Infertility treatments can impose a significant financial burden, often costing over $20,000 for a single round of in vitro fertilization (IVF). Fortunately, the Internal Revenue Service (IRS) recognizes some of these expenses as potentially tax-deductible. However, the eligibility criteria for such deductions remain unclear and may vary based on factors like marital status and sexual orientation.
The IRS provides guidance on medical and dental expense deductions in its Taxpayer Publication 502. According to this publication, “fertility enhancement” procedures performed on the taxpayer, their spouse, or their dependent to overcome an inability to have children are eligible for deductions. These procedures include IVF, surgeries related to infertility, and temporary storage of eggs or sperm.
To qualify for deductions, these medical expenses must be itemized, and only the portion exceeding 7.5% of the taxpayer’s adjusted gross income is eligible. For instance, if a taxpayer’s adjusted gross income is $100,000, the first $7,500 spent on medical expenses would not be eligible for deductions. The deductions can typically be claimed on Schedule A (Form 1040).
Despite the IRS’s guidance, the area of tax deductions for infertility treatments is known for its ambiguity, with limited legal precedent. Expenses related to gestational surrogates are explicitly excluded from deductions, as they involve an “unrelated party” not qualifying as the taxpayer, their spouse, or their dependent.
Court cases and previous IRS guidance suggest that married heterosexual couples with a history of infertility have a stronger argument for tax subsidies related to IVF and egg donation. On the other hand, medically fertile unmarried individuals, whether gay or straight, may face challenges in deducting costs for assisted reproductive technology treatments. The IRS issued a letter ruling in 2021 noting that certain medical expenses directly attributable to legally married gay couples, such as sperm donation and sperm freezing, might be considered deductible.
The eligibility of lesbian couples or single women for tax deductions remains uncertain due to the absence of prior cases providing guidance. The IRS’s stance appears more uncertain as individuals deviate from being heterosexual married couples struggling to conceive.
The potential tax savings from deductions can be significant, particularly for couples facing out-of-pocket expenses. For those in the 22% tax bracket, $10,000 worth of tax-deductible medical expenses could save them $2,200. However, only a small fraction of taxpayers may benefit from these deductions, as fewer people itemize their deductions nowadays. In the 2020 tax year, less than 10% of Americans itemized, and only a quarter of them could take deductions for medical and dental expenses.
It’s crucial for individuals considering deductions for infertility treatments to consult with tax professionals due to the complexity and specificity of the rules. Keeping detailed records of all expenses related to infertility treatments is recommended, including medical procedures, pregnancy tests, travel, and other related costs.
While tax deductions can provide relief for those eligible, the overall impact is limited, especially for the majority of taxpayers who do not itemize their deductions. As the 2020 tax season approaches, taxpayers navigating infertility treatments should seek professional advice to ensure compliance with the intricate tax rules in this area.