To tax or not to tax? 1099s have been a hot button issue amongst egg donors and surrogates for years. And legally, it’s been a very gray area. Now, the IRS has officially ruled in the case of Perez vs. Commissioner that “compensation for pain and suffering resulting from the consensual performance of a service contract is not ‘damages’ and must be included in gross income.”
The first case that addressed including taxable income of compensation for donation of human eggs, Perez vs. Commissioner opened the door for a national discussion on the transparency of participating as an egg donor or surrogate. In this specific case, a woman was issued a 1099 in the amount of $20,000 from her agency following 2 egg donations the previous year, but did not include this amount on her federal income tax return due to pain and suffering as a result of the process.
The fact is, donor and surrogate compensation has never been for “damages” or the “purchase” of a body part or a baby (as it relates to surrogacy) – it is for performing a service within the scope of a binding contract. It is also not a “gift,” as some donors and surrogates claim, but who then risk not receiving ANY compensation due to the fact that contracting a “gift” can be legally contested – and the Intended Parents could walk away from the agreement. This ruling recognizes payment for what is it and should always be: for the time, effort and inconvenience of the process. And under IRS guidelines, any income over $600 is to be claimed.
In Perez’s case, her pain and suffering – while completely valid and truly unfortunate – were ruled to be “within the scope of the medical procedures to which she contractually consented. Twice.” The ruling went on to say, “…what matters is that she voluntarily signed a contract to be paid to endure them. This means that the money she received was not ‘damages.’”
While understandable that some would argue it’s insensitive not to consider the physical nature of egg donation and, of course, surrogacy, we’ve reached a point where there simply must be standardized regulations in all areas of the process. This ruling finally resolves the ambiguity surrounding egg donation and we expect in short order the same kind of ruling for surrogacy.
For 18 years, ConceiveAbilities has worked with hundreds of generous, educated and very proactive women. Each one of them has received counseling of the fact she must claim her compensation as income in order to protect the integrity of the process as well as her family’s financial status, one free from penalties and/or liens imposed for not paying tax on the income. It’s important to discuss concerns about the law with an attorney or concerns about income with a tax expert. We believe women who are thoroughly educated on the process are certainly wise enough to make the final decision for herself and her family.