You planned for the journey. You didn’t expect the price tag to come with so many questions.
Surrogacy can cost $100,000 or more. Once you reach that point, one question becomes hard to ignore: can any of it be claimed on your taxes?
The answer is not always simple.
Between medical expenses, agency fees, and surrogate compensation, tax rules quickly become confusing. Surrogates face similar uncertainty when it comes to how their compensation is treated.
This article breaks down what the IRS allows for intended parents, how surrogate compensation works under current tax law, and what surrogates and families should know heading into tax season.
Are Surrogacy Expenses Tax Deductible for Intended Parents?
What the IRS Says About Medical Expense Deductions
Intended parents cannot currently claim a straightforward surrogacy deduction. Under Schedule A, the IRS allows taxpayers to deduct qualifying medical expenses when total medical costs exceed 7.5% of adjusted gross income. Whether surrogacy costs fall into that category depends on how each expense breaks down.
Surrogacy involves a mix of costs: some are clearly medical, some are legal, and others cover compensation paid to a third party. Each category receives different tax treatment, which is why a single line-item deduction rarely applies.
IRS Private Letter Ruling 202505002, issued in January 2025, offers the most useful recent guidance. It addressed a taxpayer who used a gestational surrogate and sought deductions for IVF-related expenses. Private letter rulings apply only to the individual who requests them, but they signal how the IRS is likely to view similar cases.
Which Surrogacy Costs Qualify as Deductible
Based on IRS guidance and tax attorney interpretations, certain costs carry the strongest case for deductibility as medical expenses:
Expenses directly tied to the medical side of the surrogacy process hold the strongest argument. The key question the IRS considers is whether the cost addresses the diagnosis, treatment, or prevention of a medical condition.
Which Surrogacy Costs Are Not Deductible
Several significant surrogacy costs fall outside the IRS definition of medical expenses, even though they represent real financial weight:
None of these qualify as medical care under IRS rules. A tax professional can help identify whether any line items in a specific contract carry a stronger argument, particularly if the agency has structured costs in a way that separates medical from non-medical expenses.
How the 7.5% AGI Threshold Works in Practice
Deductible medical expenses only produce a tax benefit once total medical costs exceed 7.5% of adjusted gross income. A household earning $200,000 per year sees no deduction on the first $15,000 of medical expenses. Any qualifying amount above that threshold becomes deductible.
Given the scale of surrogacy costs, many intended parents do cross this threshold in the year of embryo transfer or delivery. Working with a tax advisor before year-end lets families plan which costs to document carefully and which ones may support a valid deduction claim.
Can Intended Parents Deduct More? The Private Letter Ruling Option
What a Private Letter Ruling Is and How It Works
A Private Letter Ruling (PLR) is a written opinion from the IRS that confirms how the agency will treat a specific taxpayer’s situation. Intended parents can request a PLR before filing their return, asking the IRS to confirm whether their particular surrogacy costs qualify as deductible medical expenses.
Obtaining a PLR takes time, typically six months to a year, and requires a detailed description of the surrogacy arrangement, the medical diagnosis driving the need for a surrogate, and a legal argument for deductibility. It is not inexpensive. For high-cost cases, though, a favorable ruling often produces significant tax savings.
What You Need to Qualify for a PLR
A documented medical condition that makes natural pregnancy impossible gives a PLR request its foundation. Diagnoses of infertility, uterine absence, or a medical contraindication for pregnancy create a direct link between the surrogacy expense and a qualifying medical need.
Without that medical record, the argument becomes harder to sustain. Families considering this route should work with a tax attorney who has handled reproductive medicine cases before. Professional guidance at this stage frequently pays for itself when the ruling turns out favorable.
Do Surrogates Have to Pay Taxes on Their Compensation?
How Surrogacy Compensation Is Typically Structured
Surrogate compensation ranks among the most misunderstood tax topics in the surrogacy world. No simple answer applies, and the financial consequences for surrogates are real.
Most surrogacy agencies frame compensation as reimbursement for living expenses during pregnancy rather than wages for services rendered. That distinction matters because the IRS taxes income, not reimbursements. How a contract describes payments, and how the agency structures them, shapes the tax picture significantly.
No definitive IRS guidance exists specifically for surrogate compensation, which leaves ongoing uncertainty in the field. Some tax advisors recommend that surrogates report their compensation as income; others argue the reimbursement framing removes it from taxable income. In practice, each surrogate’s situation calls for individual assessment, and consulting a tax professional is strongly advisable.
What Payments Surrogates Receive Before Pregnancy Is Confirmed
Not all surrogate payments connect to an active pregnancy. Before confirming a successful embryo transfer, surrogates typically receive payments that cover preparation costs.
Early payments compensate surrogates for the psychological evaluation, medications taken to prepare the body for transfer, and the embryo transfer procedure itself. Agencies include these amounts because surrogates take on real physical and emotional commitments before knowing whether a pregnancy results.
Pre-pregnancy compensation remains separate from the base monthly payments that begin once pregnancy is confirmed. Its existence reflects the agency’s recognition that a surrogate contributes real effort and risk before a viable pregnancy takes hold.
When Monthly Payments Begin and How They Are Paid
Once heartbeat confirmation occurs, typically around week seven of pregnancy, monthly payments begin. Covering the surrogate’s living expenses throughout the pregnancy, these payments continue until delivery and beyond.
A third-party surrogacy escrow account generally holds and disburses all funds, acting as a neutral financial intermediary between the intended parents and the surrogate. The escrow company follows the payment schedule defined in the surrogacy contract.
Most surrogates complete delivery before collecting their full compensation. Remaining amounts distribute based on the delivery date, with all outstanding payments due within a defined window after birth.
How Surrogacy by Faith Approaches Surrogate Compensation and Taxes
Why the Payment Structure Matters for Tax Purposes
Contract language has direct implications for how surrogate pay looks at tax time. Agencies that frame payments as reimbursement of living expenses during pregnancy produce a different tax picture than those treating compensation as earned income.
Surrogacy by Faith structures its surrogate compensation as reimbursement of pregnancy-related living expenses. Monthly payments begin only after heartbeat confirmation, aligning the timing of compensation directly with the period of active pregnancy. Contract language reflects that intent throughout, specifying that compensation covers the surrogate’s needs during the pregnancy itself.
Before pregnancy confirmation, surrogates receive separate payments covering the psychological evaluation, medications, and embryo transfer costs. Those early amounts address pre-pregnancy commitments specifically and stay distinct from the monthly base compensation.
Why Most Surrogates at Surrogacy by Faith Do Not Receive a 1099
Surrogacy by Faith routes all surrogate payments through a third-party escrow company. Escrow companies do not function as employers and do not occupy the role of wage payers, so they generally fall outside the requirement to issue a 1099 form to surrogates.
One exception worth noting: reimbursement for a spouse’s lost wages is paid gross, meaning taxes are not withheld. That portion of compensation differs from the base pay structure and may carry a tax obligation. Surrogates whose partners take time off to support them during the pregnancy should flag this with their tax professional.
A 1099 signals to the IRS that income was received and can trigger a tax obligation automatically. Without one, surrogates avoid automatic income flagging on their compensation. That does not make compensation definitively tax-free, but it does mean each surrogate’s situation calls for individual review rather than automatic reporting.
Consulting a tax professional who understands reproductive arrangements remains the right call for every surrogate. Beyond the financial side, the surrogacy process at Surrogacy by Faith includes support at every stage of the journey, including guidance on navigating the financial aspects of surrogacy.
Frequently Asked Questions About Surrogacy and Taxes
Is Surrogate Compensation Considered Taxable Income?
How the agency structures compensation drives the answer. Payments framed as reimbursement of pregnancy-related living expenses and routed through escrow rather than paid as wages often fall outside ordinary taxable income, according to many tax professionals. Blanket IRS guidance does not yet exist on this point, so every surrogate benefits from working with a tax advisor familiar with surrogacy arrangements.
Are IVF Costs Tax Deductible When Using a Surrogate?
IVF costs paid directly by the intended parent, where the parent qualifies as the patient, hold the strongest case for deductibility as medical expenses. Gestational surrogacy relies entirely on IVF and surrogacy working together, and most intended parents have embryos created before the surrogacy process begins. Embryo creation costs paid to the IVF clinic may qualify under IRS medical expense rules when properly documented.
Can Intended Parents Deduct Agency Fees?
Agency fees generally do not qualify as medical expenses. Coordination, matching, and administrative services fall outside the IRS definition of medical care. Some tax advisors make an argument that portions of agency fees tied to medical coordination carry partial deductibility, but no settled position exists. Detailed documentation of how fees break down gives intended parents the best foundation for any deduction claim.
Should Surrogates Work With a Tax Professional?
Yes, without exception. Surrogacy compensation sits in a genuinely complex area of tax law, and reporting incorrectly can affect a surrogate’s financial situation significantly. A tax professional with experience in how surrogacy works can review contract language, assess the compensation structure, and give guidance specific to the surrogate’s state and circumstances.
How Surrogacy by Faith Supports Surrogates and Families
Children and family are a gift, and every decision at Surrogacy by Faith reflects that belief. Transparency, fair compensation, and genuine protection for both surrogates and intended parents guide every contract the agency puts in place.
Surrogacy by Faith transfers only PGT-A tested embryos, contributing to a 92% first-transfer success rate against a 40 to 60 percent national average. Genetic screening protects surrogates from unnecessary medical risk and gives intended parents the strongest possible starting point. Surrogacy by Faith does not support pregnancy termination unless the mother’s life is at risk.
Every team member at Surrogacy by Faith brings real lived experience to this work. Several have been surrogates themselves, with 8 babies between them. That perspective shapes how contracts read, how compensation structures, and how the agency walks with surrogates through every phase of the journey.
Women who want to understand the full scope of the commitment can review the surrogate requirements or work through the complete guide on how to become a surrogate.
Those still wondering can anyone be a surrogate will find a clear breakdown of who qualifies and what the process involves at each stage.
Intended parents looking for a clear picture of costs and process can explore surrogacy for intended parents to understand what it means to work with an agency that puts transparency first.
Ready to Take the Next Step?
Surrogacy by Faith is looking for compassionate, qualified women ready to help a family grow. If you think you might be a match, the surrogate application takes just a few minutes to start.
Intended parents who want to explore surrogacy with an agency grounded in care and transparency can reach out through the intended parent application. Surrogacy by Faith walks with you every step of the way.