Are Egg Donor Expenses Tax Deductible?

Maneuvering the financial aspects of egg donation can be daunting especially when considering tax deductions. Understanding whether medical expenses, legal fees, or agency costs actually qualify for deductions may depend on several factors like how they are classified by the Internal Revenue Service (IRS) and who incurs these expenses. This blog will explore the classification of egg donor compensation, IRS guidelines on income from egg donation, as well as tax filing tips for egg donors. 

A tax deduction basically lowers your taxable income and you only pay tax on the remaining amount. Lets say your gross income is $70,000 and your tax deductions are $ 7,000, you’ll only pay tax on the remaining $63,000. According to the IRS you may only deduct medical expenses more than 7.5% of your adjusted gross income. Additionally, it defines medical expenses as those incurred for “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” 

Expenses incurred in the process of preparing for a procedure e.g a fertility aiding procedure, that are directly related to the procedure are considered as medical expenses according to the IRS. Expenses such as:

1. Agency fees for securing a donor
2. Psychological evaluations to assess the suitability of a donor
3. Legal fees for drafting the contract
4. Travel costs incurred by the donor
5. Medical expenses related to the egg retrieval process
6. Blood tests and other necessary screenings

It is important to note that the IRS considers infertility as tax deductible. However a male tax payer in a same sex union may not be eligible for tax deductions as they case isnt a medical condition. Tax regulations may be complex thus consulting a tax consultant may be key to ensuring tax compliance and maximized tax deductions. 

How Egg Donor Compensation Is Classified

Certain factors may influence compensation based on:

• Ethnicity: A shortage of donors from certain desirable ethnic groups may attract higher compensation rates.
• Education: Donors with high academic achievements or degrees from prestigious universities are often in higher demand.
• Experience: Higher compensation may be accorded to repeat donors with high success rates.
• Aesthetics: physical appearance as well as natural abilities such as athletics may also attract higher compensation.

Egg donor compensation is generally considered as income for services rendered by the IRS and should be filed by the donor as part of income earned for that financial year. If unfiled, they may owe taxes on the amount received.

IRS Guidelines on Egg Donation Income

As an egg donor, you are not considered an employee of the prospective recipient and so the compensation you receive is generally for your trouble. The IRS considers as taxable, any income earned that is not from an employer. As such each year the egg donor donates their eggs, they will receive a 1099 form which is a group of forms that is used to report various types of income that are not typically from an employer. The donor will receive a form 1099-NEC from the agency that contracted them for their services for amounts starting from $600 and above. This form should be received by the 31st of January to aid in preparation of tax returns. 

Can Medical Expenses Be Deducted?

An egg donor’s medical expenses associated with the process of egg donation such as hormone injections, egg retrieval, screenings and follow up care are usually covered by either the intended parents or the agency incharge of facilitating the egg donation process. Since the donor does not directly incur these costs, they usually do not qualify as tax deductible costs for them. 

However, certain out-of-pocket costs related to the egg donation process like transportation and boarding costs necessary during medical visits may be deductible if they meet certain IRS criteria. Medical expenses exceeding 7.5 percent of your adjusted gross income (AGI) are the only allowable deductions by the IRS and only if they are expressly related to the egg donation procedure and treatment. Although egg donation itself may not be considered as a medical condition, the related expenses such as hospital admissions and travel to the fertility clinic may be considered as acceptable deductions.

In addition, donors may be subjected to self-employment tax deductions since income from egg donation is categorized as taxable income, depending on how they report their earnings. Although medical costs are generally covered by the intended parents, the egg donor should also keep a detailed record of personal costs incurred all through the process and seek the guidance of a tax professional for assistance on personal deductions.

Tax Filing Tips for Egg Donors

Although filing taxes as a donor may be challenging, understanding the process may help you avoid tax liabilities. Some key tips to help you with tax compliance include:

• Report Your Income: the fertility clinic or agency will ideally issue you with a 1099-NEC form to report non-employee compensation for earnings from $600 and above. You are still required by law to report your earnings even if you don't receive the 1099 form.
• Understand Self-Employment Tax: the IRS classifies earnings from egg donation as earned income and therefore eligible for the self employment taxation.
• Know What Expenses Are Deductible: egg donors usually do not deduct medical expenses as these are paid for by the recipients, however the intended parents may deduct certain medical expenses related to the egg donation process as long as they are more than 7.5 percent of their AGI.
• Keep Detailed Records: Thorough documentation of your income and expenses and all tax forms received is key as this will help ensure precise reporting and allow for an easier tax filing process
• Consult a Tax Professional: although tax laws may be complex and deductions differ from one individual circumstance to another, consulting a tax professional may help you to navigate the process and ensure maximization of eligible deductions.

Understanding the tax implications of the egg donation process for both the egg donor and the intended parents is crucial for the effective navigation of the financial obligations. Eligibility will depend on specific individual circumstances and IRS guidelines even though certain medical and legal costs related to the egg donation process may be deductible. 

Although tax laws can be complex and deductions vary, consulting the services of a tax professional is key in ensuring tax compliance for both the egg donor and the intended recipient. Following the above tips will also help smoothen the taxation process and allow for an easier journey to parenthood. Book your appointment today with our professionals at the Fertility Associates of Memphis (FAM) for more information on how to manage your financial obligations while achieving your dream of becoming a parent.

FAQ

Can egg donors deduct medical expenses?

Since intended parents typically cover the medical expenses of the donation process, egg donors generally do not have deductible costs for tax purposes.

Do I have to report egg donor compensation on taxes?

Yes, egg donation compensation is considered taxable income.