The cost of fertility treatments can add up quickly, leaving many families wondering if there are any tax deductions available to help offset the expenses. Donor egg IVF, in particular, can be a costly process, and hopeful parents may wonder if they can claim any tax benefits to help alleviate the financial burden.
In this article, we'll explore whether or not donor egg IVF is tax-deductible and what you need to know to take advantage of any available tax breaks. I will caveat that I am not a tax expert – just an intended parent who has been through this multiple times!
Tax deduction vs tax credit
Let’s start with the basics. Tax deductions and tax credits are often confused, but they have different implications when it comes to your taxes.
A tax deduction reduces your taxable income, meaning you only pay taxes on the remaining amount. For example, if you have a taxable income of $50,000 and a $5,000 tax deduction, you would only pay taxes on $45,000. You may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income.
On the other hand, a tax credit directly reduces the amount of taxes you owe. If you owe $10,000 in taxes and have a $2,000 tax credit, you would only need to pay $8,000 in taxes.
When it comes to donor egg IVF, the Internal Revenue Service (IRS) considers it a medical expense, which means it may be tax-deductible under certain circumstances. However, it's important to consult with a tax professional to determine if you qualify for a deduction and how much you can deduct. Some states offer tax credits for fertility treatments, so be sure to check if your state offers this benefit.
Federal vs state taxes
Federal and state taxes are two separate entities, and the rules for tax deductions or credits are totally different. While the IRS allows for a deduction or credit for certain medical expenses, state tax laws may or may not follow the same guidelines. You’ll need to check with your state's tax department to see if they offer any deductions or credits for fertility treatments, including donor egg IVF. Some states may even have different rules for deductions or credits based on the source of the donor eggs (e.g. fresh vs frozen). It's important to do your research and consult with a tax professional to fully understand the tax implications of using donor eggs for IVF.
Are donor eggs tax-deductible?
For some people - yes. According to the IRS Publication 502, the costs of IVF, including temporary storage of eggs or sperm, and surgery performed to overcome infertility are considered medical care. Since the original wording is vague about donor eggs, the IRS clarified this position in a letter stating that the following are deductible:
- Donor egg agency fee
- Legal fees for the contract between you and the donor
- Medical expenses related to the donor egg retrieval
- Blood tests
- Donor’s expenses including travel fees
- Psychological testing of the egg donor
According to the IRS, deductions are only available for medical care costs associated with a medical inability to have children are tax-deductible. Courts have narrowly defined infertility as a medical inability to conceive, rejecting arguments based on a person's sexuality or relationship status. For example, in an IRS ruling to a male taxpayer in a same-sex union, the IRS determined that he was not able to deduct IVF costs because the taxpayer did not have a medical condition.
I am also a board member at the non-profit Resolve, where we are currently promoting the Equal Access to Reproductive Care Act which would rectify the unequal treatment of LGBTQ+ individuals seeking to start a family, by modernizing the federal tax code to allow equal treatment to those using assisted reproductive treatments and surrogacy arrangements regardless of sexual orientation and gender identity.
Is surrogacy tax-deductible?
Surrogacy expenses are generally not tax-deductible. However, intended parents may seek a Private Letter Ruling (PLR) from the IRS to obtain permission to deduct specific expenses related to surrogacy that are not explicitly stated in tax laws. If successful in obtaining a PLR, the entire surrogacy process, including agency fees, could be tax-deductible for the parents.
To request a PLR, you would need to work with a CPA to draft a letter to the IRS outlining the expenses involved in your surrogacy journey. The letter should explain why you are medically unable to conceive and why your situation should qualify as medical care under section 213. The IRS will then respond with a decision, and if granted, you receive a letter to attach to your tax return. The IRS generally completes ruling requests within 60-90 days.
Itemized deduction vs. standard deduction:
When it comes to tax deductions for medical expenses, you can either take the standard deduction or choose to itemize your deductions. The standard deduction is a predetermined amount set by the IRS that reduces the amount of income subject to tax. Itemized deductions, on the other hand, are specific expenses that can be deducted from taxable income, such as medical expenses, charitable contributions, and state and local taxes.
For those considering a tax deduction for donor egg IVF, it is important to note that medical expenses, including fertility treatments, can only be deducted if they exceed a certain percentage of your adjusted gross income (AGI). For the tax year 2021, the threshold for medical expenses is 7.5% of AGI for all taxpayers, regardless of age.
If your total medical expenses for the year exceed this threshold, you can choose to itemize your deductions to claim the excess as a deduction on your tax return. However, if your total itemized deductions do not exceed the standard deduction amount, it may be more beneficial to take the standard deduction instead.
Don’t forget: state tax laws differ from federal tax laws and may have different deduction thresholds or rules for medical expenses. Check your state's tax laws and consult a tax professional for more information.
Here are some tips for navigating the tax deduction process for donor egg IVF expenses.
- Keep accurate records. Keep track of all expenses related to your fertility treatments, including the costs of donor eggs, medication, and any other medical expenses. Make sure to save all receipts and invoices as proof of these expenses.
- Consult with a tax professional. It's always a good idea to consult with a tax professional to determine the best course of action for your specific situation. They can help you navigate the complex tax laws and ensure that you're taking advantage of all available deductions and credits.
- Stay organized. Create a system for organizing your tax documents and keep everything in one place. This will make it easier to find the information you need when it's time to file your taxes.
- File on time. Make sure to file your taxes on time to avoid any penalties or fees. If you're unable to file by the deadline, be sure to file for an extension.
- Take advantage of online resources. The IRS website offers a variety of resources to help you understand the tax code and file your taxes accurately. There are also many online tax preparation tools that can help you file your taxes quickly and easily.
- Don't forget state taxes. In addition to federal taxes, you may also be eligible for state tax deductions or credits. Make sure to research the tax laws in your state and take advantage of any available benefits.
- Stay up to date. Tax laws can change from year to year, so make sure to stay up to date on any changes that may affect your tax situation. This will help ensure that you're taking advantage of all available deductions and credits.
Summing it up
In order for donor egg IVF to be tax-deductible in the United States, it must be deemed medically necessary. This means that the procedure must be recommended by a healthcare provider and must be performed to treat a medical condition. For example, if a woman is unable to conceive naturally due to premature ovarian failure, then donor egg IVF may be deemed medically necessary. But if two men in a same-sex relationship need an egg donor to build their family, the IRS does not view this as tax deductible.
Additionally, the expenses associated with donor egg IVF must be significant enough to meet the threshold for medical expense deductions. In the United States, this threshold is currently set at 7.5% of a person's adjusted gross income (AGI). This means that if your AGI is $50,000, you can only deduct medical expenses that exceed $3,750.
It's also worth noting that not all expenses associated with donor egg IVF are tax-deductible. It’s best to speak with a tax professional or financial advisor to determine your eligibility for tax-deductible donor egg IVF and to ensure that you are following all necessary procedures for claiming the deduction.
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