How Carrot Affects Your Taxes

Care that does not meet the qualified medical expense standard is generally considered taxable. This includes:

• Fertility* and preservation care not related to an infertility diagnosis or medical necessity
• Donor assistance, gestational surrogacy* and adoption services**
• Doula services and human milk shipping services

*Carrot benefits you receive toward fertility and surrogacy services are considered taxable wages for income and employment tax withholding purposes. See the fertility and surrogacy guides for more details. For more information about the tax implications of fertility services, visit irs.gov/publications/p15b.

**Carrot benefits you receive toward adoption expenses may be excluded from your federal taxable income.

• If you adopt a child, you may claim both a tax exclusion and a tax credit.
• For an expense, you may claim either a tax exclusion or a credit.
• You may not claim a tax credit for a reimbursed expense that is excludable from your federal taxable income.

See the adoption guide for more details.

This should not be construed as tax advice. You are advised to consult with a tax and/or legal advisor before accessing benefits through the UC Adoption Assistance Plan.

Scenario 1

This is an example and used for illustration purposes only. Individual situations will vary. The description below is not representative of any individual or expected tax withholding amounts. Please consult with a tax advisor for your individual situation. The below example shows a moderate effect on net pay.* 

A UC resident earns $7,000 monthly in gross earnings and gets paid on the first of every month. $1,400 is withheld for taxes such as federal income tax and FICA tax. The net pay to the resident is $5,600.

The resident’s typical paycheck:

The resident created a Carrot plan and starts a family forming journey for Egg Preservation. The resident informs Carrot they do not have a QME In July and completes services and pays out of pocket for egg preservation. In August, the resident submits $4,000 of expenses to Carrot for reimbursement. The resident receives approval from Carrot that the expenses have been approved. Carrot reimburses $4,000 to the resident on August 20.

Since the resident’s services are not consider a Qualified Medical Expense, they can expect the $4,000 dollars to be reflected as additional income on the next following paycheck (October 1). The resident’s paycheck will have a new line of other earnings on their paycheck.

Note: UC will report the taxable benefits as additional income in the next following month’s paycheck after the date you received your reimbursement. In this scenario, reimbursement was received in August, therefore the taxable benefit will appear on the October 1 paycheck.

For the October 1 paycheck, the resident will see the additional income reported as other non-cash earnings. The resident now sees an additional $800 withheld for taxes. The gross earnings remains the same at $7,000, and $1,400 is withheld for taxes on the gross earnings. An additional $800 is withheld for taxes on the benefit received from Carrot. The October net pay is $4,800.

The resident’s paycheck with Carrot Benefit included reflects the following:

*More significant impacts are possible . Even a net $0 paycheck in certain cases.