In principle, all expenses for services relating to the care of a child belonging to the household within the meaning of § 32 Abs. 1 EStG can be claimed as special expenses, limited to two-thirds of the costs, but no more than €4,000 per child (§ 10 Abs. 1 Nr. 5 EStG).
What needs to be considered if the caregiver is a relative?
Costs incurred for childcare provided by relatives of the taxpayer can also be claimed to reduce the tax burden. A typical example is the child's grandparents. If they do not live in the same household as the child being cared for, expenses such as compensation or reimbursement of travel costs paid by the taxpayer can be taken into account for tax purposes. It is important, however, that a written care agreement exists in which compensation and care times are set out in the same way as would be customary with unrelated third parties. Care provided within the same family unit, by contrast, is not recognised as special expenses. Examples of this are when the child's mother lives in the taxpayer's household and receives compensation for caring for her own child, or in the case of cohabiting partnerships between the taxpayer and the caregiver.
Does it make sense to pay relatives for childcare?
Paying relatives for childcare is usually cumbersome, as a written contract setting out compensation and care times is required for tax deductibility. In addition, only two-thirds of the costs incurred can be claimed as special expenses by the taxpayer. The caregiver, on the other hand, must report the full income from the childcare for tax purposes. This results in a gap of one-third of the income, which is taxable for the caregiver but not fully deductible for the taxpayer. Paying for childcare does, however, make sense if the caregiver's total income, including the additional earnings, remains below the basic tax-free allowance (Grundfreibetrag). In that case, the caregiver receives tax-free income while the taxpayer can still claim two-thirds of the expenses to reduce their tax burden.
Reimbursement of Travel Expenses for Childcare
In 1998, the BFH (III R 94/96) ruled that travel expenses for childcare are also deductible as special expenses within the meaning of § 10 Abs. 1 Nr. 5 EStG. Furthermore, according to a ruling by the FG Baden-Württemberg, travel expenses are to be taken into account even if no compensation was paid to the caregiver. It should also be noted that the reimbursement of travel expenses does not need to be reported as taxable income by the caregiver, as it constitutes a pure reimbursement of expenses rather than income. For the taxpayer, however, such costs remain deductible up to two-thirds of the amount. In order for travel expenses to be deductible, a proper record of the journeys must be available — that is, a list showing the date and route of each individual trip, etc. Travel expenses can be claimed at a flat rate of €0.30 per kilometre of distance.
Frequently asked questions
Frequently asked questions
To what extent are childcare costs deductible as special expenses?
Under § 10 Abs. 1 Nr. 5 EStG, two-thirds of the expenses for the care of a child belonging to the household within the meaning of § 32 Abs. 1 EStG can be claimed as special expenses (Sonderausgaben). The deduction is capped at a maximum of EUR 4,000 per child per year.
Can childcare costs paid to grandparents be deducted for tax purposes?
Yes, provided the grandparents do not live in the same household as the child, payments and travel cost reimbursements are deductible. A written childcare agreement is required, setting out remuneration and care times on arm's length terms. Care arranged within the family, such as by relatives or partners living in the same household, is not recognised.
When does paying relatives for childcare make sense from a tax perspective?
Since the taxpayer can only deduct two-thirds of the costs, while the caregiver must pay tax on the full income, there is regularly a tax gap of one-third. Such compensation makes sense when the caregiver's income remains below the basic tax-free allowance (Grundfreibetrag). In that case, the income stays tax-free and the taxpayer can still deduct two-thirds of the costs.
Are travel expenses for childcare deductible even without remuneration?
Yes. The BFH ruled in 1998 (III R 94/96) that travel expenses are deductible as special expenses under § 10 Abs. 1 Nr. 5 EStG. According to the Fiscal Court of Baden-Württemberg, this applies even if the caregiver receives no remuneration. A flat rate of €0.30 per kilometer of distance may be applied.
Does the caregiver have to pay tax on the travel expense reimbursement received?
No, the travel expense reimbursement is considered a pure expense allowance and not income. It is therefore not taxable for the caregiver. For the taxpayer, two-thirds of the travel expenses are nevertheless deductible as Sonderausgaben (special expenses), provided a proper record with date and route is available.