Tax rules around surrogacy can feel complicated — especially in California. This guide explains what surrogates need to know about reporting compensation, collecting the right paperwork, and distinguishing taxable income from reimbursements. We cover federal and state considerations, common forms, and practical steps to keep records organized. Whether you’re wondering if base pay or monthly stipends are taxable, which expenses might be deductible, or where to get professional help, this overview will help you approach tax season with clarity. Babytree Surrogacy also offers resources to help surrogates understand their financial responsibilities.
A small group discusses California surrogate taxes , sharing ideas in a relaxed and welcoming setting.
Tax Treatment
Most surrogacy payments are treated as taxable income by both the IRS and California tax authorities, generally including base compensation and periodic stipends.The IRS has not issued a formal ruling specific to gestational surrogacy compensation. Instead, it applies the general principle under Internal Revenue Code Section 61 that all income “from whatever source derived” is taxable unless a specific legal exclusion exists. Currently, no such exclusion exists for surrogate compensation. Properly documented reimbursements for medical bills and certain out-of-pocket costs may not be taxable when they’re identified in contracts and supported by receipts. Knowing payment classification up front makes it easier to file correctly and avoid surprises.
Filing Requirements
Keep careful records and follow specific filing steps when reporting compensation. Track invoices, receipts, and documentation for lost wages or medical care tied to the surrogacy. Because California rules can layer on federal requirements, consult a tax professional who understands surrogacy. Missing documentation or improper reporting can lead to penalties or extra tax, so staying organized is essential. Even if you do not receive any tax form from your agency or the intended parents, you are still legally required to report all surrogate income on your return. The absence of a 1099 does not exempt you from reporting.
1099 Forms
The correct form for reporting surrogate compensation as of tax year 2020 onward is Form 1099-NEC (Nonemployee Compensation) — not Form 1099-MISC as was previously used before 2020. Surrogates providing a service fall under nonemployee compensation, so 1099-NEC is the applicable form. The reporting threshold for tax year 2025 is $600; starting January 1, 2026, this threshold increases to $2,000 under the One Big Beautiful Bill Act signed in 2025. If you receive a 1099-NEC, include it on your tax return; if you don’t receive one, you’re still required to report all earned income.
Documentation
Clear documentation is your best protection. Make sure contracts separate compensation from reimbursements and keep receipts, invoices, and medical statements together. A consistent filing system—digital or physical—will make it easier to substantiate claims on your return and respond quickly if tax authorities have questions.
Consultation with Professionals
Surrogacy tax issues can be nuanced, so working with experienced professionals pays off. A CPA familiar with surrogacy-related income can advise on reporting options, potential deductions, and state-specific rules.The contract language drafted by your surrogacy attorney is the single biggest factor determining your tax outcome — particularly in how payments are classified as compensation versus reimbursement. Professional guidance reduces errors and gives you confidence when you file.
Are Surrogate Payments Considered Taxable Income in California?
Yes. In California, surrogate payments are typically taxable, including base fees and most stipends. Surrogates should report all compensation and document which payments, if any, are reimbursements exempt from tax. Understanding surrogate legal rights ensures both parties know how contract terms affect tax classification and payment obligations.
How Does California State Law Define Surrogate Compensation?
California law treats surrogate compensation under the terms of the surrogacy agreement, and those payments are generally taxable. Contracts should clearly outline which amounts are compensation versus reimbursed expenses so tax treatment is easier to determine and document. Reviewing surrogate compensation in California helps intended parents understand typical payment structures and tax implications before negotiating contracts.
What Are the Differences Between Federal and California Tax Rules for Surrogate Payments?
Both federal and California systems generally view surrogate payments as taxable, but rules on deductions and exemptions can differ. For example, California may allow certain documented reimbursements to be non-taxable under specific conditions, while federal rules may use different standards for reporting income. A tax advisor who understands both jurisdictions can help you navigate these differences.
Do Surrogates Receive IRS Form 1099 for Their Payments?
Sometimes. Whether you receive a Form 1099 depends on how the paying party reports payments. If an agency or payer issues a 1099, include that income on your return. If you don’t receive a 1099, you still must report all taxable income you earned during the year.
What Types of 1099 Forms Apply to Surrogate Payments?
Since 2020, the correct form for surrogate compensation is Form 1099-NEC, not Form 1099-MISC. Form 1099-NEC is used specifically for nonemployee compensation — payments made to individuals for services rendered who are not employees. Form 1099-MISC is now reserved for other types of miscellaneous income such as rent, royalties, and prizes.
How Should Surrogates Use the 1099 Form for Tax Filing?
Use any received 1099-NEC to report taxable income on your federal and state returns. Surrogate income reported on a 1099-NEC is generally treated as self-employment income, which means it may be subject to self-employment tax. However, if surrogacy is a one-time arrangement rather than an ongoing business activity, some tax professionals argue it could be reported as “other income” on Schedule 1 of Form 1040 (line 8z), which would not be subject to self-employment tax. Consult a CPA experienced in surrogacy tax to determine which treatment applies to your situation. Keep copies of all 1099 forms for your records.
Which Surrogacy Expenses Can Be Deducted from Taxes in California?
Many surrogacy expenses are not deductible, but some costs may qualify under certain circumstances. IRS Publication 502 on medical expenses does not include surrogacy-related payments as deductible for intended parents. For surrogates, some expenses may qualify if they meet IRS criteria and are properly documented.
Common Tax-Deductible Surrogacy Expenses
Examples of expenses that could be deductible include:
- Medical Expenses: Prenatal care and medically necessary examinations for the surrogate or pregnancy-related care that are properly documented.
- Legal Fees: Attorney fees directly associated with drafting and finalizing the surrogacy agreement and related legal work. Legal costs associated with the surrogacy contract may be deductible as a business expense if the surrogacy is treated as self-employment activity.
- Counseling Services: Psychological counseling required as part of the surrogacy process.
How Should Surrogates Keep Records to Support Expense Deductions?
Keep detailed records for any expenses you plan to deduct: invoices, receipts, medical bills, and copies of contracts. Store them in a dedicated folder or secure digital system, and note the purpose of each expense. Well-organized documentation makes claiming deductions easier and provides solid evidence if questions arise.
Real Experience — Anonymous Surrogate (Babytree Surrogacy Client):
“My first surrogacy journey was an amazing experience, but I’ll admit taxes completely caught me off guard. I didn’t get a 1099 from the agency, so I assumed I didn’t need to report the income. Thankfully, my Babytree coordinator connected me with a CPA who specializes in surrogacy, she explained that I still had to report everything and helped me separate out the reimbursements from actual compensation. Getting that guidance early saved me from a stressful situation at tax time.” — Anonymous Surrogate, Northern California
Where Can Surrogates Find Legal and Financial Guidance on Taxes in California?
Seek tax professionals who have experience with surrogacy. Agencies can often point you to CPAs and attorneys familiar with these issues, and community groups or online forums may offer referrals. For an overview of costs and planning resources, review Babytree Surrogacy’s information on associated surrogacy costs.
What Legal Resources Assist Surrogates with Tax Obligations?
Legal help can come from surrogacy agencies, family law attorneys, and private lawyers who specialize in reproductive or contract law. Choosing professionals with surrogacy experience helps ensure contracts and tax treatments are handled correctly and consistently.
How Does Babytree Surrogacy Support Tax Education and Compensation Management?
Babytree Surrogacy provides educational materials and guidance to help surrogates understand tax responsibilities and manage compensation. Their team can point you to legal and financial resources so you can make informed choices about recordkeeping, reporting, and planning throughout the surrogacy process.
To learn more about the surrogacy journey, international considerations, or program details, visit Babytree Surrogacy’s international surrogacy page or check the frequently asked questions. If you’re ready to talk through your situation, schedule a free consultation.
Real Experience — Anonymous Intended Parent (Babytree Surrogacy Client):
“We weren’t sure whether any of the payments we made to our surrogate were tax-deductible on our end. Our attorney and Babytree’s team made it clear early on that surrogate compensation and agency fees are generally not deductible for intended parents under IRS Publication 502 but they helped us structure everything clearly in the contract so there were no surprises. Knowing what to expect financially, beyond just the escrow side, gave us real peace of mind.” — Anonymous Intended Parent, California
A man and woman discuss taxes, focusing together on financial paperwork.
Frequently Asked Questions
What is the process for filing taxes as a surrogate in California?
Report all compensation you received as a surrogate, including base pay and stipends. Gather documentation such as 1099s or other records showing income and keep receipts for any expenses you may claim. Because rules vary, consult a tax professional with surrogacy experience to ensure you’re following federal and state requirements and taking advantage of eligible deductions.
Are there any tax implications for surrogacy contracts?
Yes. Payments detailed in your surrogacy contract are generally taxable. The way your contract is written — specifically how it classifies payments as compensation versus reimbursements — is the most important factor in determining your tax liability. Always have a surrogacy-experienced attorney draft or review your contract.
How can surrogates prepare for potential IRS audits?
Keep organized records of all income and expenses related to the surrogacy: contracts, receipts, invoices, medical bills, and any tax forms you receive. A dedicated file—digital or paper—makes it easier to respond to inquiries and prove the legitimacy of claimed deductions or reimbursements.
What specific tax forms do surrogates use, besides the 1099?
In addition to Form 1099, you’ll typically use Form 1040 for your federal return and may need schedules such as Schedule C (if reporting self-employment income) or Schedule A (for itemized deductions), depending on your circumstances. A tax advisor can help determine which forms apply to you.
Can surrogates deduct expenses related to their surrogacy journey?
Some expenses may be deductible if they meet IRS criteria and are well-documented. Medical costs tied to prenatal care, legal fees for the surrogacy contract, and required counseling are examples that may qualify. Confirm eligibility with a tax professional and retain supporting documentation.
What role do surrogacy agencies play in helping with tax obligations?
Agencies can provide educational resources, connect you with tax and legal professionals, and help you understand typical documentation practices. Their support can make it easier to stay informed about your obligations and access specialized expertise when needed.
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