SURROGACY FEES (INCOME AND DEDUCTIONS)
Information about the taxability and deductibility of surrogacy fees is often hard to find because there are far fewer surrogacies than with conventional births. Surrogacy is a legal arrangement in which a surrogate mother, new parents and (often) a surrogacy agency enter into a binding contract. In the event of a breach of that contract, any party can be held to the terms of the agreement.
A surrogate mother is, by definition, neither the taxpayer nor the taxpayer’s spouse, and she is typically not a dependent, either. An unborn child is also not a dependent (Cassman v. United States, 31 Fed. Cl. 121 (1994)). Thus, medical expenses paid to a surrogate mother and her unborn child do not qualify for a medical deduction.