The III. Senate of the Bundesfinanzhof (BFH) ruled in its judgment of 18 December 2014 III R 63/13 that the costs of caring for a child belonging to the parents' household can only be taken into account for tax purposes if the payments were not made in cash but into an account of the caregiver. This applies even where the caregiver is engaged under a marginal employment relationship. The married plaintiffs were both employed during the years in dispute, 2009 and 2010. To care for their three-year-old son, they engaged a part-time employee for a monthly salary of EUR 300. The salary was paid in cash on each occasion. In their income tax returns for 2009 and 2010, the plaintiffs claimed a deduction of 2/3 of the expenses (EUR 3,600), i.e. an amount of EUR 2,400 for each year in dispute. The tax office (Finanzamt, FA) refused to recognise these expenses on the grounds that § 9c Abs. 3 Satz 3 of the Einkommensteuergesetz (EStG), as in force during the years in dispute, required payment to be made into the recipient's account. Contrary to the previous decision of the Finanzgericht, the BFH followed the view of the FA. In doing so, the BFH still had to address the provision of § 9c Abs. 3 Satz 3 EStG that applied up to and including the 2011 assessment period. Under that provision, the deduction of expenses for services for the care of a child belonging to the taxpayer's household requires that the taxpayer has received an invoice for the expenses and that payment has been made into the account of the service provider. According to the BFH's decision, this provision does not limit the evidentiary requirements to certain types of services, such as services from entrepreneurs who issue invoices within the meaning of VAT law. Unlike in the case of expenses for household-related employment relationships (e.g. cooking, room and laundry care), the law also does not distinguish, for the purpose of substantiating childcare costs, between whether these are rendered in the context of a marginal employment relationship or on another basis. The BFH further emphasises that the evidentiary requirements (invoice and payment via the caregiver's account) are intended to prevent abuse and undeclared work. This justifies proving the flow of payments only by means of account records, and not, for instance, by cash payment receipts or witness testimony. From the 2012 assessment period onwards, the deduction of childcare costs is governed by § 10 Abs. 1 Nr. 5 EStG. This provision likewise requires, for the deduction of expenses, that the taxpayer has received an invoice for the expenses and that payment has been made into the account of the service provider.
Frequently asked questions
Frequently asked questions
Can childcare costs be deducted for tax purposes if paid in cash?
No. Childcare costs are only deductible as special expenses (Sonderausgaben) if payment is made by non-cash transfer to the caregiver's account. Cash payments are not recognised by the tax office, even if supported by receipts or witnesses. The BFH confirmed this in its ruling of 18 December 2014 (III R 63/13).
Does the bank transfer requirement also apply to a Minijob employee acting as a childcare provider?
Yes. The law makes no distinction in the documentation of childcare costs based on whether the services are provided under a marginal employment relationship (Minijob) or on another basis. Even for a Minijob, the remuneration must be transferred to the caregiver's bank account for the deduction to be allowed.
What evidence does the tax office require for the deduction of childcare costs?
You need an invoice for the childcare service provided, plus a bank statement showing payment to the service provider's account. These formal requirements are designed to prevent abuse and undeclared work. Other forms of evidence, such as cash receipts, are not sufficient.
Which statutory provision governs the deduction of childcare costs from 2012 onwards?
From the 2012 assessment period onwards, § 10 Abs. 1 Nr. 5 EStG applies; previously, § 9c Abs. 3 Satz 3 EStG was the relevant provision. Both provisions require, as a condition for the deduction, that an invoice exists and that payment is made by non-cash transfer to the service provider's account.
What amount of childcare costs can be claimed?
Two-thirds of the expenses for the care of a child belonging to the household are taken into account. In the decided case, annual expenses of €3,600 resulted in a deductible amount of €2,400 – however, this was not recognized due to the cash payment.