What can be deducted for childcare by grandparents?

Childcare costs have been deductible as special expenses since 2012, but only two-thirds and limited to 4,000 Euro per child (§ 10 para. 1 no. 5 EStG). If grandparents look after the child, payments cannot be deducted for tax purposes unless they are travel expense reimbursements.

Current Decisions

Voluntary childcare by the grandmother and travel expense reimbursement:

If you reimburse grandma or grandpa for travel expenses for childcare by bus, train or taxi, or a flat rate of 30 cents per kilometre for travel by private car, these expenses are tax-deductible (BFH ruling of 4.6.1998, III R 94/96).

The Baden-Wuerttemberg Finance Court allows the reimbursement of travel expenses as deductible childcare costs, even if the care is provided free of charge. The care is provided as a family favour and does not affect tax deductibility (FG Baden-Wuerttemberg, ruling of 9.5.2012, EFG 2012 p. 1439).

The grandmother can keep the funds received without declaring them in her tax return, as they are reimbursements that do not generate taxable income. The condition is that the caregiver issues an "invoice" or receipt for incidental costs (BMF letter of 14.3.2012, BStBl. 2012 I p. 307, para. 5).

Payment for childcare by grandparents:

Parents can take into account a payment for childcare to grandparents for tax purposes if the grandparents do not live in the same household and the care agreement is concluded as with third parties (BFH ruling of 6.10.1961, BStBl. 1961 III p. 549).

Childcare costs and bank statements:

A ruling by the Nuremberg Finance Court of 12.8.2019 (4 K 936/18) shows that it is important to provide clear evidence of childcare costs. In the case mentioned, the plaintiffs could not provide conclusive explanations for transfers, which led to the rejection of their childcare costs. Nevertheless, it was emphasised that travel expense reimbursements to grandparents generally lead to deductible childcare costs.

Tax advantage for employer benefits in childcare:

Employer benefits for the accommodation and care of employees' pre-school children in kindergartens or similar facilities are tax and social security-free (§ 3 no. 33 EStG). The benefits must be provided in addition to the salary owed anyway.

Combining tax advantages in childcare:

The Federal Fiscal Court states that kindergarten fees deductible as special expenses must be reduced by the tax-free employer subsidies provided for this purpose (BFH decision of 14.4.2021, III R 30/20).

Childcare: Household affiliation decisive

Only children who belong to the household are eligible. In the case of separated parents, the child's registered residence counts. Simultaneous affiliation to both households can be assumed if the child lives flexibly between both parents.

The Thuringia Finance Court has allowed the question of the compatibility of § 10 para. 1 no. 5 EStG with the Basic Law. The Federal Fiscal Court confirms the view that the care expenses of the non-custodial parent must be covered by the BEA allowance (BFH ruling of 11.5.2023, III R 9/22).

(2023): 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 per child in childcare costs 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 elsewhere. 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 they incur 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).

(2023): What types of childcare costs can be claimed?

When can I deduct childcare costs?

You can only claim childcare costs if a parental relationship exists. 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).

(2023): When can I deduct childcare costs?

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

(2023): 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 through invoices and the corresponding bank 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.

(2023): How do I provide evidence of my childcare costs?

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 both parents can claim together 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 both of you want to claim childcare costs, you should both sign the contract.

Note: The Federal Fiscal Court has confirmed that for parents living separately, the child's household membership is decisive. Section 10 (1) No. 5 EStG does not violate the Basic Law if the childcare expenses of the parent who has not taken the child into their household are covered by the allowance granted to them for childcare and education or training needs (BEA allowance under Section 32 (6) EStG) (BFH ruling of 11.5.2023, III R 9/22). However, there are numerous cases in which the so-called alternating model is practised, meaning that the child lives with the mother for part of the time and with the father for part of the time, thus having two "household memberships". Who can then claim the childcare costs? The Thuringia Finance Court has ruled that childcare costs can (only) be deducted by the person who paid them. The decisive factor is who transferred the childcare expenses to the account of the service provider, such as the kindergarten operator (Thuringia FG, judgment of 23.11.2021, 3 K 799/18). An appeal has been lodged against the judgment with the Federal Fiscal Court (Ref. III R 1/22). Corresponding cases should therefore be kept open.

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).

(2023): How much childcare costs can I deduct?

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

(2023): What childcare costs cannot be deducted?

For whom do 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. 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, the total amount that both parents can jointly deduct is 3,000 Euro.

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 parent 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: The Federal Fiscal Court has confirmed that in the case of separated parents, the child's household membership is decisive. Section 10 (1) No. 5 EStG does not violate the Basic Law if the childcare expenses of the parent who has not taken the child into their household are covered by the allowance granted to them for childcare and education or training needs (BEA allowance under Section 32 (6) EStG) (BFH ruling of 11.5.2023, III R 9/22). However, there are numerous cases in which the so-called alternating model is practised, i.e. the child lives with the mother for part of the time and with the father for part of the time, and thus has two "household memberships". Who is then allowed to claim the childcare costs? The Thuringian Tax Court has ruled that childcare costs can (only) be deducted by the person who incurred them. The decisive factor is who transferred the childcare expenses to the account of the service provider, for example the kindergarten operator (Thuringian FG, judgment of 23.11.2021, 3 K 799/18). An appeal has been lodged against the judgment with the Federal Fiscal Court (Ref. III R 1/22). Corresponding cases should therefore be kept open.

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).

(2023): For whom do I enter the childcare costs?

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 boarding school stay 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 the school attendance is incidental and secondary to this treatment. In such cases, boarding school costs are direct medical expenses and can be fully deducted as extraordinary expenses under Section 33 of the Income Tax Act, subject to the deductible burden.

The Thuringia Tax Court allows boarding school costs (excluding meals) up to 4,000 Euro to be deducted as two-thirds special expenses (Thuringia Tax Court, 2 K 95/15). This applies if the boarding school offers holistic care and education for the child.

The Münster Tax Court ruled that the costs for private schooling of a gifted child do not constitute extraordinary expenses (Münster Tax Court, judgment of 13.6.2023, 2 K 1045/22 E). The parents claimed the boarding school costs as extraordinary expenses because their daughter has a special learning ability and high intelligence. The court rejected the claim, classifying the expenses as private living costs rather than direct medical expenses. The parents referred to a letter from the public health service confirming the health reasons for the school change. However, the court decided that the criteria for recognition as medical expenses were not met.

However, in 2011, the Federal Fiscal Court (BFH) ruled that expenses for the schooling and boarding accommodation of a gifted child can be deductible as extraordinary expenses if the schooling is medically indicated (BFH judgment of 12.5.2011, VI R 37/10).

This medical indication does not necessarily have to be proven by a previously issued certificate. The court may also accept suitable evidence at a later date. If the BFH follows the plaintiff's view, the costs of schooling and boarding accommodation could be recognised as direct medical expenses.

An appeal against the Münster Tax Court's decision has been lodged with the Federal Fiscal Court (Ref. VI B 35/23).

(2023): Are boarding school fees partially deductible as childcare costs?

Can school fees for a child's education be considered exceptional expenses?

In principle, school fees are 30% deductible as special expenses, up to a limit of 5,000 Euro. However, if boarding is for social, psychological or educational reasons, accommodation and meal costs are not deductible.

Recently, the Düsseldorf Tax Court ruled that 28,000 Euro in boarding school costs for a child with ADHD at an English private school could not be deducted as extraordinary expenses, as the school attendance was not for medical treatment. A public health officer's certificate prior to the boarding was missing.

The rules change if a child is placed in a special needs boarding school due to disability or illness. In this case, boarding school costs are deductible as extraordinary expenses if the medical treatment is the main focus and is proven in advance by a public health officer's certificate.

Most recently, the Münster Tax Court ruled that the costs of a private school for a gifted child do not qualify as extraordinary expenses. This is because these costs are considered private living expenses rather than direct medical expenses.

In this case, the daughter attended a state-recognised boarding grammar school because her special learning abilities and high intelligence were not sufficiently supported, leading to psychosomatic complaints. A public health service recommended attending a boarding grammar school for health reasons.

The parents applied for the boarding school costs to be recognised as extraordinary expenses, but this was rejected. The tax office and the Münster Tax Court argued that the expenses for attending a private school cannot be considered medical expenses unless the attendance is for medical treatment and includes special medical care.

However, in 2011, the Federal Fiscal Court ruled that expenses for the schooling and boarding of a gifted child are deductible as extraordinary expenses if the schooling is medically necessary. It does not matter that the boarding also serves educational purposes.

The BFH judges emphasised that the medical indication does not necessarily have to be proven by a prior medical certificate. The tax court is obliged to examine the medical necessity and, if necessary, obtain an expert opinion.

A non-admission appeal has been lodged with the Federal Fiscal Court, and if it follows the plaintiff's view, the costs for schooling and boarding could be recognised as direct medical expenses. This would mean that the school fees paid could be fully deducted as extraordinary expenses and not just 30% up to 5,000 Euro as special expenses. However, the training allowance for adult children of 1,200 Euro would be forfeited due to the external accommodation, to prevent double tax relief.

(2023): Can school fees for a child's education be considered exceptional expenses?