(2022) What can be deducted for childcare by grandparents?

Since 2012, childcare costs have been deductible as special expenses, regardless of any personal eligibility requirements. However, only two-thirds of the costs are recognised, limited to 4.000 Euro per child (§ 10 Abs. 1 Nr. 5 EStG). But what applies if grandparents look after the child? Can a payment also be deducted for tax purposes?

Not deductible are expenses for care services provided on a family basis or as a favour. Therefore, the tax office is unlikely to recognise a payment to grandparents. However, a different rule applies to travel expense reimbursements:

If you reimburse the grandmother for travel costs for bus, train (ticket, tickets, rail ticket) or taxi, or a flat rate of 30 cents per kilometre for travel by private car for childcare purposes, you can claim these expenses as childcare costs for tax purposes (BFH ruling of 4.6.1998, III R 94/96).

Reimbursement of travel expenses

The Baden-Württemberg Fiscal Court has ruled that even if childcare is provided free of charge by the grandmother, the reimbursement of travel expenses can be deducted as childcare costs as part of special expenses. The care is only provided as a family favour to the extent that it is provided free of charge.

It is not detrimental if the actual care service is provided free of charge. The travel expenses are merely reimbursed as they were incurred in connection with childcare (FG Baden-Württemberg of 9.5.2012, EFG 2012 p. 1439).

If the grandmother provides care free of charge, you can at least reimburse her travel expenses. The taxpayer can then claim the expenses for tax reduction. The condition for this is that the carer issues an "invoice". According to the BMF, a receipt for incidental costs should suffice (BMF letter of 14.3.2012, BStBl. 2012 I p. 307, para. 5).

The grandmother does not have to declare the money received in her tax return, as she does not earn taxable income but only receives reimbursement of her expenses.

 

If the parents pay the grandparents a fee for childcare, a tax deduction may be considered if the grandparents do not live in the same household and the care agreement is made as with third parties (BFH ruling of 6.10.1961, BStBl. 1961 III p. 549).

 

Current: An example of how not to do it is shown by a ruling of the Nuremberg Fiscal Court of 12.8.2019 (4 K 936/18): The plaintiffs claimed childcare costs of over 3.000 Euro. These were largely for travel expense reimbursements to the grandparents for looking after the two children. Bank statements were submitted to the tax office as proof of payment.

However: The transfer did not include a reference. And for whatever reason, the tax office became aware that at least once the amount initially transferred was returned by the grandfather in the same amount, with the reference "Known" and only a few days after the previous transfer.

The plaintiffs were apparently unable to provide a conclusive explanation for this to either the tax office or the fiscal court, so their childcare costs were not recognised. However, and this is encouraging, the Nuremberg Fiscal Court also points out that travel expense reimbursements to grandparents can in principle lead to deductible childcare costs.

 

There is another tax advantage in connection with childcare: employer contributions for the accommodation and care of employees' pre-school children in nurseries or similar facilities are tax and social security-free (§ 3 Nr. 33 EStG). The contributions must be made in addition to the salary owed anyway.

But is it also permissible to combine the two tax advantages? In other words, deducting kindergarten fees despite a tax-free employer subsidy? No, says the Federal Fiscal Court. Kindergarten fees deductible as special expenses must be reduced by the tax-free employer subsidies paid for this purpose (BFH decision of 14.4.2021, III R 30/20).