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?