Are Egg Donor Expenses Tax Deductible?

Family building has evolved over time, providing families of various structures to have children through many different avenues. When couples or individuals are unable to build their families naturally, they quite often consider assisted reproductive technologies (ART). Perhaps due to a primal instinct, most people prefer to have children who carry their DNA. However, this is not always possible.

Egg donation is an alternative way to build families, when people are unable to do it naturally, or if ARTs have not been successful. There are financial costs that are involved in egg donation for the testing, medical treatments and legal fees. As well, the egg donor gets some financial compensation for the role they play. So let us discuss how egg donation compensation is classified, if medical expenses for egg donation are deductible, and how to go about filing taxes with regard to egg donation.

Are Egg Donor Expenses Tax Deductible?

When it comes to taxation, egg donor expenses are considered medical expenses that are tax deductible. The individual or couple using egg donor services typically caters for all the costs of using egg donor services to build their families. These costs including financial compensation that is paid to the donor for undergoing the medical processes that lead to the retrieval of their eggs. While many people have medical insurance, it may or may not cover egg donation. It is recommended that one consult with their health insurance provider before beginning the process in order to understand the scope of their health insurance cover. 

How Egg Donor Compensation Is Classified

Egg donation compensation is considered to be payment for a service that has been rendered. This compensation is for the time, inconvenience, as well as any pain and suffering that may be experienced during any phase of egg donation. Typically, egg donation does not cause pain or suffering since there are no damages to the donor’s body.

Legally, compensation received as a settlement for pain or suffering caused through accidents or personal injuries is not subject to taxation. However, egg donation is voluntary as well, the donor is informed beforehand of what the process entails including risks and side effects. Since egg donation is done with the donor’s consent, any discomfort therefore is understood to be part of the medical process and not an involuntary invasion of the body.

IRS Guidelines on Egg Donation Income

Egg donation income is understood to be the compensation made for undergoing the process of egg donation. It is specific to the medical journey a donor goes through in order for their eggs to be retrieved. From the tests and scans, to medications and injections, to the egg retrieval process itself. 

There are costs that the donor may incurr in this process such as transport expenses, or payments for meals. In some cases, there may be an allowance for these costs, or a refund given where these have been made out of pocket. These are not classified as income and can be deducted when filing egg donation income.

As well, egg donation income should be filed under ‘other income’ rather than ‘earned income’, because it is not income received for employment or operating business. As well if the income received is less than $12,000 it is typically not taxable, because the standard deduction for a single person filing begins from $12,000.

Can Medical Expenses Be Deducted?

Yes, egg donation medical expenses are deductible. There are two conditions for tax deduction on medical expenses for egg donation. The first is that only the medical expenses that exceed 7.5 percent of a person’s income are eligible for tax deduction. As well, this amount must be more than $13,950, when itemized medical costs are included.

The math works out this way first, one must calculate what 7.5 percent of their annual income is. Next would be to add up their egg donor medical expenses and find the total of that. The total amount of medical expenses, minus 7.5 percent of the income will give you the amount that one can expect to file as tax deductible. 

Tax Filing Tips for Egg Donors

Seek professional advise: 

Seek advise from a professional tax advisor before you begin your egg donation process, to ensure that you understand how taxes will affect your income for egg donation. As well, your tax advisor will give you direction on how to correctly file the taxes for your egg donation income.

Understand your agreement:

It is important to understand the terms of financial compensation when you sign the contract for egg donation. This includes any additional allowances or clauses for reimbursement. Knowing the total income you will receive will inform how much you will pay in taxes. 

Including egg donor income:

Income tax is filed at certain percentages for particular tax brackets. When you donate your eggs, this income should be included in your income tax form. The two do not need to be filed separately. 

Tax brackets:

Depending on where you donate your eggs, and how many times you donate, it could push your taxable income to a higher bracket than your regular income bracket. It is helpful to consider this before you begin the process of egg donation.

Multiple donations:

It is important to note that if you donate your eggs with regularity, the income you earn from these may be considered income from business, as a self-employed individual. 

Student donors:

If you are a full time student under the age of 24, the income you earn from egg donation is taxable if filed under ‘other income’. As well, the standard single filing does not apply to this income.

Keep financial records:

Keep accurate records of any costs you incurr in relation to egg donation. This will ensure accuracy when filing your taxes which include egg donor income.

Conclusion

For those who have spent out of pocket for egg donor services, it is good news that these expenses are tax deductible. With the help of a certified tax advisor, it is possible to determine how much to expense. Some fertility centers like San Diego Fertility offer payment options that allow their patients relying on egg donors to have a lighter financial load. Contact us to see if you are eligible.

FAQ

Can egg donors deduct medical expenses?

The medical costs of egg donation are typically covered by the intended parent or parents. Therefore since donors do not contribute financially, there are no expenses on their part that could be tax-deductible. 

Do I have to report egg donor compensation on taxes?

Yes. The compensation that egg donors receive is considered taxable income, therefore donors must report this income when filing their tax returns.