How do you report surrogacy income on a tax return?
My daughter-in-law is earning income as a surrogate mother. How should that income be reported on the 1040?
Best Answers
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Thank you for joining our community, Jonezrin.
Making sure she reports the income is important. Your daughter-in-law is performing a service on her own. This is a classic form of Self-Employment. She will report this income on a Schedule C. Reporting her income this way also allows her to claim any expenses she incurred to make this money. Expenses could be as simple as supplies that she paid for as an expecting mother.
You are welcome to reply back with further questions.
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Thank you for your perspective.
My answer above was very general and I have taken more time to find specifics. I will start with a tax source, Publication 17. In the chapter for Other Income, I found evidence supporting your position with the heading "Activity not for profit". This supports the reporting of the surrogate income as Other Income on Schedule 1.
However, I found another source that may call into question the language from the Surrogate Contract for which you will have to review. This website provides instruction on tailoring the tax reporting to the Contract that was signed before engaging as a Surrogate.
The only other issue may be on what form the income is reported, noting Form 1099-MISC as the most common form to report Surrogacy Income. So, my opinion is that you report the income on the tax return as "other income", however, the specific contract may have other language that needs to be discussed with the originator of the contract before I take a more professional position. In this case, I would recommend engaging the services of a local CPA or Enrolled Agent for whom you can provide contract details securely (not on this public forum).
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Sounds good, thanks.
Answers
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Thank you for your response. I read on a different tax preparation site:
"If this is just a one-time thing, and you are not in the trade or business (which requires regularity and a profit-seeking motive) of being a surrogate, you do not report income or expenses on Schedule C. The income would be reported on Form 1040 as other income."
What is your opinion of that position please?
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Welcome back!
Surrogacy can be a complicated issue when filing a tax return. Without access to your daughter-in-law's surrogacy contract we can only provide general information. If you have continued concerns, we would recommend speaking to a local surrogacy attorney who will better understand the contract and specific state laws.
IRS Revenue Code 61 states that, "Gross income means all income from whatever source derived, including compensation for services"
From this, I would suggest that the income is taxable. With that understanding we now need to determine if the income would be considered self-employment or other income.
Businesses operate to make a profit, if this act was a one-time event and your daughter-in-law does not intend to be a surrogate again, this would align with the IRS description of an activity that is not for profit, which the IRS considers Other Income.
Another factor to consider would be how the income is reported. If she receives a 1099-MISC with an amount listed in Box 3, this will also indicate that the income should be reported as other income.If, however, the income is reported on a 1099-NEC, this would indicate that the income could be considered self-employment income.
As you can see there are several factors to consider. As the IRS does not provide direct information about this type of income, you will need to determine how to report this based on the surrogacy contract, the tax form provided and the profit seeking intent. -
We have decided the proper reporting in this case is to report it as "other income" based on the following:
1.) The surrogacy contract states it does not give any advise or instructions related to taxes.
2.) The surrogacy agency said it will not be issuing a 1099-NEC or 1099-MISC.
3.) This is my daughter-in-law's first time as a surrogate and she has no plans to do it again.
Thanks much for all the help and information.
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You are welcome!
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