This page is general information, not tax advice. Private Label Surrogacy does not give tax advice. Tax treatment depends on your own facts, and the rules and IRS positions described here should be confirmed with a CPA or tax attorney before you file. Tax statements on this page: pending CPA review.
What did the IRS say about surrogacy expenses?
In a 2021 private letter ruling (PLR 202114001), the IRS held that expenses for a gestational surrogate, including her compensation, her medical care, and the agency and legal fees connected with her, are not medical expenses of the taxpayer under Section 213 of the Internal Revenue Code, because they are not for the taxpayer's own body.
Two points about that ruling matter:
- A private letter ruling binds only the taxpayer who requested it. It is not a rule of general application, and other taxpayers cannot rely on it as precedent. It does show how the IRS has analyzed the question.
- The reasoning turns on whose body is treated. Medical expense deductions are for care of the taxpayer, a spouse or a dependent. Care for the surrogate is care for someone else.
In practice, that means the deductible share of a surrogacy journey is small. Intended parents typically budget $150,000 to $200,000 in total, and most of that, including the surrogate's compensation package, the program fee, third-party costs and her medical care, is connected to the surrogate rather than to your own body. Plan your budget as if surrogacy costs are not deductible, and treat any deduction for your own treatment as a possible reduction, not a source of funding.
Which fertility costs can intended parents deduct?
The costs most likely to qualify are the intended parents' own treatment:
- Egg retrieval from the intended mother, including stimulation medications and monitoring.
- Sperm collection from the intended father.
- IVF lab work to create embryos from your own eggs or sperm.
- Embryo storage.
- Travel for your own treatment.
The same logic covers treatment you had before deciding on surrogacy. IVF cycles, retrievals and related care for your own body, in an earlier year, are medical expenses of that year, whether or not they led to a pregnancy.
Costs connected to the surrogate are generally not deductible: her compensation, her medical screening and care, her medications and transfer, the agency program fee, legal fees and escrow fees.
| Expense category | Likely deductible for intended parents | Basis | Documentation to keep |
|---|---|---|---|
| Your own egg retrieval and medications | Yes, if you itemize and exceed the floor | Medical care for your own body | Clinic invoices, pharmacy receipts, proof of payment |
| Sperm collection | Yes, if you itemize and exceed the floor | Medical care for your own body | Clinic invoices |
| IVF lab work creating embryos from your gametes | Depends; likely yes | Treatment connected to your own fertility | Itemized clinic invoices separating lab work from transfer |
| Embryo storage | Depends | Connected to your own treatment | Storage invoices |
| Travel for your own treatment | Depends | Travel primarily for your medical care | Receipts, dates, purpose |
| Surrogate compensation and expenses | No | Not care for the taxpayer's body (PLR 202114001) | Escrow statements, for your records |
| Surrogate medical screening, medications, transfer | No | Not care for the taxpayer's body | Clinic invoices, for your records |
| Agency program fee | No | Not medical care of the taxpayer | PLS invoices |
| Legal and escrow fees | No | Not medical care of the taxpayer | Attorney and escrow invoices |
How does the 7.5% of AGI threshold work?
Medical expenses are deductible only if you itemize deductions, and only the amount above 7.5% of your adjusted gross income.
A simple illustration: if your adjusted gross income is $200,000, the floor is $15,000. If your qualifying medical expenses for the year, including your own fertility treatment, total $40,000, the amount above the floor is $25,000. That $25,000 is the deduction, and it only helps if your itemized deductions in total exceed the standard deduction.
Because the floor applies per tax year, timing can matter. Retrieval and embryo creation in one year, rather than spread across two, can push more of the cost above the floor. Talk to your CPA before you schedule, not after.
Ask your clinic for itemized invoices that separate your own treatment from anything connected to the surrogate. A single invoice that mixes the two makes the deductible portion harder to support.
What should you bring to your CPA?
A short, organized file makes the conversation faster and the answer more reliable:
- Every clinic invoice for the year, itemized, with your own treatment separated from the surrogate's screening, medications and transfer.
- Pharmacy receipts, marked by whose medications they were.
- Travel receipts for your own treatment, with dates and purpose.
- PLS program fee invoices and escrow statements, even though they are unlikely to be deductible, so your CPA sees the whole picture.
- Any employer reimbursements and grant award letters, with the amounts and dates received.
- Your plan for the next tax year: when you expect retrieval, transfer and the birth.
Ask your CPA three questions: which of these expenses qualify, whether itemizing is worthwhile this year, and how to treat any employer reimbursement you received.
Is there a surrogacy tax credit, federal or state?
No federal surrogacy tax credit exists. The federal adoption credit does not apply to surrogacy. A few states have proposed credits for fertility or surrogacy costs; check current state law with a CPA. See surrogacy versus adoption costs.
Are employer surrogacy benefits and grants taxable?
Employer reimbursements for surrogacy are usually taxable income to you, because surrogacy costs are not medical care for your own body. Your employer reports them as income. IVF for your own body, covered by a medical plan, is treated differently. See employer benefits.
Grants are usually not taxable to the recipient, but treatment depends on how the program is structured. Confirm with a CPA, and keep the award letter.
Keep the two apart in your records. A reimbursement that is reported as income does not make the underlying expense deductible, and an expense reimbursed by a tax-free medical plan cannot also be deducted.
Loans are not income, and loan interest on a surrogacy loan is generally not tax deductible. See financing and loans.
Can you use an HSA or FSA for any surrogacy costs?
Check with your plan administrator before you use either account. Health savings accounts and flexible spending accounts each have their own eligibility rules, and a withdrawal that turns out not to qualify is harder to fix than a question asked in advance. Health savings accounts and flexible spending accounts reimburse qualifying medical expenses, so the same line applies: your own fertility treatment may qualify, and costs connected to the surrogate generally do not. Confirm with your plan administrator and a CPA before using HSA or FSA funds for any fertility cost, because a non-qualifying withdrawal can carry tax and penalties.
How does the surrogate's compensation get reported?
That is the surrogate's question for her own tax adviser. Intended parents do not withhold tax from surrogate compensation and do not issue her a W-2, because she is not their employee. The independent escrow agent disburses the amounts set in the gestational carrier agreement.
Whether and how any escrow agent issues tax forms for disbursements: confirm with the escrow agent and a CPA.
Keep your own records complete either way: the agreement, every escrow statement, and every clinic and agency invoice. If a question comes up years later, those documents answer it. PLS supplies itemized invoices for every program fee installment.
For other cost questions, see the full cost of surrogacy and IVF costs with a surrogate.
Sources
- Internal Revenue Service, private letter ruling PLR 202114001 (2021). [Reference to be verified by a CPA.]
- Internal Revenue Code Section 213, medical and dental expenses.