Does care allowance count as income? What pensioners and relatives need to know

must be met so that the money does not cause any problems with the tax office.

We cater to people in need of care, family caregivers, and anyone who would like to learn about the impact of care allowances on pensions.

What exactly is care allowance?

Before we clarify the question of whether care allowance is considered income, we must define what this benefit actually represents. Care allowance is a social benefit provided by long-term care insurance. It does not serve as traditional income or wage replacement, but is intended to enable people in need of care to make their own decisions about their care.

The purpose of the service

The legislature created the care allowance to strengthen home care. The person in need of care receives this sum of money to ensure that they can be cared for in their own home by relatives, friends, or neighbors, so it can be seen as a lump-sum recognition of this.

Distinction from care benefits in kind

It is important to distinguish between care allowance and so-called care benefits in kind.

• Care allowance: Paid when voluntary caregivers (e.g., family members) take on the care.
• Care benefits in kind: These are granted when a professional care service provides the care. In this case, billing takes place directly between the long-term care insurance fund and the service provider.

Note: It is possible to combine both services (combined service).

The key question: Does care allowance count as income for pension purposes?

Here we can give a clear and reassuring answer: No, care allowance does not count as income for pension purposes.

No deduction from old-age pension

Care allowance does not count as income for pension purposes and is not considered additional income. For the person in need of care, the care allowance is therefore not taken into account. It is not counted toward the statutory pension. This means that your monthly pension payment remains in full, regardless of the level of care you have or how high the care allowance is.

Care allowance and the additional income limit

The following also applies to early retirement pensions or disability pensions: Care allowance is not additional income. It is a means-tested social benefit that serves to cover (at least in part) the additional expenses incurred as a result of the need for care. It is not remuneration for work performed in the economic sense.

Tax treatment: Is nursing care allowance taxable?

Another major issue is taxation. Many fear that the tax office will want access to income from long-term care insurance. Here, a distinction must be made between the recipient, i.e., the person in need of care, and the caregiver.

Tax exemption for persons requiring care

For the person in need of care, the care allowance is tax-free. It is not subject to income tax. As a rule, it does not have to be declared as income of the person in need of care in their tax return, as it is a tax-free social benefit in accordance with Section 3 No. 36 of the Income Tax Act (EStG).

Tax situation for family caregivers

If the person requiring care passes the money on to family members providing care, it usually remains tax-free for them as well.

The principle is as follows: if the care allowance is passed on to relatives who provide care out of a moral obligation, it does not count as taxable income.

What does "moral duty" mean?

A moral obligation is generally assumed when there is a close personal relationship between the caregiver and the person requiring care.

This typically applies to:

• Spouse
• Children and grandchildren
• Parents
• Siblings
• nieces and nephews

In these cases, the legislator assumes that the care is provided not for financial gain, but because of family ties. The care allowance that is passed on is considered an expense allowance and not a wage.

Tax trap for individuals without family ties

Caution is advised when friends or neighbors take over caregiving duties. In such cases, the tax office may take a closer look.

If the care allowance transferred exceeds the actual costs incurred by the caregiver, including travel and material costs, and no close family relationship can be proven, it could theoretically be considered income.

Tip: If care is provided by non-relatives, document the expenses incurred so that, in case of doubt, you can prove that the money was merely compensation for expenses and no profit was made.

Legal basis: Section 3 No. 36 of the Income Tax Act (EStG)

The central standard for tax exemption is regulated by Section 3 No. 36 of the Income Tax Act (EStG). This section states that income for basic care or domestic help services is tax-exempt as long as it does not exceed the statutory care allowance.

Requirements for tax exemption under Section 3 No. 36 of the Income Tax Act (EStG)

The following conditions must be met for the tax exemption to apply:

1. The service is paid for by the nursing care insurance fund or as part of the allowance.
2. The money is passed on to the caregiver.
3. The caregiver is a relative or acts out of moral obligation.
4. The amount of the care allowance will not be exceeded.

However, if a regular employment contract is concluded, e.g., for a salaried caregiver, the remuneration is taxable income.

Entitlement to care allowance: Who is eligible?

Not everyone who is ill is automatically entitled to care allowance. The hurdles are clearly defined.

The care level as a benchmark

The prerequisite is classification into a care level. This is determined by the Medical Service (MDK) or, for privately insured persons, by Medicproof.

• Care level 1: No entitlement to care allowance, but entitlement to other forms of support, such as the relief amount.
• Care levels 2 to 5: Entitlement to monthly care allowance for home care.

Table: Amount of care allowance (as of 2026)

The amount of the benefit is graded as follows:

Home care must be guaranteed

The money is only paid out if care at home is adequately ensured. This means that the caregiver must be physically and mentally capable of providing the necessary support.

Pension implications for family caregivers

While the care allowance does not count toward the recipient's pension, providing care can have a positive impact on the caregiver's own future pension. This is an often underestimated aspect of home care provided by relatives.

The nursing care insurance fund pays pension contributions.

If you care for a relative, the nursing care insurance fund will pay contributions into your pension insurance under certain circumstances. This will increase your future pension.

The requirements for this are:

• The person in need of care has at least care level 2.
• Care is provided in a home environment.
• The care required amounts to at least 10 hours per week, spread over at least two days on a regular basis.
• The caregiver works no more than 30 hours per week in another job.

Care allowance when receiving social benefits (citizen's income & basic income support)

A common misunderstanding concerns people who are dependent on citizen's income, formerly unemployment benefit II, or basic income support in old age. Is the care allowance taken into account here?

DO YOU NEED
NURSING AIDS?

Your individual care package, costs covered by your care insurance fund.

SECURE YOUR PACKAGE NOW

Basic rule: No credit

The care allowance is generally not counted as income for the purposes of citizen's income or basic income support. It is earmarked income.

Exception for caregivers

Care must be taken if the caregiver receives citizen's income themselves.

• If the caregiver is a relative and takes on the caregiving work as a moral duty, the forwarded care allowance is usually not taken into account.
• If it is a third party, the job center may consider the money received as income under certain circumstances.

In this case, it is advisable to talk to the case worker before starting care in order to avoid unpleasant surprises.

Important duties: The advisory visit pursuant to Section 37.3 SGB XI

Those who receive care allowance also have obligations. One of these is the so-called advisory visit in accordance with Section 37 of SGB XI.

Why is this visit necessary?

The legislature wants to ensure that home care is of high quality and that family caregivers are not overwhelmed. A recognized care service or counseling center visits, talks to those involved, and provides assistance.

How often should the visit take place?

• Care levels 2 and 3: Once every six months.
• Care levels 4 and 5: Once every quarter (every 3 months).

If this proof is not provided, the nursing care insurance fund may reduce or cancel the nursing care allowance.

Tip: Arrange appointments with a local care service early on so you don't miss any deadlines.

Special cases and specific situations

In practice, there are many special cases that cause uncertainty.

Preventive care and short-term care

If the regular caregiver is ill or on vacation, substitute care comes into effect. Here, too, funds are provided to support those in need of care. These benefits are also earmarked for a specific purpose and are tax-free for the person in need of care. Similar tax rules apply to substitute caregivers as to regular care allowances.

The flat-rate care allowance in your tax return

Regardless of the care allowance, family caregivers can take advantage of tax benefits. The lump sum care allowance, for example, reduces the caregiver's tax burden.

It can be claimed if:

• The care is provided free of charge (the care allowance does not usually count as harmful remuneration as long as it is only used to cover expenses, but caution is advised here and the tax office often decides on a case-by-case basis).
• At least care level 2 is required.

Practical tips for dealing with care allowance

To avoid mistakes, we have summarized some practical experience:

1. Keep bank statements: If the social welfare office or tax office inquires, you can prove the flow of money.
2. Document the purpose: When passing on to neighbors, you should record in writing that this is an expense allowance.
3. Check combined benefits: Often, a combination of care allowance and care benefits in kind is the best solution.
4. Consult a tax advisor: If your financial situation is complex or if large sums of money are being transferred to non-relatives, it is advisable to consult a tax advisor.

Summary and conclusion

To finally answer the initial question: Does care allowance count as income for pension purposes?

No. The care allowance is a tax-free social benefit that neither reduces the pension nor increases the tax burden of the person in need of care. It serves as financial support to enable care in the person's own home.

For family caregivers, the money transferred usually remains tax-free as long as a moral obligation is being fulfilled (e.g., for parents or children). It is compensation for the high level of personal commitment and not payment for work.

The most important points at a glance:

• Care allowance is tax-exempt under Section 3 No. 36 of the Income Tax Act (EStG).
• No deduction from old-age pension or basic income support.
• Caregiving relatives can also earn pension points.
• The prerequisite is at least care level 2.

Take advantage of these benefits, because you are entitled to them. Make sure that the need for care does not become a financial trap.

Frequently asked questions (FAQ)

Here we provide brief answers to the most important questions relating to care allowance, income, and pensions.

1. Do I have to declare care allowance on my tax return?

No, as a person in need of care, you do not have to declare the care allowance in your tax return, as it is tax-free. Caregiving relatives also do not have to declare it if it is an expense allowance within the scope of their moral obligation.

2. Is care allowance counted as income for housing benefit purposes?

No. According to the Housing Benefit Act, care allowance does not count toward your annual income and therefore does not reduce your entitlement to housing benefit.

3. Can I keep my care allowance when I am in hospital?

The nursing allowance continues to be paid for the first 4 weeks (28 days) of a hospital stay or rehabilitation. After that, entitlement is suspended until you return home.

4. Is care allowance considered additional income in the case of early retirement?

No. The care allowance is not remuneration for work and therefore does not count toward the additional income limits for early retirement or disability pensions.

5. Am I also eligible for care allowance with care level 1?

No. With care level 1, you are not entitled to care allowance. However, you can use the relief amount of €131 per month for care and relief services and apply for aids for use in the amount of €42.

6. What happens if I pass on the care allowance to an Eastern European caregiver?

If you employ a 24-hour caregiver, you are the employer. The care allowance is then used to finance this employment relationship. The caregiver must pay tax on their income. For you, the care allowance you receive from the insurance fund remains tax-free.

7. Does care allowance count as income for basic income support in old age?

No, the care allowance is not counted as income for basic income support. It is available to the person in need of assistance in addition to their other income.

8. As a pensioner, can I receive care allowance for caring for my wife?

Yes. If you care for your wife, she can pass on the care allowance to you. This does not count as income for your pension and is tax-free, as it falls under the moral obligation. In addition, under certain conditions, the care insurance fund can further increase your pension through contribution payments.