paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any part or function of the body. This can include fertility treatments such as in vitro fertilization (IVF).

However, the IRS does not provide explicit guidance on whether surrogacy expenses, including payments to a surrogate, qualify as deductible medical expenses.

Key Points to Consider

  1. Medical Deductions for IVF: If you, as the intended parent, undergo IVF treatments, those costs can be considered deductible medical expenses. This includes costs related to egg retrieval, lab work, and embryo transfer.
  2. Legal and Agency Fees: These fees are typically not deductible as they do not directly relate to medical care.
  3. Costs Related to the Surrogate: Payments made directly to a surrogate or expenses reimbursed to her are generally not considered deductible medical expenses by the IRS. This includes her medical expenses, compensation, and related costs.

Personal Deductions and Strategies

While most surrogacy expenses may not be deductible, there are still some strategies intended parents can consider:

  • Health Savings Account (HSA) or Flexible Spending Account (FSA): Some medical expenses related to your own fertility treatments might be paid with pre-tax dollars through these accounts.
  • Itemized Deductions: If you itemize your deductions, you can include qualifying medical expenses that exceed 7.5% of your adjusted gross income (AGI). This would mainly apply to your own medical expenses.

Consult with a Tax Professional

The tax implications of surrogacy are complex and evolving. It’s crucial to consult with a tax professional who has experience with surrogacy cases to understand how the rules apply to your specific situation. They can provide personalized advice and help you navigate the tax laws to maximize any potential deductions.

Final Thoughts

While surrogacy expenses are largely non-deductible, certain medical expenses related to fertility treatments for the intended parents may be deductible. Understanding the specifics of IRS rules and consulting with a knowledgeable tax advisor can help you manage the financial aspects of your surrogacy journey more effectively.

If you have further questions or need assistance, feel free to reach out to a professional who specializes in this area. Surrogacy is a significant emotional and financial investment, and understanding the tax implications can help you make informed decisions along the way.