It depends on the agreement that you made. Each contract is different, and each state a little different on how compensation is worded for the purpose of determining surrogacy taxes. The fact is, compensation for gestational surrogacy is not a purchase of a body part, or of a child. It is the purchase of services, performed within the scope of a binding contract. Income received from gestational surrogacy contracts is now officially, and very clearly, taxable – as a part of the service provider's “gross income.”
Basically, if your compensation is considered income, then yes, a surrogate mother will be required to pay income taxes both on a federal and state level.
But, if a surrogate’s compensation is not considered income, it is not taxed, and you will not need to pay income taxes to the federal or state government.
If you income is considered taxable then you would report the income as self-employment income on a Schedule C. You can find the Schedule C in TurboTax Self-Employed (online) https://turbotax.intuit.com/personal-taxes/online/self-employed.jsp or TurboTax Home & Business (desktop) https://turbotax.intuit.com/personal-taxes/cd-download/home-and-business.jsp
