The Tax-Saving Potential of Grandparent Care

When school closures and limited holiday care make childcare a puzzle for working parents, many families in Germany rely on grandparents. According to Jana Bauer, managing director of the Federal Association of Wage Tax Assistance Associations (BVL), that family arrangement can also lower a household’s tax bill—even if the grandparents provide their time free of charge.

Under German income tax rules, childcare costs for children up to their 14th birthday are deductible as special expenses at 80%, up to a maximum of €4,800 per child per year. The catch is that a written contract, contribution statement or invoice must exist, and payment cannot be made in cash. Many grandparents naturally incur travel expenses, such as driving to pick up the child from a holiday programme or sports club. If parents formally reimburse those costs, they can claim the deduction.

An example from the BVL: a grandmother makes 160 round trips per year of 30 kilometres each (15 km each way) to collect her seven-year-old grandchild and bring them home. At the standard rate of 30 cents per kilometre, her travel reimbursement amounts to €1,440. The parents can then deduct 80% of that sum—€1,152—as special expenses, provided the payments are documented and not made in cash.

The grandparents must not live in the same household as the children. Parents who drive the child to the grandparents’ home, however, cannot treat their own journey costs as a childcare expense. A separate paid care contract with the grandparents is also possible, but the same paperwork and non-cash rules apply.

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Why This Tax Rule Benefits Both Generations

What Jana Bauer’s Figures Show

The €1,440 example illustrates how even modest travel reimbursements translate into a meaningful tax reduction. For a family with two young children, the maximum deductible childcare costs of €4,800 per child could reduce taxable income by up to €9,600 annually. The BVL’s guidance makes clear that parents do not need to pay the grandparents for their time; simply covering documented travel costs is enough to unlock the tax benefit.

The Win-Win-Win Logic

Bauer calls the arrangement a “win-win” for parents and grandparents, but adds a “triple win” because children typically enjoy the time with their grandparents. From a financial planning perspective, the rule lowers the net cost of holiday childcare for families while ensuring grandparents are not out of pocket. It also formalises a common informal arrangement, making it easier to budget and less likely to cause friction over expenses.

How Parents Can Claim the Deduction Correctly

Make sure the paperwork is in order:

  • Create a simple written agreement between the parents and the grandparents that states the purpose (childcare) and the reimbursement of travel costs.
  • Log every trip: record date, reason, and kilometres travelled (or keep bus/train tickets).
  • Reimburse by bank transfer, never cash, and keep the transaction receipts.
  • If using the car, stick to the official rate of 30 cents per kilometre; public transport costs should match actual ticket prices.
  • Remember that the grandparents must live in a separate household from the child; journeys made by parents to deliver the child are not deductible.
  • If you already claim the standard childcare deduction near the €4,800 limit, top up with travel cost reimbursements to reach the cap.