Tax treatment of child day care

The tax authorities have updated the rules for the tax treatment of income from child daycare and, in particular, increased the flat rate for business expenses.

After more than six years, the Federal Ministry of Finance has published an updated version of its administrative instruction on the income of childminders and other persons providing childcare. The most significant change in the revised version, which will apply from the 2023 calendar year, is an increase in the monthly flat rate for operating expenses from 300 euros to 400 euros. The following rules apply in detail:

• Type of income: If child day care is provided in the household of the caregiver or the child's legal guardians or in other suitable rooms and the children of different legal guardians are cared for independently, then child day care is considered to be an independent educational activity. If, instead, children are cared for in their own family according to the instructions of the legal guardians, the caregiver is usually an employee and the legal guardians are the employers. In this case, either the actual income-related expenses or the employee lump sum of currently EUR 1,230 can be deducted from the income from the childcare activity.

• Profit Determination: The ongoing payments for the reimbursement of material expenses and recognition of the childminder's support services are taxable income from freelance work. This applies regardless of the number of children cared for and the origin of the funds. The tax exemption for part-time educational activities (trainer's allowance) does not apply to these payments. However, the reimbursements made by the public youth welfare organization for contributions to accident insurance, appropriate old-age insurance and appropriate health and long-term care insurance are tax-free.

  

• Operating expenses: The actual and proven operating expenses incurred must be deducted from the taxable income. These include, in particular, food for the children in care, activity materials, specialist literature, hygiene articles as well as rent, operating costs and equipment (furniture) for the premises used for childcare. In addition, communication, training and travel costs as well as expenses for leisure activities for the children in care are deductible. Insurance contributions are also business expenses if they are directly related to the activity. However, contributions to old-age insurance, accident insurance and appropriate health and long-term care insurance are not business expenses.

• Operating expense allowance: Instead of the actual operating expenses, a flat-rate operating expense allowance of EUR 400 per child and month can also be deducted from the income generated for simplification purposes. The flat rate for operating expenses is based on a weekly childcare period of 40 hours. If the actual agreed childcare time deviates from this, the flat-rate operating expense allowance must be reduced pro rata temporis. For periods in which the caregiver is unable to complete the agreed care hours (vacation, illness, further training, etc.), the lump sum for operating expenses can only be deducted if the childcare allowance continues to be paid in the meantime. Measures in accordance with the Infection Protection Act do not affect the lump sum, so that it can also be deducted in the event of a temporary closure during which no income is generated.

• Open spaces: If the caregiver receives ongoing cash benefits for free places that can be filled at short notice in the event of illness, vacation or training for another childminder, a lump sum of EUR 50 per free place and month can be deducted as operating expenses instead of the actual operating expenses. The higher lump sum of 400 euros per child and month is of course applied for the period in which a free place is occupied by a child. Both lump sums are designed for 20 working days per month and are to be applied pro rata temporis.

• Restrictions: If the childcare takes place in the parent's household or in premises provided free of charge, the flat-rate operating expenses cannot be deducted. In these cases, only the actual operating expenses can be deducted. In addition, the flat-rate operating expenses may only be deducted up to the amount of the operating income. A possible loss from child day care can therefore only be claimed if the actual operating expenses are claimed rather than the lump sums.