Good to know – day-care services can be provided tax-free

There are several angles to consider when returning to work after giving birth. One of the most important aspects today is money. Both employees and employers should be aware that the cost of day-care services – which is certainly not a negligible expense – can be absorbed by employers tax-free. This information is based on the opinion published in the tax authority’s official gazette.

Pursuant to Section 8.6 of Schedule 1 to the Personal Income Tax Act, the following in-kind benefits provided free of charge or at a discount shall be tax-exempt:

     “a) Non-cash benefits provided to children or to another private individual in this context as governed by the Public Education Act, the Act on Child Protection and Custody Administration and the Act on Regulating the Schoolbook Market, and to students under the Public Education Act;…

     c) day-care services.”

It is important to point out in this case that tax exemption refers to the form of income provided by means other than money. Pursuant to the aforementioned Act, non-cash income includes, in particular, debt forgiven or absorbed; expenses, payments made on behalf of private individuals.

Characteristics of the day-care and family day-care concept must be examined in accordance with Act XXXI of 1997 on the protection of children and the administration of guardianship and Decree 15/1998 NM on the professional tasks and operational conditions of child welfare and child protection institutions and persons providing personal care.
These institutions can be operated by governmental and non-governmental bodies (e.g. day-care operated by an employer to provide care for employees’ children), and the rules of tax exemption do not exclude either of these categories of operators.

Under the Accounting Act, these benefits are classified as other staff benefits. Pursuant to the Corporate Tax and Dividend Tax Act, the amounts recognised as other staff benefits paid to private individuals employed by the taxpayer or to their close relatives, can be reported as business-related cost and expense.

Therefore it is useful to know that employers can provide tax-exempt benefits to employees or to the child’s other parent based on invoices issued to the employer. A similar regulation would probably be welcome by taxpayers regarding nursery and school services too. The tax-exemption must be documented properly in each case, given that the tax authority could conduct a detailed inspection of tax-exempt benefits.

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