The court decisions address the taxability of expenses incurred by: (i) a single, heterosexual male who attempted to claim a tax deduction for costs involved with obtaining a surrogate (ii) an individual who attempted to claim a tax deduction for infertility services obtained by his fiancé and (iii) a male in a same-sex marriage who attempted to claim a tax deduction for costs involved with obtaining a surrogate. The informal IRS guidance refers to a few tax court decisions over the last decade or so. The private letter ruling can be found here. However, if the employee incurs costs to provide such services to a third party such as surrogate, domestic partner or fiancé, the expenses are likely taxable to the employee. Which infertility benefits may be handled on a tax-favored basis as §213(d) qualifying medical expenses?Ī recent IRS Private Letter Ruling (PLR 202114001) indicates that costs for infertility treatment are a qualifying medical expense and reimbursable on a tax-favored basis if they are for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body of the taxpayer, the taxpayer’s spouse, or taxpayer’s dependent.” In other words, if the employee, the employee’s spouse, or the employee’s tax dependent receives treatment for a medical condition affecting the ability to have children, or receives treatment affecting the function of the body, the costs likely qualify for favorable tax treatment. As more employers offer some level of coverage for infertility to employees and their family members (e.g., assisted reproductive technology, surrogacy, genetic testing, freezing of sperm or eggs), either as part of their group medical plan, or perhaps as a separate reimbursement arrangement, there is a lack of clarity for handling the taxation of such benefits.
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