Are Surrogacy Expenses Tax Deductible?

Welcoming a baby via surrogacy is joyful – but it’s also expensive. With an average surrogacy journey costing over $100,000, intended parents often ask if any of these costs are tax-deductible. The topic is confusing, but this guide will clarify IRS surrogacy rules – explaining what medical expenses the IRS allows, which surrogacy costs are not deductible, and some creative strategies that might provide fertility treatment tax benefits. We’ll also highlight leading resources such as Surrogacy4All.com, IndianEggDonors.com, and EggDonors4All.com to support your journey.

1. What Medical Expenses Will the IRS Allow as Deductible?

Under U.S. tax law, you can deduct qualifying medical expenses for yourself, your spouse, or your dependent. This means many infertility treatment costs on your own body (or your spouse’s) are deductible medical expenses. Typical deductible IVF costs include procedures like egg retrieval or embryo transfer performed on the intended mother, surgical sperm retrieval for the intended father, fertility medications, and related lab tests. In short, any expense for medical care that directly treats your infertility can qualify.

2. Surrogacy-Related Costs That Are Not Tax-Deductible (and Why)

Unfortunately, most surrogacy expenses are not tax-deductible as medical costs. The IRS draws a line at expenses incurred for someone else (i.e. your surrogate or donor) rather than for you. Non-deductible surrogacy expenses include surrogate’s compensation, surrogate’s medical bills and insurance, agency and legal fees, and donor costs. These expenses are vital to family-building but are not considered your medical care under IRS rules.

3. Does a Doctor’s Letter Make Surrogacy Costs Deductible?

Many assume that if they have a medical necessity, such as cancer or infertility documented by a physician, that surrogate-related costs would become deductible. Unfortunately, a physician’s note does not override IRS rules. Even with medical necessity, surrogacy-related expenses are not deductible since the care is provided to someone other than the taxpayer, spouse, or dependent.

4. The C-Corporation Workaround

Some intended parents who own a business use a C-Corporation structure to set up employee medical benefits. If you make yourself an employee, the company’s health plan may reimburse surrogacy costs. This lets the business deduct those costs as a corporate expense, effectively using pre-tax dollars. However, this requires proper setup with a CPA and is not without risk of IRS challenge.

5. State-Level Relief and Other Strategies

While federal tax law excludes surrogacy deductions, some states offer credits or deductions for fertility treatment expenses. For example, New York and Maryland offer IVF credits that can reduce the overall burden. Additionally, families can consult CPAs about private IRS rulings, though most rulings reinforce that surrogacy expenses are not deductible.

Case Study: A Cancer Survivor’s Surrogacy Journey

Emily, 35, a breast cancer survivor, turned to surrogacy after treatment left her unable to carry a pregnancy. She and her husband spent about $120,000. They discovered only their IVF-related costs were deductible, not surrogate compensation or medical bills. By running expenses through a small business as employee benefits and using a state IVF tax credit, they saved thousands. Today, they’re parents to a healthy baby boy.

Testimonials

“We petitioned the IRS for a private letter ruling and were still denied. It was frustrating.” – Jonathan & Eric, Illinois

“I ran our surrogacy costs through my company as employee benefits, saving about $50,000.” – Allen G., Texas

“Our state’s fertility tax credit gave us back $7,000 for IVF, which helped against the overwhelming costs.” – Lydia P., Maryland

FAQs

Q: Are surrogate payments or agency fees tax-deductible?
A: No, they are considered personal expenses, not medical expenses of the taxpayer.

Q: If not, how can I make surrogacy expenses tax deductible?
A: Some intended parents use a C-Corp business structure or state-level credits. Always consult a CPA for tailored strategies.

Q: Would a letter showing medical necessity and a superbill from my medical doctor help with deductions?
A: Not for IRS tax deductions. The surrogate’s expenses remain non-deductible. However, such documentation may support appeals for insurance reimbursement or state-level credits.

Q: Would this help with insurance reimbursements?
A: Yes, in some cases. A superbill or medical necessity letter may strengthen claims with insurers, especially if policies are ambiguous.

Q: Can I use HSA/FSA funds for surrogacy?
A: Generally no. These accounts only cover medical expenses for you, your spouse, or dependents.

Next Steps with Surrogacy4All

At Surrogacy4All, we understand the financial and emotional challenges intended parents face. Our physician-led practice can provide letters of medical necessity and superbills to support your insurance reimbursement claims. We also partner with IndianEggDonors.com and EggDonors4All.com to provide comprehensive donor and surrogacy services. Contact Surrogacy4All today to discuss your options and take the next step in your family-building journey.