Surrogacy compensation is non-taxable by: Anonymous
The compensation is classified as compensation for pain and suffering or physical sickness. The same as it would be if you were injured in a car accident or exposure to something that makes you sick, making it non-taxable. You are not employed by the agency or being paid to perform a service (there are legal issues in concern to that terminology). You are not issued a W2 or a 1099. See the IRS code:
Many other amounts you receive as compensation for sickness or injury are not taxable. These include the following amounts:
Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. See Court awards and damages under Other Income, later.
May 28, 2009 Rating
Taxable Income by: Anonymous
Of course your compensation is taxable to the state and Federal. Your tax bracket is based on what you earn and your exemptions and deductions.
You could go to the person that does your taxes and ask them to add in a 1099 for the amount of what you will be compensated and they can project how much your tax liability will be. Think of it as a painter that makes $25,000 being self-employed.
It will be different for everyone. Especially if you have a spouse whom earns money as well. (The more you make the more they take!)
Feb 03, 2009 Rating
Don't forget..... by: Rayven from Information on Surrogacy
Also worth rementioning, if you are eligible for the EITC (earned income tax credit) which is where families under a certain amount of income get a several thousand dollar "bonus" from the government every year at tax time, keep in mind that your surrogacy compensation, if taxable, can reduce or even eliminate that bonus.
As far as "how much" is taken out for taxes, that is a complex question and depends entirely on your financial situation. Your compensation will probably push you into a higher income tax bracket (meaning the compensation will be taxed at a higher rate than your regular employment)and may eliminate your EITC. This could end up a much larger percentage of the compensation total than you typically pay in regular taxes.
Again, your best option is to contact a tax attorney (NOT a tax preparer, an honest to goodness attorney).
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