Tax return and childcare expenses

Childcare expenses and the compatibility between the exemption provided for in Article 42(3)(b) and the deduction for childcare facilities under Article 18 of the Personal Income Tax Act.

1.- If the company pays, it would be Income in Kind.

In general, article 42.1 of Law 35/2006, of 28 November, on Personal Income Tax and partially amending the laws on Corporate Income Tax, Non-Resident Income Tax and Wealth Tax (BOE of 29 November), contains the following definition of income in kind:

"Income in kind constitutes the use, consumption or obtaining, for private purposes, of goods, rights or services free of charge or at a price lower than the normal market price, even when they do not represent a real expense for the person granting them.

When the payer of the income gives the taxpayer amounts in cash for him to acquire the goods, rights or services, the income shall be considered money".

Income from work in kind must be distinguished from those other cases in which there is a simple mediation of payment by the company with respect to expenses incurred by the employee; that is to say, cases in which the company is limited to paying an amount for the account and order of the employee. In these cases, the consideration payable by the employee to the company does not consist of the use, consumption or obtaining of goods, rights or services, but is a consideration that the company has the obligation to pay in cash, although by virtue of the mandate made by the employee, the payment is made to a third party indicated by the latter. In other words, the employee allocates part of his monetary remuneration to the acquisition of certain goods, rights or services, but the payment is made directly by the employer.

Consequently, in the case of simple means of payment carried out in the terms described, it cannot be understood that the amounts paid by the company to a third party are qualified as income from work in kind for the worker, but rather as an application of monetary income from work to a specific concept of expense.

However, it should be pointed out that it is not always the case that the employer satisfies or pays amounts to third parties for them to provide their worker with the good, right or service in question that we are in the presence of monetary remuneration, since we consider that there is payment mediation, since on occasions remuneration in kind is instrumented by means of a direct payment from the employer to the third party in compliance with the commitments assumed with its workers, that is to say, to make the agreed remuneration in kind effective. In order for this assumption to operate, it is necessary that the remuneration in kind be so agreed with the workers, either in the collective agreement or in the employment contract itself, that is to say, that the company is obliged (depending on the agreement or contract) to provide them with the good, right or service. In such a case, the amounts paid by the company to the suppliers would not be considered as a case of payment mediation, in the terms previously indicated, but as remuneration in kind agreed in the employment contract, for which reason all the provisions regarding remuneration in kind contained in article 42 of the Tax Law would be applicable.

Among these provisions, article 42.3.b) of the Tax Law establishes that income from work in kind corresponding to:

"b) The use of goods intended for the social and cultural services of the personnel employed. This consideration shall include, among others, the spaces and premises, duly approved by the competent public administration, destined by companies or employers to provide the first cycle service of infant education to the children of their workers, as well as the contracting, directly or indirectly, of this service with duly authorized third parties, under the terms established in the regulations.

Therefore, non-monetary work retributions will be exempted which, complying with the aforementioned requirements, consist of the payment by the companies of the day-care expenses of their workers, by means of the delivery to the employees of vouchers which are applied to cover the expenses of this nature.

2.- Nursery expenses that were not considered exempt income from work in kind.

With regard to the deduction, article 61 of Law 6/2018 of 3 July on the General State Budget for 2018 (BOE of 4 July), with effect from 1 January 2018, has modified article 81 of the Tax Law, establishing an increase in the deduction for maternity provided for in that article of up to 1.000 additional annual euros when the taxpayer who is entitled to the maternity deduction has paid in the tax period expenses for the custody of the child under three years of age in authorised nurseries or nursery schools, within the limits and requirements established in the aforementioned article, among which it is stated in the last paragraph of paragraph 2 of that article that "For these purposes, custodial expenses shall be understood as the amounts paid to nurseries and infant education centres for the pre-registration and enrolment of said minors, attendance, in general and extended hours, and food, provided that they have been produced for complete months and were not considered as exempt work in kind income by application of the provisions of paragraph 3 (b) or (d) of article 42 of this Law.”

In accordance with the foregoing wording, childcare expenses which are not considered exempt income from work in kind may form part of the basis for the deduction.

For this reason, to the extent that childcare expenses covered by means of childcare vouchers do not meet the requirements established for the application of the exemption in article 42.3.b) of the Tax Law reproduced above, which would occur, for example, when it was not a question of remuneration in kind because it corresponded to mediations in the payment, the deduction provided for in the aforementioned article 81 of the Tax Law could be applied to said expenses, to the extent that the requirements provided for in said article are met.