New York University School of Law
It is increasingly common to find families composed of husband, wife and young children, where both husband and wife are gainfully employed. For some, this pattern is regarded as preferable to the older "ideal" family, where the husband was the sole breadwinner and the wife cared for the children, performed household chores and perhaps engaged in social or charitable activities. Where both spouses are gainfully employed, it is often necessary for the family to employ household help to care for the children and do the housework. These expenditures are "necessary" to the gainful employment of both spouses in the sense that if they were not made, at least one spouse could not be employed. Yet the expenditures are for services which ordinarily would be regarded as personal; families may employ a housekeeper even if one spouse stays at home.
From its inception the federal income tax has allowed a deduction for ordinary and necessary expenses paid or incurred in carrying on a trade or business.1 Since 1942 ordinary and necessary expenses paid or incurred by an individual for the production or collection of income have also been deductible.2 Just as fundamental, however, has been the principle that no deduction is allowed for personal, living or family expenses.3 Apart from a narrow exception enacted by Congress in 1954 and enlarged in 1964,4 the courts have uniformly treated child care and household expenses as personal and therefore nondeductible. 5
The Revenue Act of 1971 substantially liberalized the tax treatment of expenditures for household services and for child and dependent care, where incurred to enable the taxpayer to be gainfully employed.6 While the act alleviates much of the financial burden of out of pocket employment related costs for many taxpayers, the deduction remains limited by questionable restrictions and a number of administrative issues (pending promulgation of regulations) remain unanswered. Yet in some respects the new provision may be overbroad, permitting too much to be deducted.
Alan L. Feld,
Deductibility of Expenses for Child Care and Household Services: New Section 214
Tax Law Review
Available at: https://scholarship.law.bu.edu/faculty_scholarship/2425