Using Your FSA and HSA for Surrogacy Expenses

Q: Can we use a FSA or HSA for our surrogacy medical expenses?

—Charles E.

A: Hi Charles, This is a great question and one that I am asked often at SeedTrust.

These accounts can be great for medical expenses. Your income is deducted from your paycheck pretax and is deposited into specialized savings accounts.

Health savings accounts have annual limitations. The current limitation for a married couple is $6,750. That is higher than an FSA limitation, which is $5,000. Certain health insurance plans are required for a Health Savings Account to qualify. Currently, the Health Savings Accounts require a deductible of $2,600. The benefit seems low considering there are annual limitations, but they reset at the beginning of every year. For example, most fertility processes cross two tax years. This allows you to effectively double the amount saved to $13,500.

First, the not so good news…

None of the surrogate’s medical expenses can qualify for reimbursement through the medical savings accounts. This includes the surrogate’s compensation, medical insurance premiums, RX costs, and medical expenses. These rules may change and they do often, so it may change soon. You should always work with your provider at the time the expenses are incurred to confirm the current rules and regulations. The current thought process is that the surrogate is not part of your family and, therefore, is not eligible for any expenses.

Now the good news…

Almost any cost directly related to you can be deducted.

This includes but is not limited to:

• Egg Retrieval
• Sperm Donation
• Sperm
• Creation of Embryo
• RX Related to IVF

These costs will typically exceed the caps of the tax saving health accounts. In some cases you would not even be able to use the benefit if the surrogate expenses have been allowed to be reimbursed due to those limits.

The tax-saving health spending accounts do not help with surrogate expenses but can help with many other expenses related to the surrogacy process. The savings can be large. For example, if you are at a 25% tax rate you would be saving 25% on all the expenses you can be reimbursed for. The surrogacy process is complex and expensive. Knowing how you can save and what to save on is critical to being able to budget for the process.

—Edward Brockschmidt, CPA & Co-Founder of SeedTrust Escrow