April 15. You know, tax day. The day that everyone dreads every year.
While we can’t help you file your taxes, we can help you know how to handle egg donation and surrogacy when it comes to filing your taxes.
After all, we understand how expensive egg donation and surrogacy can be. So it’s nice to know what expenses can be written off to help save a little money come tax day.
Tax laws can be confusing, so we’re here to help. Here’s everything you need to know about tax breaks for egg donation and surrogacy.
What Tax Breaks Are Available If You Had an Egg Donation?
According to IRS private letter ruling, the cost of donor eggs is deductible as a medical expense.
Under IRS code section 2139(a) it states:
“A taxpayer may deduct expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, spouse, or dependent, to the extent the expenses exceed 7.5 percent of adjusted gross income under § 213(a). Section 213(d)(1)(A) provides that medical care includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease or for the purpose of affecting any structure or function of the body.”
In simpler terms, if intended parents spend money on donor eggs, and they are not covered by insurance, they classify that as a medical expense and can write it off on their taxes.
Unfortunately, agency fees are not deductible. So be sure to keep those expenses separate in your records.
What Surrogacy Tax Breaks Are Available?
Surrogacy tax breaks are a little more complicated. There are very few tax-deductible surrogacy expenses. Here’s a breakdown of surrogacy expenses that are or are not tax-deductible:
What Can be Deducted
Any medical expenses contributed to you or your spouse, including any costs related to IVF, can be deducted.
Since intended parents usually use egg donors because of fertility issues, the egg donation process is considered a type of IVF. Unfortunately, surrogate costs are not as clear cut. The intended parents would need to prove an underlying condition that makes it impossible for the mother to carry the baby.
What Can't be Deducted
When it comes to surrogacy costs, the courts have ruled against families who use a surrogate. For an expense to be deducted, it needs to be used directly on a member of the family. So any cost that is for the surrogate cannot be deducted.
Those costs include surrogate compensation, surrogate medical bills, surrogate medical insurance, and any agency fees.
Most employers offer Health Savings Accounts or Flexible Spending Accounts. You can use these accounts for medical expenses.
The money is put into an account before your taxes are taken out. That alone can be worth a 40% savings, depending on your income and tax rate. Usually, these accounts have a max you can contribute each year, so be sure to contribute as much as you can each year.
Your Health Savings Account or Flex Account can be used for any medical expenses.
Another option you can look into is called a Private Letter Ruling from the IRS. A private letter ruling is a private decision from the IRS that will allow you to deduct certain expenses on your tax return. It’s done on an individual basis and does not mean anything to any other taxpayer.
These rulings need to be secure before any treatments have been started. They are also very limited in terms of what can and can’t be deducted, but if you can obtain a private letter ruling, it can save you a significant amount of money.
Be a Voice for Change on Tax Laws
We get it. Same-sex couples and couples who face infertility have the greatest need for tax breaks when it comes to building their families. After all, natural childbirth and adoption costs and covered by tax breaks.
It wasn’t until 2003 that the IRS ruled that IVF treatments, sperm donation, and egg donation can be tax-deductible. And while this does help, it still leaves many treatments and expenses 100% up the couples to pay for out of pocket including most costs associated with surrogates.
Unfortunately, until laws change and deductibles are available for surrogate expenses, couples dealing with infertility and those from the LGBT community will have to pay 100% of the cost. That’s why we encourage our clients to reach out to their state’s lawmakers and press for change.
Whatever your situation, be sure to talk to your tax attorney or CPA to make sure they properly file your taxes and claim all deductions available to you.