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).

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

What types of childcare costs can be claimed?

Regardless of whether they are work-related or not, you may claim up to 6.000 Euro in childcare costs per child as special expenses. The tax office covers two-thirds of this, up to 4.000 Euro.

It does not matter whether the care takes place in your home or at another location. The only requirement is that it involves direct care or supervision. Therefore, tutoring, piano lessons, or ballet classes are not considered childcare costs. However, the following are deductible:

• accommodation in a kindergarten, day nursery, after-school care centre, crèche, or with a childminder
• employment of childcare workers, educators, or babysitters in the household
• employment of domestic helpers and au pairs, provided they care for the child
• travel expenses for the caregiver. Also, free board and lodging if no wages are paid.
• Food for the child is not considered a childcare cost. If it is not itemised separately, it must be estimated and deducted.

Care by a relative
Even if a relative looks after your child, the costs may be deductible under certain circumstances. However, this relative must not be entitled to child benefit or the child allowance for the child and must not live in your household, otherwise the tax office will consider the supervision a favour. However, if the grandparents travel to look after their grandchildren, you can deduct the travel expenses incurred from your taxes. You should be able to provide a corresponding agreement.

If you wish to deduct childcare costs, you must not pay the money in cash, but must transfer it. The tax office may require the invoice and, if applicable, the transfer receipt as proof. A receipt from the recipient is not sufficient.

Note: If the employer provides tax-free benefits for pre-school childcare, the deduction for special expenses must be reduced by the amount of these benefits, as the deduction for special expenses requires expenses that actually and definitively burden the taxpayer financially (BFH ruling of 1.9.2021, III R 54/20).

(2022): What types of childcare costs can be claimed?

How much childcare costs can I deduct?

You can claim up to 6,000 Euro per child per year for childcare costs. The tax office deducts two-thirds of this amount, up to a maximum of 4,000 Euro, from your tax. It does not matter whether the child was cared for throughout the entire year or only for a few days.

If you are jointly assessed as a married couple, it does not matter who paid for the childcare. In the case of individual assessment, the partner who paid the costs can claim them. If this applies to both, each can claim their share up to 2,000 Euro. However, you can also agree on a different allocation.

This can also make sense, as the following example shows:

Childcare costs amount to 5,500 Euro per year. The mother pays 4,000 Euro, and the father pays 1,500 Euro per year.

If both partners do not intervene in the allocation, the following picture emerges:

Mother: 2/3 of 4,000 Euro = 2,667 Euro

Father: 2/3 of 1,500 Euro = 1,000 Euro

Total: 3,667 Euro (2/3 of 5,500 Euro)

Since each parent can claim a maximum of 2,000 Euro, the total amount that both parents can jointly claim is 3,000 Euro.

If, for example, the father and mother agree that the mother can claim a maximum amount of 3,000 Euro and the father 2,500 Euro, they can claim 667 Euro more in childcare costs.

It becomes more complicated if you are not married. If you do not live together, the person with whom the child lives can claim the childcare costs. Single parents can claim up to 6,000 Euro, just like married couples. However, if you live with your partner without being married, you can split the childcare costs. This is particularly worthwhile if one of you earns little and therefore does not benefit from the tax advantage.

For unmarried parents, the tax office only recognises the costs of the person who signed the contract with the childcare facility. If you both want to claim childcare costs, you should both sign the contract.

Note: If the employer provides tax-free benefits for pre-school childcare, the deduction for special expenses must be reduced by the amount of these benefits, as the deduction for special expenses requires expenses that actually and definitively burden the taxpayer financially (BFH ruling of 1.9.2021, III R 54/20).

(2022): How much childcare costs can I deduct?

How old can my child be for me to deduct childcare costs?

Until your child's 14th birthday, you can claim childcare costs; after that, you cannot.

For children with disabilities, there is no age limit if the disability occurred before their 25th birthday. A disability card is sufficient as proof.

(2022): How old can my child be for me to deduct childcare costs?

How do I provide evidence of my childcare costs?

Childcare costs can be proven with invoices and the corresponding transfer documents. A receipt from the recipient is not sufficient! Even small amounts, such as to the babysitter, must not be paid in cash if you wish to claim the costs later.

You do not need to include the documents with your tax return, but you must present them if requested by the tax office.

(2022): How do I provide evidence of my childcare costs?

When can I deduct childcare costs?

You can only claim childcare costs if there is a parental relationship. This applies to biological children, as well as adopted and foster children. You cannot claim childcare costs for stepchildren and grandchildren.

Furthermore, the child must belong to your household. This is also the case if, for example, they are in a boarding school and regularly come home. It is important that there is a family home used by the child and that you are responsible for the child's welfare.

In general, you can only claim childcare costs for children under 14 years of age. This age limit is waived only for disabled children.

Note: If the employer provides tax-free benefits for pre-school childcare, the deduction for special expenses must be reduced by the amount of these benefits, as the deduction for special expenses requires expenses that actually and definitively burden the taxpayer financially (BFH ruling of 1.9.2021, III R 54/20).

(2022): When can I deduct childcare costs?

For whom should I enter the childcare costs?

The maximum amount of 4.000 Euro applies per child, not per parent.

If you are jointly assessed as a married couple, it does not matter who paid for the care. In the case of individual assessment, the partner who incurred the costs can deduct them. If this applies to both, each may deduct their share up to 2.000 Euro. However, you can also agree on a different allocation.

This can also make sense, as the following example shows:

Childcare costs amount to 5.500 Euro per year. The mother incurs costs of 4.000 Euro, the father pays 1.500 Euro per year. If both partners do not intervene in the allocation, the following picture emerges:

Mother: 2/3 of 4.000 Euro = 2.667 Euro

Father: 2/3 of 1.500 Euro = 1.000 Euro

Since each parent can deduct a maximum of 2.000 Euro, a total of 3.000 Euro can be deducted jointly by both parents.

If the father and mother agree that the mother may claim a maximum amount of 3.000 Euro and the father 1.000 Euro, they can claim 1.000 Euro more in childcare costs.

It becomes more complicated if you are not married. If you do not live together, the person with whom the child lives may deduct the childcare costs. Single parents can claim up to 6.000 Euro, just like married couples. However, if you live with your partner without being married, you can split the childcare costs. This is particularly worthwhile if one of you earns little and therefore does not benefit from the tax advantage.

For unmarried parents, the tax office only recognises the costs of the person who signed the contract with the childcare facility. If both of you want to claim childcare costs, you should both sign the contract.

Note: If the employer provides tax-free benefits for pre-school childcare, the deduction for special expenses must be reduced by the amount of these benefits, as the deduction for special expenses requires expenses that actually and definitively burden the taxpayer financially (BFH ruling of 1.9.2021, III R 54/20).

(2022): For whom should I enter the childcare costs?

What childcare costs cannot be deducted?

You cannot claim costs for any type of tuition as childcare costs. This also includes tutoring, but not basic homework supervision.

Expenses for “teaching special skills” (such as music lessons or computer courses) are not considered childcare costs for tax purposes.

The following items are also not deductible:

• Payments for sporting activities, e.g. membership fees for a sports club
• Expenses for school trips
• Material costs for books, toys or similar items
• Your travel expenses if you take your child to a carer or after-school club and pick them up again
• Expenses for your child's meals

(2022): What childcare costs cannot be deducted?

Are boarding school fees partially deductible as childcare costs?

Expenses for boarding school accommodation for a healthy child for educational purposes are unfortunately not tax-deductible. These expenses are considered typical education costs, which are covered by child benefit or the child and BEA allowance (for care, education, and training). Boarding school costs are also not deductible if the accommodation is for social, psychological, or educational reasons, such as if the child is difficult to educate, has learning disabilities, or the parents are unable to care for the child.

However, if a stay at a boarding school is due to illness or disability, boarding school costs may be deductible as extraordinary expenses. It is important that medical treatment is the primary focus and school attendance is incidental and secondary to this treatment. In such cases, boarding school costs are direct medical expenses and are fully deductible as extraordinary expenses under Section 33 of the Income Tax Act, subject to the deductible burden. Recently, the Thuringia Tax Court opened a new door: boarding school costs - except for catering costs - are childcare costs and are two-thirds deductible, up to a maximum of 4.000 Euro, as special expenses under Section 10 (1) No. 5 of the Income Tax Act (Thuringia Tax Court, 25.10.2016, 2 K 95/15).

The case: The 11-year-old daughter attends a full-day school. During the school weeks, the child is accommodated in the boarding school affiliated with the school. The care of the students living in the boarding school is based on a concept coordinated with the school for holistic education and care. According to the educational agreement, the boarding school is responsible for accommodation, meals, education, health care, and leisure activities.

The boarding school costs amount to 2.435 Euro, of which 1.035 Euro is for accommodation and 1.400 Euro for meals. The tax office does not want to recognise the accommodation costs - let alone the meal costs - because "personal and nurturing care for the child was not the main focus, so the boarding school costs were not considered eligible care services." The tax judges:

If the tax office believes that only nurturing or supervisory care is eligible and personal care for the child must be the main focus, the Federal Fiscal Court has already rejected this narrow view (BFH ruling of 19.4.2012, III R 29/11).

Rather, the term childcare, which is not defined by law, should be interpreted broadly according to BFH case law. In addition to nurturing and supervisory care in the sense of protection from dangers, injuries, and damage, it generally also includes personal care. It also extends to elements of care and education, i.e., concern for the child's mental, emotional, and physical well-being, thus pedagogically meaningful supervision.

Care services can take different forms: out-of-home care, in kindergartens, day-care centres, children's homes, crèches, as well as with childminders, weekly mothers, and in full-day care facilities, but also by childcare workers, educators, and household help, as well as supervision of homework at home. It is not clear why accommodation in a "children's home" should be eligible, but accommodation in a "boarding school" should not.

(2022): Are boarding school fees partially deductible as childcare costs?

Boarding school fees: Are private school fees for children with ADHD tax-deductible?

Expenses for a child's private school attendance are generally covered by child benefit or tax allowances (child allowance and BEA allowance) as well as the training allowance and are therefore not additionally deductible. However, school fees - but not boarding costs - can be deducted as special expenses at 30%, limited to 5.000 Euro (§ 10 Abs. 1 Nr. 9 EStG). The question is whether the costs of boarding due to illness can be considered as extraordinary expenses according to § 33 EStG.

According to the BFH case law, accommodation and meal costs are not deductible if the boarding is for social, psychological or educational reasons. Costs incurred for the child's educational support, which are at most indirect consequences of an illness, are not recognised as extraordinary expenses (BFH ruling of 18.4.1990, BStBl. 1990 II p. 962).

Recently, the Düsseldorf Finance Court ruled that boarding costs of 28.000 Euro cannot be recognised as extraordinary expenses if the child attends an English private school (college in England) with smaller classes and more intensive support due to a simple attention disorder (ADHD). In this case, the private school attendance was not for the purpose of medical treatment, and the school attendance itself does not constitute medical treatment. Therefore, these are not medical expenses, but merely health care expenses or consequential costs of illnesses, which are not necessarily incurred and therefore not deductible (FG Düsseldorf of 14.3.2017, 13 K 4009/15 E, revision).

• According to the financial judges, there is also a lack of a public health officer's certificate issued before the start of the boarding. Although a specialist doctor certified an "emotional developmental delay with attention disorder and partial performance giftedness", this does not meet the required condition according to § 64 Abs. 1 Nr. 2c EStDV. For a "medically necessary external accommodation of a child suffering from dyslexia or another disability", proof must be provided by a public health officer's report or a medical certificate from a medical service.
• In the case in question, however, there is neither dyslexia nor a disability. At most, the diagnosed attention disorder can be considered a medical condition. Whether this was so severe that it could be considered a disability is not apparent. The judges, however, take a bold step and interpret the above condition to include the characteristic of illness under disability. Thus, they extend the legal wording to "illness or disability" and also require a public health officer's certificate for the "illness".

If the child is placed in a special boarding school due to a disability or illness, the boarding costs (accommodation and meals) for the private school are deductible as extraordinary expenses according to § 33 EStG. It is important that the medical treatment is the main focus. This medical treatment can also be educational support by medically trained staff. In this case, the boarding costs are direct medical expenses that are fully deductible - subject to the deductible burden.

However, the condition is that the medical necessity is proven by a public health officer's certificate issued in advance.

(2022): Boarding school fees: Are private school fees for children with ADHD tax-deductible?