Surrogacy and Taxes: What Surrogates and Intended Parents Need to Know for 2026

Let's start with the disclaimer that actually matters: we are a surrogacy agency, not a tax firm, and this post is education — not tax advice. The reason this article exists is that taxes are one of the most-asked and least-answered questions in surrogacy, and both surrogates and intended parents deserve to walk into their CPA's office already knowing the landscape.

For Surrogates: Is Your Compensation Taxable?

Here's the honest answer: the IRS has never issued definitive, surrogacy-specific guidance — and that ambiguity is exactly why you need a professional. What we can tell you:

• The conservative (and most common) position is that base compensation is taxable ordinary income, and most tax professionals advise reporting it that way. Court precedent on excluding it is thin, and the "it's a gift" theory doesn't hold up — you have a contract for services.
• Some escrow companies issue a 1099, many don't. Whether or not you receive a form, the income doesn't become invisible — the reporting obligation is yours either way.
• Reimbursements are generally different from compensation. Money that repays actual documented expenses — travel, maternity clothes, lost wages made whole, medical costs — is typically not income in the way base compensation is. Keep every receipt; clean records are what makes this distinction defensible.
• Plan for it up front. A practical rule of thumb many surrogates use: set aside 20–30% of each base compensation payment in a separate savings account, then let your CPA tell you the real number. A surprise refund beats a surprise bill.

One more planning note: compensation can also affect income-based programs — we've covered that in detail in our post on how surrogacy pay interacts with Medicaid, SNAP, and WIC.

For Intended Parents: Can You Deduct Surrogacy Costs?

Mostly no — and it's worth understanding why. The medical expense deduction (IRC §213) covers care for you, your spouse, or your dependents. In private letter rulings, the IRS has taken the position that costs of a surrogate's pregnancy — her compensation, her IVF procedures, her prenatal care — are not medical care for your body, and therefore not deductible. What may still qualify:

• Procedures performed on your own body: egg retrieval, sperm collection, and related testing for the biological parent are generally legitimate §213 medical expenses
• Your own fertility treatment history leading up to surrogacy
• Employer fertility benefits: a growing number of employers reimburse surrogacy costs directly (often $10,000–$40,000) — check your benefits portal before assuming you have none; this is the single most overlooked source of surrogacy funding we see

Budgeting matters more when deductions aren't coming. Our full cost breakdown shows where every dollar goes, and the escrow post explains how funds are protected along the way.

Questions to Bring to Your Tax Professional

• Surrogates: Will my escrow company issue a 1099? How should reimbursements vs. base compensation be documented? Should I make quarterly estimated payments during the journey? Does this change my state filing?
• Intended parents: Which of our costs touch my own medical care? Does my employer offer a fertility/surrogacy benefit? How should we document payments made through escrow?

Find a CPA who has handled surrogacy before — they exist, and your agency should be able to point you to professionals other clients have used.