How Surrogacy Payments Work and What They Cover
What surrogacy payments are and who receives them
Surrogacy payments are funds paid to a surrogate mother—a person who becomes pregnant and carries a child for intended parents who cannot or choose not to carry a pregnancy themselves. The intended parents, a surrogacy agency, or both pay these costs. Money flows to cover the surrogate's medical care, lost wages during pregnancy and recovery, legal fees, and sometimes a base fee for the surrogacy itself, depending on the arrangement and your state's laws.
The surrogate receives payments directly or through an escrow account (a neutral third party holds the money until conditions are met). Payments typically begin during pregnancy and continue through delivery and a recovery period afterward. The intended parents may pay in installments or a lump sum, often coordinated with a surrogacy agency that manages the financial flow.
Surrogacy is legal in all 50 states, but the rules about what can be paid, who can be paid, and how payments are structured vary significantly by state. Some states allow compensated surrogacy (paying the surrogate beyond medical and legal costs); others allow only altruistic surrogacy (covering expenses but no additional fee). A few states have no clear law, creating legal gray areas.
Key Takeaways
- Surrogacy payments cover medical care, legal fees, lost wages, and sometimes a base fee, with amounts and what is allowed varying by state.
- Money typically flows through an escrow account or directly to the surrogate in installments tied to pregnancy milestones.
- Compensated surrogacy (paying a base fee beyond expenses) is legal in some states and prohibited or unclear in others.
- Both the surrogate and intended parents should have separate lawyers to review the surrogacy agreement before any money changes hands.
- Surrogacy payments have tax implications for both parties, and neither the surrogate's base fee nor reimbursed expenses are typically treated the same way by the IRS.
What costs are included in surrogacy payments
Surrogacy payments cover several categories of expense. Medical costs include prenatal care, delivery, hospital stays, and postpartum care—essentially all pregnancy-related medical bills. These are usually paid directly to healthcare providers or reimbursed to the surrogate with receipts. Legal fees cover the lawyers who draft the surrogacy agreement, handle parentage paperwork, and manage the birth certificate process; both the surrogate and intended parents typically have separate counsel.
Lost wages or income replacement compensates the surrogate for time off work during pregnancy, delivery recovery, and sometimes for medical appointments. This is calculated as a percentage of the surrogate's normal income and documented with pay stubs or tax returns. Maternity clothing, travel, and childcare for existing children during medical appointments are often reimbursed as well.
Beyond these expenses, many states allow a base fee or surrogacy fee—a payment to the surrogate for her time, physical burden, and emotional labor. This fee varies widely, from $15,000 to $30,000 or more, depending on the state, the surrogacy agency, and the specific arrangement. Some states prohibit this fee entirely, allowing only expense reimbursement.
How payment timing and escrow accounts work
Payments are rarely made in one lump sum. Instead, money is released in stages tied to pregnancy milestones: confirmation of pregnancy, end of first trimester, end of second trimester, delivery, and postpartum recovery. This protects both parties—the surrogate receives funds as agreed, and the intended parents know money is released only as the pregnancy progresses.
Most surrogacy arrangements use an escrow account, a neutral account held by a third party (often a lawyer or specialized escrow company). The intended parents deposit funds into escrow before the surrogate becomes pregnant. As each milestone is reached and documented, the escrow agent releases the appropriate payment to the surrogate. This prevents disputes over whether conditions were met and ensures the surrogate is paid even if the intended parents change their minds.
If no escrow is used, payments flow directly from the intended parents to the surrogate, usually through the surrogacy agency. The agency may hold and disburse funds on behalf of the intended parents. Either way, the surrogate should receive a clear payment schedule in writing before pregnancy begins, signed by all parties.
State-by-state differences in what can be paid
Surrogacy law is not federal; each state sets its own rules. Compensated surrogacy states—including California, Texas, Florida, Illinois, and others—allow intended parents to pay the surrogate a base fee in addition to medical and legal expenses. These states typically have clear surrogacy statutes and established case law protecting all parties.
Altruistic-only surrogacy states allow reimbursement of medical, legal, and reasonable living expenses but prohibit paying a base fee. Examples include New York and some others. In these states, the surrogate can be compensated for her time and effort only through expense reimbursement, not a separate fee.
Unclear or restrictive states have no clear surrogacy law or have laws that make compensated surrogacy legally risky. In these places, intended parents and surrogates often work with lawyers experienced in surrogacy to structure payments in a way that complies with existing law, even if surrogacy itself is not explicitly addressed. Some people in restrictive states travel to other states to complete the surrogacy arrangement.
Before any money changes hands, both the surrogate and intended parents should consult lawyers licensed in their state to understand what payments are legal and how to structure them safely.
Tax treatment of surrogacy payments
The IRS treats surrogacy payments differently depending on whether they are a base fee or expense reimbursement. Reimbursed medical and legal expenses are generally not taxable income to the surrogate if they are documented with receipts and match actual costs. The intended parents typically cannot deduct these as medical expenses (since they are not the patient), but they are not deductible as a business expense either.
A base fee or surrogacy compensation is treated as income to the surrogate and must be reported on her tax return. The intended parents do not receive a tax deduction for this payment. The surrogate may owe federal and state income tax on the base fee, and if the total is over a certain threshold, she may also owe self-employment tax.
The intended parents should receive a Form 1099 or other documentation from the escrow agent or agency showing how much was paid and in what category. The surrogate should keep detailed records of all payments received and consult a tax professional to understand her reporting obligations. Tax treatment can vary by state, and some states have specific rules about surrogacy income.
Legal protections and the surrogacy agreement
A surrogacy agreement is a binding contract that spells out all payment terms, the surrogate's and intended parents' rights and responsibilities, medical decision-making authority, and what happens if the pregnancy ends or complications arise. This agreement must be in writing and signed before the surrogate becomes pregnant. Both the surrogate and intended parents should have separate lawyers review it—never use the same lawyer for both parties, as that creates a conflict of interest.
The agreement should specify the total amount to be paid, the payment schedule tied to milestones, what expenses are covered, who pays for what if complications occur, and what happens to payments if the pregnancy ends in miscarriage or termination. It should also address whether the surrogate has the right to make medical decisions during pregnancy or whether that authority rests with the intended parents.
Once the child is born, the intended parents' names appear on the birth certificate (in most states with proper legal paperwork filed before or shortly after birth). The surrogate has no legal claim to the child and no ongoing financial obligation. Payments end after the postpartum recovery period specified in the agreement.
Working with a surrogacy agency versus independent arrangements
Many surrogacy arrangements go through a surrogacy agency, which matches intended parents with surrogates, coordinates medical care, manages escrow, and handles much of the administrative work. Agencies typically charge a fee (often $10,000 to $20,000 or more) paid by the intended parents. This fee is separate from payments to the surrogate.
An agency can simplify the process by providing legal templates, vetting all parties, and ensuring compliance with state law. However, agency involvement adds cost and reduces the surrogate's and intended parents' direct control over the arrangement. Some people pursue independent surrogacy, finding a surrogate through personal networks or online communities and managing the arrangement without an agency. Independent arrangements are less expensive but require more legal work and carry more risk if disputes arise.
Whether you work with an agency or independently, the surrogacy agreement and escrow account are essential. These protect both the surrogate (ensuring she is paid as promised) and the intended parents (ensuring the arrangement proceeds as agreed and the child's parentage is legally clear).
Frequently Asked Questions
Can a surrogate keep the money if she changes her mind about giving up the child?
No. A valid surrogacy agreement is a binding contract. If the surrogate refuses to relinquish the child after birth, the intended parents can pursue legal action to enforce the agreement and establish their parentage. However, the surrogate has already received payment for her services. This is why both parties need separate lawyers to review the agreement before signing and why the agreement must be clear about the surrogate's and intended parents' rights.
What if the intended parents cannot pay or refuse to pay after the child is born?
An escrow account protects against this. Funds are held by a neutral third party and released only when conditions are met, so the surrogate is paid regardless of the intended parents' later actions. If no escrow is used and the intended parents refuse to pay, the surrogate can pursue a breach-of-contract lawsuit. This is another reason escrow is strongly recommended.
Do surrogacy payments affect the surrogate's government benefits?
It depends on the benefit. Income from surrogacy may affect means-tested benefits like Medicaid, SNAP, or housing assistance, since these programs count income to determine may be able to access. The surrogate should contact her benefits administrator or a benefits counselor to understand how surrogacy income will be treated. Some states have specific rules about surrogacy and benefits may be able to access.
Can intended parents deduct surrogacy costs on their taxes?
Generally, no. Surrogacy payments are not deductible as medical expenses (the intended parents are not the patient) or as business expenses. Some intended parents may be able to claim a dependent exemption or child tax credit once the child is born and their parentage is legally established, but the surrogacy payments themselves are not deductible. A tax professional can review the specific situation.
What happens to surrogacy payments if the pregnancy ends in miscarriage?
The surrogacy agreement should specify this. Typically, the surrogate receives payment for expenses incurred up to the point of miscarriage (medical care, legal fees, lost wages for time already taken off work) but may not receive the full base fee if one was promised. Some agreements provide a reduced payment or full payment regardless, depending on what the parties agreed to. This is why the agreement must be clear and reviewed by lawyers before pregnancy begins.