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Surrogate Compensation and Taxes

Surrogacy Compensation and Taxes

Are you worried about your surrogate compensation and taxes? Fewer things trigger more feelings of dread than the word “taxes.” Maybe unless you’re an accountant…?

Alas, taxes are part of our lives as Americans. And anytime we receive money in any form, including as payment for surrogacy, it is in our best interest to check into whether we will be taxed on it. Nobody ever said that adulting was fun.

Before we get mired in the details, top-of-mind here should be WHY you have chosen surrogacy. By becoming a surrogate, you are in a position to change people’s lives by providing them the gifts of hope and joy of pregnancy and child(ren). Don’t lose that important focus.

All that said, you will receive compensation for being a surrogate and reimbursement for a number of different types of expenses. Most sources agree that the national average of compensation for a first-time, singleton surrogate is about $30,000.  At Fairfax Surrogacy, the surrogate compensation for a first-time surrogate starts at $45,000. Other expenses for which you are reimbursed can vary greatly depending on location, travel, insurance, and whatever medical procedures may be necessary. So, we are talking about a pretty good chunk of change here. And, where there is a chunk of change, there is almost always, you guessed it: taxes.

Before we delve into information about surrogate compensation and taxes, we should note that none of the information provided here should be a substitute for professional advice about your particular financial situation. You are best served to consult a local tax attorney for the latest tax laws in your state and to apply your personal circumstances, as well.

What are the tax laws about surrogacy payments?

All of surrogacy law is very new in the United States and continues to develop every year. Most of the laws contain no guidelines about taxes, to boot. There is definitely nothing consistent across any number of states. How is that for confusing?

The best defense against murky laws and guidelines: planning ahead. We strongly recommend consulting both an attorney and an accountant about your surrogacy compensation. Some of these questions will be addressed during the drafting of your surrogacy contract, by legal language that helps define what the compensation is for.

Anything that isn’t covered by definitions that are in the contract, you should make sure it won’t be taxed the following year – especially before you spend it on something like a down payment or large purchase. You don’t want to have a shock in April when you could have set aside a certain amount in anticipation of taxes.

Is the money considered income? In some instances, you will be issued a 1099 for your surrogacy compensation, but not all agencies or states do so. If you receive a 1099, then the amount of money on that 1099 must be treated as income and taxed accordingly.

Any compensation or reimbursement that is not included on a 1099 may have been defined in your surrogacy contract (check with the lawyer) or may be sorted into categories determined by your accountant, such as “gift,” “pre-birth child support,” or “pain and suffering.”

Where to go for more help on tax questions

At the end of the day, we strongly encourage you to reach out to your tax professional in the state of your current residence as they will be able to guide you best on state-specific tax matters and answers to all of your questions.

You also can check with the Internal Revenue Service (IRS) to learn how to avoid penalties and audits in your situation.

Take this to the bank

By planning ahead and working with professionals, your taxes will not seem as daunting. And you can focus on your health, your pregnancy, and aiming toward that bundle of joy who will change everyone’s lives for the better.