While laws relating to surrogacy vary state-to-state, federal tax laws are nationwide. Because of this, it’s easier to establish what the guidelines are no matter where you are in the country, but that also means the federal tax guidelines which must be followed are not nearly as surrogacy-friendly as California’s Uniform Parentage laws, which impact the legality surrogacy itself and custodial rights. If you’re an intended parent hoping to claim some of your surrogacy expenses on taxes, there’s good news and bad news.
Early Decisions Included Allowances for Medical, Legal, and Agency Fees
A 2003 IRS letter to a citizen inquiring about egg donation concluded that most of the fees involved in that process could be deducted.
“You have represented that you will pay the fee to the donor, the fee to the agency that procured the donor, the donor’s medical and psychological testing expenses, the insurance for post-procedure medical or psychological assistance to the donor, and the cost of the legal contract between you and the donor, in order to enable you to obtain a donated egg for implantation into your body. Because these costs are preparatory to the performance of your own medical procedure, the expenses are medical care for purposes of § 213.”
Recent Rulings Add Fine Lines
While many tax specialists at the time considered this to be groundbreaking in the area of surrogacy, that’s not exactly how it worked out. Eleventh Circuit Court of Appeals recently upheld the decision to deny people the ability to deduct expenses that do not directly impact their own body, the body of their spouse, or that of a dependent. In Morrissey v United States, Joseph Morrissey alleged the courts had violated his civil rights with an earlier ruling which denied his ability to claim expenses related to surrogacy on his taxes. As a gay man, Morrissey and his partner longed for a child, sought out the assistance of egg donors and surrogates, and proceeded with the surrogacy process using his own sperm. The Floridian alleged he was effectively infertile and therefore required the assistance of a surrogate in order to become a father. However, the court ruled that because the bulk of the expenses did not directly involve his own body, they could not be deducted. He could theoretically deduct the expenses which related to him specifically, but those put him well under the threshold for claiming.
Those who oppose this ruling point to a decision regarding kidney transplants. As it stands now, those who pay the expenses of a kidney donor can deduct the expenses, even though the donor is not the taxpayer, a spouse, or a dependent. However, that isn’t quite the same because the kidney ultimately winds up in the body of the recipient, whereas a baby born via surrogacy is never implanted in an intended mother or father’s body; only the surrogate’s.
Your Medical Expenses Must Exceed 7.5% or 10% of Your Income
“The IRS allows you to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income for 2017 and 2018,” say the tax pros at Turbotax. “Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.”
What Can Be Deducted?
This would mean that many people who turn to surrogacy will qualify for some tax relief, but the devil’s in the details, and who gets covered for what will vary based on the circumstances. Moreover, tax laws are revised regularly, so what is accurate at the time of this posting may not be true six months from now, and you should always consult a tax specialist for current information that pertains specifically to your case. Hopefully, the laws will indeed change over time due to the great number of people affected by infertility and the inability to carry a child of their own. As it stands now, any medical expenses which relate to your body or your spouse’s body which exceed the expense guidelines can be deducted. That means if you’re a woman and your egg is used or you’re a man and your sperm is used, medical costs associated with those procedures can be deducted. Costs for the surrogate’s medical expenses cannot be deducted. If you are listed as the child’s parents at the time of his or her birth (at which point the baby becomes your dependent), you may begin claiming the baby’s expenses.
Begin Your Surrogacy Journey with EDSI
The Egg Donor and Surrogacy Institute helps families grow every day. Not only do we assist in the matching process, but connect surrogates and intended parents to resources, such as medical and legal assistance, and support teams through every step of the journey. If you believe surrogacy is right for you, contact us for more information about the services we offer or to take your first step to becoming a parent.
