What Every Surrogate Must Know about Income Taxes: FAQs

Here are some answer to questions we get a lot about surrogacy and taxes:

Q: Does New England Surrogacy issue 1099s?

A: New England Surrogacy does not manage escrow arrangements; this task is handled by independent escrow companies that specialize in surrogacy escrow.  The escrow companies we routinely work with do NOT currently issue 1099s.

Q: What is a 1099?

A: In simple terms, a 1099 is a notification to the IRS that you were given an amount of money.

Q: I was not given a 1099 for my completed surrogacy journey. Does this mean I do not have to pay taxes on my compensation?

A: This is a very common misconception.  The truth is that the receipt of a 1099 does not determine whether you need to pay taxes on your surrogate compensation. If the money is taxable, it is taxable whether or not you receive a 1099.  These are two completely separate issues.  Please consult with your tax professional to determine whether you need to pay taxes.

Q: Is there a way to structure the surrogacy contract to avoid paying taxes?  What if my surrogate compensation is categorized as payment for "pain and suffering"? Or as “pre-birth child support”?

A: Some attorneys used to write surrogacy contracts characterizing the compensation as payment for the "pain and suffering" endured during the pregnancy and birth.  However, after a 2015 Tax Court decision involving an egg donor who unsuccessfully tried to claim her donor compensation as "pain and suffering", many attorneys abandoned this tactic.  The bottom line is that whatever your contract calls the compensation does not control how the IRS can treat it.  Therefore, referring to your compensation as "pre-birth child support" is not going to automatically get you off the hook from paying taxes.

Q: What about calling the base compensation a "gift"?

A: A gift has a specific definition attached to it under IRS rules.  Most surrogacy matches would not meet this definition, even if everyone involved wanted to call it a "gift".

Q: Can my intended parents deduct any of the expenses of gestational surrogacy?

A:  Maybe.  The answer depends on the intended parents’ specific circumstances.  In general, same-sex couples have a more difficult time qualifying for these federal tax deductions.  Hopefully this will change as the laws on same sex legal rights continue to develop.

Interested in learning more about becoming a surrogate with New England Surrogacy? Contact us today!