Q: Do Gestational Carriers have to pay taxes on the compensation they receive?
—Eloise, Founder, Family Inceptions
Hi Eloise,
Surrogate mothers reporting their compensation on income is extremely controversial. Everyone has a different answer.
The court cases involving compensation all revolve around Egg Donors. Egg donor compensation is 100% considered income according to the IRS. Considering that Surrogacy is in the same vein as Egg Donors, I tend to lean towards the belief that the surrogacy compensation is income.
There are some in the industry that believe if the contract states that the compensation is for pain and suffering, then the income is excluded from the tax return. While pain and suffering compensation is normally excluded from income, this would indeed qualify. However, in the Egg Donor court cases, the courts decided that the compensation can not be considered “pain and suffering”. The logic is that the donor has voluntarily signed up for the process. In a previous question we explained that the courts compared it to a boxer taking on a prize fight. The boxer could not exclude their payment for pain and suffering even though most of the reason they get paid is due to it. Majority of gestational carriers are compensated, so the exchange of money is directly related to their work.
Surrogate mothers have not been formally ruled against, but it’s still a gray area with the possibility of a ruling in favor of the compensation being taxable. As always, I recommend to seek out a qualified CPA should you have any further questions.
—Edward Brockschmidt, CPA & Co-Founder of SeedTrust Escrow
For additional answers to tax related questions please see Brock’s profile on JustAnswer.com by clicking here.
Q: Can we use a FSA or HSA for our surrogacy medical expenses?
—C.E., Dallas, TX
Hello C.E.,
FSA’s (Flexible Spending Accounts) and HSA’s (Health Saving Accounts) are savings accounts that are to only be used for medical expenses. Many people use their accounts to visit a doctor or pay for medication.
We get a lot of questions from intended parents asking if they can use their medical savings accounts to fund their escrow and pay for surrogate related expenses. Unfortunately, both FSA’s and HSA’s do not consider surrogacy to fall under a qualified expense. The reasoning is that they consider the surrogate to be a third party and not directly related to the unborn child. Therefore, it would be like paying for someone else’s medical bills.
However, there are instances you can use the medical savings account to pay for certain fertility treatments.
They are the following:
•In Vitro Fertilizations (for the insured or dependent only)
•Surgery related to reversing a prior surgery that prevented the person from having children.
•Egg Retrieval
Once the baby is born and legally becomes your dependent you can start using your HSA. Again, this too is another issue where I recommend consulting with a CPA to help you best navigate your surrogacy journey.
—Edward Brockschmidt, CPA & Co-Founder of SeedTrust Escrow
