The Complexity of Surrogacy and Taxes
Surrogacy as a whole is still pretty young, it was in 1985 when the first successful gestational surrogate was documented in the United States, and with that youth, federal laws are still in catch up mode when it comes to surrogacy. Most laws surrounding surrogacy are up to the individual states to decide, and that can be supportive or damaging depending on the state, something that we have seen in recent years as it comes to reproductive health. Included in that foggy atmosphere are the guidelines on taxes when it comes to the compensation for gestational surrogates and deductions for intended parents to claim.
As we just passed tax season, which we can all agree that we hate with a burning hot passion. That uncertainty and sometimes blind navigation hit’s different for a gestational surrogate, and can leave some to not report that compensation on their taxes all together.
Spilling the Tax Tea
Firstly, this information should not be seen as any sort of financial or legal advice. The compensation that a surrogate receives is unique, and whether or not you report it really depends on if you receive a 1099-MISC form from the intended parent(s). If you get that form, you are in the canon of having to report that to the IRS when it is time to do your taxes. If you don’t receive a 1099 does that mean that you are free in the clear when it comes tax time?
Here comes the “iffy” part.
While a lack of a 1099 form does mean that the intended parents decided not to do an exchange of federal tax forms, it doesn’t mean that compensation is free from taxes because the IRS will always come for their money. Clarification for this can be addressed in the beginning stages of the process when it comes to the drafting of the surrogacy agreement, it is very much important to ask as many questions as you need, consult with a tax professional if it gives you some peace of mind. Because when it comes to most things surrounding the federal government they are playing catch up.
Surrogates and intended parents should always be on the same wavelength before the agreement is finalized because the language within that agreement and the tax laws in the state you are in are going to steer the course for both when it comes to tax time. On the side for intended parents, it boils down to whether or not surrogacy is tax-deductible, and that also is in the not a direct “yes or no” category.
Depending on your state, your accountant or tax professional might be able to list your compensation (for surrogates) or how much your paid expenses were (for intended parents) under different classifications to gain deductions for some of it, and since everything is in a gray area when it comes to taxes and surrogacy it is best not to assume anything, but it is important to keep track of all expenses.
That gray area is even more opaque for queer intended parents that might not be able to take advantage of the same deductions that heterosexual couples use, so the intersectionality with queer rights is met here as well. You might be asking at this point, “why hasn’t there been more done to make the issue of taxes and surrogacy more clear?” It’s not been for the lack of trying, the Equal Access to Reproductive Care Act was brought forward by Representative’s Adam Shciff and Judy Chu of California to allow the federal government to catch up, especially in the case of intended parents in the LGBTQIA2S+ community that might find roadblocks when it comes to using tax deductions for assisted reproductive treatments.
“Every person regardless of their sexual orientation, gender identity, ability, or relationship status deserves the same opportunity to start and expand a family. But right now, our tax code is sorely outdated and makes it harder for LGBTQ+ individuals and couples to afford treatments to bring children into their families, such as IVF. This bill would rectify this iniquity by allowing LGBTQ+ couples to deduct the cost of assisted reproductive treatments as a medical expense – a privilege heterosexual couples already have. (Introduce Bill, 2022)”
Unfortunately, as of now progress on the bill has appeared to stall.
The Important Bits
Doing taxes, especially if you have multiple sources of income or trying to find which deductions you can claim is stressful to say the least. To mitigate this in order to protect your mental and emotional health, preparation is key for both surrogates and intended parents. Starting at the beginning before the agreement is signed, gathering as much information as possible is going to help, consulting everyone from your surrogate agency to tax professionals will get you ahead of the potential stress that comes with filing your taxes. For LGBTQIA2S+ families this is even more paramount as the federal government is several steps behind when it comes to recognizing the many ways that queer families can exist. Remember, none of this is impossible to navigate. This can be a headache for sure, but with support from your surrogacy community, you can handle it.
