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Childcare Costs - Federal Tax Ministry Brings Clarity

Since 2006, parents have been permitted to deduct two thirds, up to € 4,000 p.a. per child of costs for childcare from their personal taxes. The Federal Ministry of Finances has published a new letter clarifying many unresolved issues. These questions concern exactly which costs can be deducted and if they are employment/business related costs, special expenses or household-like services. This nine page letter from the Bundesfinanzministerium (letter of January 19, 2007, Az. IV C 4 - S 2221 - 2/07) is summarized below.

1.  Which expenses and which kinds of service can be deducted?

The tax advantage is for childcare costs considering shepherding and overseeing services for children. Expenditures for accommodating the kids in kindergardens, You can collect this bonus also for expenses for employing caretakers, child nurses, educator homework assistance, like private lessons, are also deductible.


Do you have a relative with a slim wallet? Consider paying this person to take care of your children. You will be able to take deduct costs from your taxes. However, the authorities will scrutinize this legal constellation very carefully in order to prevent misuse. Therefore, it is highly recommended that you have a written contract. Also make sure that the duties are fulfilled as if this relative were not a family member. N.B. this model doesn't work for unmarried couples.
The services rendered by the relative may not be such as normally done among relatives and without payment. When grandma looks after her grandchild for a whole working day, five days a week, this is surely not family help anymore. To be on the safe side, consider asking the attorney declaring your taxes to define the details into a contract. If you have a Steuerberater, a tax consultant, preparing your tax return; he is not permitted to consult on this matter as the contract between you and your "employee" have nothing to with taxes anymore.

2.  Want to reduce your salary and thus deduct these "costs"?

Nice idea but it won't work. While your children will surely be happy that you have more time for them after reducing your time at work, it goes without saying that a reduced working time results in less payment. This "cost" is not eligible.


3. Is there anything special to consider when hiring au-pairs?

Au-pairs usually also have to do some household duties. Whenever the time for child care and household duties is not distinguished, the tax office will automatically assume a ratio of 50:50. This simply means that half of any and all payments will be considered as household duties.


Make sure the contract with your au-pair has stipulated the scope of time for child care and household work. This is the only way to avoid the splitting in half. If your contract doesn't saying anything for how the au-pair is to do what, sign a supplement to the contract.

4.  Which expenditures are not eligible?

Non-deductible are expenses for teaching (e.g. school fees, private lessons), teaching special abilities like a computer class, or music lessons, or leisure activities with caretaking (membership in sport clubs).

5. How are costs to be proven ?

Two thirds of the costs, at most € 4,000 per year and child, can be deducted from the tax burden, if proof is given. Generally, the following items of proof are to be presented:
  • You have to present an invoice.
  • You have to present a bank statement showing the payment to an account of the caretaking person. Payment in cash will not be accepted.


If you employed somebody for a full-time job or as a "minijob", the labor contract qualifies as an invoice. The same goes for the contract with the au-pair and the administrative act of the public kindergarten. Eligible payment is not only a bank transfer but also checks, direct debits, or electronic cash. If your school offers caretaking after school hours and this offer contains more than homework assistance, make sure the bill splits the fees for deductible and non-deductible items.


Published on the old CMS: 2007/6/14

Read on the old CMS till November 2008: 115 reads