Yes. Regardless of whether a 1099 is issued, payments to an egg donor or surrogate (other than reimbursement of actual expenses) are includible in the gross income of the donor or surrogate, and subject to income tax. In the first ruling on egg donation taxes, on January 22, 2014, the U.S. Tax Court rejected a woman’s attempt to avoid taxes on the $20k she received when she donated her eggs for use by infertile couples. The IRS deemed it as compensation instead of damages and therefore found that the egg donor had to pay taxes on the money received for donating her eggs. Even if your contract provides that the payments you receive are for pain and suffering, based on this decision, the IRS will still require the donor to pay taxes on whatever money received for the donation of genetic material. Based on this court opinion, it is important for anyone considering donating their eggs, sperm, or embryos or even acting as a surrogate in exchange for compensation to discuss the tax consequences with an accountant to fully understand what you will have to pay for your taxes.
Marla Neufeld personally experienced years of infertility and ultimately used a surrogate to build her family. Please contact Marla Neufeld (954-761-2929, Marla.Neufeld@gmlaw.com) for a free consultation on surrogacy, egg donation, sperm donation, or embryo donation under Florida’s laws. She represents both heterosexual and same sex couples and individuals.