Basics and Key Information about the Daycare Allowance

The Daycare Allowance is a voluntary benefit provided by employers that can be paid tax-free to cover childcare expenses for non-school-aged children. The aim of this benefit is to support working parents in balancing family and career. The allowance can be used for various types of childcare, such as daycare centers, kindergartens, or comparable institutions.

By reducing financial pressure on parents, this benefit helps promote employee motivation and sends a strong signal that the company values family-friendliness.

Tax Treatment

The daycare allowance can be granted tax- and social security-free under certain conditions, as outlined in § 3 No. 33 of the German Income Tax Act (EStG). The tax exemption is unlimited in amount, provided the following conditions are met:

• In addition to regular salary: The allowance must be paid in addition to the regular salary. Salary conversion is not allowed.

• Proof of childcare costs: Employees must provide documentation (e.g. invoices or contracts) showing the actual childcare expenses.

• External childcare: Care must be provided by an external facility (e.g. kindergarten, nursery, daycare center). In-home care (e.g. by a nanny) is not eligible.

• Purpose restriction: The payment must clearly be marked as a childcare allowance and may only be used for that purpose.

If any of these conditions are not met, the allowance will be treated as regular wages and subject to income tax and social security contributions.

Practical Notes for Implementation

• Employers should establish a written policy for granting the daycare allowance, ideally with reference to § 3 No. 33 EStG.

• It is recommended to obtain a yearly declaration from employees on actual childcare costs, along with copies of care contracts or invoices, for documentation purposes.

• The allowance can only be granted for non-school-aged children.

• It cannot be combined with claiming childcare costs as tax-deductible expenses in your income tax return - you must choose either the allowance or the deduction.

Configuring the Benefit

Activating the Benefit

In the employer portal, the “Daycare Allowance” benefit can be activated for employees.

Click on an employee listed under “Benefit inactive,” then choose “+ Configure now for x employees.”

Tip: To select all employees at once, use the checkbox next to “Employee.”

In the new pop-up window, enter your desired details and confirm by clicking Activate. The employee will then be listed under “Benefit active.”

If you do not select an end date, the benefit will remain available indefinitely.

Deactivating / Modifying the Benefit

If an employee should no longer have access to this benefit, you can change this anytime in the employer portal.

Go to “Daycare Allowance” and then to the “Benefit active” tab.

Click on the relevant employee and choose “Change configuration for x employees.”

In the new pop-up window, adjust the desired settings and confirm by clicking Confirm. The employee will be moved back to the “Benefit inactive” column.

You can choose to end the benefit at a specific time, pause it temporarily, or adjust the amount.

Note: All documents previously uploaded by employees or employers remain accessible in both the employer portal and the app.

Usage / Documents - Daycare Allowance

Under the “Usage” tab, you can view who is currently using the daycare allowance and what documents have been submitted.

You can also upload documents directly here.

Note: Employees can upload documents via the app as well. All documents are visible to both sides.

To upload a document, click “Upload document” in the top right corner. Then, select the employee, enter a name for the document, and choose the document type.

Click “Upload” to complete. You can view or download all uploaded files under the “Documents” tab.

Integration with Payroll

To ensure full documentation, you can automate the export of payroll data.

Go to “Daycare Allowance” under “Payroll Export,” where you can select your payroll system.

Important: To integrate with your payroll system, you’ll need info such as the wage type - request this from your tax advisor.

You can enter up to three email addresses to receive the monthly report.

Be sure to check the box for “Send me the payroll report by email every month automatically.”

In the event of a tax audit, you can refer to the CSV file (detailed report).

Go to “Usage,” select the relevant month, and click the CSV icon.

In the pop-up window, enter your settings and click Download to complete.

Legal Basis and Further Information

Income Tax: The tax-free daycare allowance is governed by § 3 No. 33 EStG. It must be granted in addition to the employee’s salary and documented with proof of expenses.

Social Security: According to § 1 para. 1 sentence 1 No. 1 SvEV, tax-free benefits under § 3 EStG – including the daycare allowance – do not count as subject to social insurance, as long as they are paid additionally to the agreed salary. Therefore, the allowance is also exempt from social security contributions.

Important: The allowance must not be taxed at a flat rate but must be processed fully tax-free under § 3 No. 33 EStG. Lump-sum payments without supporting documents are taxable and subject to contributions.

Further info: haufe.de

Note: This information does not constitute tax advice. For individual questions, please consult your tax advisor or your local tax office.

Translation Note: This article has been translated using automatic translation software to provide the reader with a basic understanding of the content. Despite reasonable efforts to provide an accurate translation, we cannot guarantee its accuracy.

If there are any questions regarding the accuracy of the information in the translated article, please refer to the German version of the article, which is the official version.