3 Things to Know About Taxes on Surrogacy Compensation

It’s a common question from many gestational carriers: Do surrogate mothers have to pay taxes on the compensation that they earn?

While there’s a lot of information out there about surrogate compensation, there’s not so much about what surrogates have to do after they are paid this base compensation. Taxes are confusing enough as is; throw surrogacy into the mix, and it’s completely normal to be overwhelmed during tax season.

If you’re worried about surrogacy compensation and taxes, you’ve come to the right place. Here, we’ve answered three of your biggest question about this topic. But, we encourage every prospective surrogate to contact a local tax attorney for the most accurate information. While we hope it is helpful, the information in this article is not intended to be legal or financial advice. Because your personal finances are unique, only a local attorney can give you the answers you need on your surrogate mother income tax.

When you’re ready, start searching for a local tax attorney here.

1. Do Surrogate Mothers Have to Claim Income?

In most cases, surrogate compensation is no small amount. Most surrogates get paid an average of $30,000 compensation rate. It’s normal to wonder if that surrogate money is taxed; surrogates and their families want to prepare ahead of time before using that money for a down payment or to pay off debt.

Surrogacy professionals and attorneys understand how important compensation can be to a family, and it is normal to worry about having to deduct money from your surrogate compensation to pay taxes. The parties in most surrogacy journeys will not issue 1099 forms, which can make things even more confusing.

When researching surrogacy compensation and taxes, keep in mind that surrogacy law is still very new. You’d be hard-pressed to find any state laws or established cases that address surrogate taxation or income tax. Any required surrogate mother income tax would have to be identified by a local tax lawyer.

If there is a situation in which a professional or intended parents issue a 1099-MISC to their surrogate, she must claim her compensation as income.

2. Is Surrogate Compensation Taxable Without a 1099?

So, that brings us to the next big question: Do surrogate mothers have to pay taxes if they are not issued a 1099?

The answer: It depends.

Like other aspects of surrogacy compensation and taxes, how a surrogacy professional and tax attorney handles this will vary. Your surrogacy journey will be different from the next woman’s, so we encourage you to speak with your surrogacy professional for the best possible advice.

The question of whether surrogate compensation is taxable should arise long before a surrogate candidate receives her payments. In fact, this conversation should begin during the drafting of the surrogacy contract. Anyone working with an experienced surrogacy attorney can trust that they will handle this legal step.

Most surrogacy attorneys will find a way to resolve gestational carriers of the need to pay taxes. It’s all about how the compensation is addressed in the surrogacy contract. In many cases, certain legal language can be used to help you avoid taxation. Your attorney should explain these and the legal process involved long before you finalize your contract and start the medical process.

Typically, there are a few phrases used to disqualify surrogates from having to declare income and pay taxes:

• “Gift”: Many accountants can waive part of the tax liability of surrogate compensation by using the gift tax exemption. However, because the maximum exclusion is $15,000, this phrasing does not exclude the entirety of a surrogate’s compensation from tax liability.
• “Pain and suffering”: Other accountants will list a surrogate’s compensation as payment for her “pain and suffering” in the surrogacy journey. However, this can be complicated, as “pain and suffering” tax exemptions don’t usually apply to a process that a woman willingly enters into.
• “Pre-birth child support”: Child support payments are exempt from taxes, so some attorneys word compensation as such to avoid tax liability later on. Like the other phrases listed here, how well this method holds up in court is uncertain. Legal interpretations and enforcement can vary.

3. Where Can I Learn More about Surrogacy Compensation and Taxes?

It’s clear that taxes on surrogacy compensation are complicated. If you’re a prospective surrogate, it’s ill-advised to manage this subject on your own. Remember: All of the surrogacy services you receive will be free to you, and that includes legal and financial advice.

If you want to learn more about surrogacy compensation and taxes, we first and foremost encourage you to contact the Internal Revenue Service. This is the best place to find out whether your surrogate compensation is taxable and whether you need to declare your compensation as income. If you wait too long too long or file your taxes incorrectly, you could be subject to penalties and audits.

In addition to the IRS, a surrogacy professional and a surrogacy attorney are great resources for this topic. They will be aware of any local laws or policies surrounding taxation and compensation, and they can guide you through the complicated process ahead.

When you’re a surrogate, you always have the right to receive professional advice for free.  Choose the right surrogacy professional, and they will help you through every step in the process, even your post-surrogacy financial needs.