Surrogacy Taxes – Income Taxes on Compensation

Surrogacy Taxes: does a surrogate mother need to pay taxes on her compensation?

The monetary aspect of surrogate motherhood is a question that many answer differently.

A very common question for all new surrogate mothers and their intended parents is what to do about federal and state income tax issues on compensation.

The paying of surrogacy taxes on one’s surrogate compensation is a topic of great debate in the surrogacy world.

And like everything in the surrogacy world, there is no answer set in stone.

Contacting the IRS

Many surrogate mothers throughout the years have contacted the IRS directly to ask if they should be paying surrogacy income tax on their comp.

Contacting the IRS is similar to contacting your health insurance provider.

Each time you call, you’ll get a different answer, with not one answer set in stone.

Basically, if her compensation is considered income, then yes, a surrogate mother will be required to pay income taxes both on a federal and state level.

This may also put her family into a higher tax bracket federally, causing higher taxes on her combined income with her husband, or preventing them from utilizing the Earned Income Tax Credit, if applicable. But, if a surrogate’s compensation is not considered income, it is not taxed, and the surrogate mother will not need to pay income taxes to the federal or state government.

The problem then, lies with being able to determine if the compensation is income or not. Not reporting income to the IRS when necessary can lead to hefty fines and interest payments.

Contract Wording

Each contract is different, and each state a little different on how compensation is worded for the purpose of determining surrogacy taxes. Most contracts have one of two different wordings that may circumvent the need for taxes to be paid on compensation. It will depend on your contract and attorney.

Pain and Suffering
A surrogate is receiving compensation for being pregnant. Surrogate motherhood is not easy, and comes with many discomforts, including the actual birth itself.

Many contracts state that the surrogate is being compensated for her discomfort while pregnant. In most circumstances, pain and suffering is not taxed.

Pre-Birth Child Support
For those contracts that do not list compensation as that of pain and suffering, another commonly untaxed exclusion is that of pre-birth child support. The intended parents are paying for the prenatal care of their unborn child, and are compensating the surrogate mother with her expenses while pregnant.

Bottom Line

What you choose to do as far as surrogacy taxes with your compensation is a decision a surrogate, her spouse, and her tax adviser need to make. Make sure your contract lists the compensation as the pain and suffering, or pre-birth child support that it is, and make your own decisions.

The paying of income taxes on compensation is not the responsibility of the intended parents, under any circumstances. If, however, a surrogate mother intends to pay income taxes, this should be thought of in advance. She may want to reflect this in the amount she asks for as her compensation.

Do you claim compensation on your taxes?

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