Today TaxMama hears from Puzzled in San Francisco, CA who wants to know: “My financial advisor told me there is a great deal of uncertainty with regard to egg donor compensation. Many egg donor boards mention that if the compensation if considered “pain and suffering” then it’s not taxable. I would much rather keep the extra money if at all possible? Can you shed some light on the issue?”
Dear Puzzled,
That’s an interesting situation. And not all that unusual these days, I suppose.
Here’s an pamphlet on the NY Department of Health’s website for Egg Donors.
https://www.health.state.ny.us/nysdoh/infertility/eggdonor.htm
They say that all the money you receive is taxable. Naturally, the costs specifically to cover medical expenses are reimbursements for costs.
Typically, when you sue someone for work related injuries, the compensation for physical suffering is not taxable.
But being an egg donor isn’t an injury. It’s voluntary. You are selling a service.
Frankly, it sounds as if this is self-employment income.
On the other hand, you are selling an egg – that’s something tangible. You have many of them, so it could be considered inventory. So, you could interpret that as a sale of a product. But since you have no basis or tax cost for the product is zero. Again, if you’re in the business of selling your inventory, that’s self-employment income.
It’s not apt to be a capital gain, since you have no investment in your eggs. Unless you consider them a gift. In which case, the tax basis is zero. And you’d be able to report this as a long-term capital gain. You can see the kinds of tax issues that arise.
This is an odd area of the tax law. No doubt, someone specializes in it. But I didn’t find anything solid during the 20 minutes I researched the issue.
I found lots of things about deducting the costs for the parents getting the egg. But nothing about how the income is treated by the egg donor. Perhaps one of readers will have some experience with this.
You may want to log in to the Tax Parlor and see if anyone posts some advice.
And remember, you’ll find answers to lots of questions about taxable income and other tax information, free. Where? At TaxMama.com
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- NY Department of Health :: website for Egg Donors
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