Child care tax deductions set to rise in Switzerland

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Switzerland’s Federal Council, or cabinet, plans to increase the maximum annual deduction for child care costs to CHF 25,000 per child, up from CHF 12,100.

This would allow parents to deduct up to this amount from their income for federal tax purposes but would not affect canton and commune taxes. Deductions could not exceed the amount spent.

The plan aims to encourage more parents to work, particularly highly qualified parents. Some parts of the Swiss economy are struggling to find enough highly skilled staff.

Well-qualified parents are often excluded from subsidized childcare because their households earn too much. This creates a double disincentive to work. High income tax is piled on top of costly unsubsidized child care because much of the childcare cost cannot be deducted for income tax purposes, something aggravated by the practice of taxing married couples on their combined income.

In addition to higher federal childcare tax deductions, the Federal Council wanted to impose something similar on cantons. This was dropped from the plan because too many considered it federal overreach.

Maximum cantonal childcare deductions vary from CHF 3,000 to CHF 19,200 per child depending on the canton. One canton, Uri, has no maximum.

It is hoped that the move, which would reduce federal tax receipts by an estimated CHF 10 million, will pay for itself with the extra income tax collected from those entering the workforce. The government hopes an extra 2,500 parents will enter the workforce.

Switzerland’s parliament will now look at the proposal.