Generally speaking, if you pay someone to watch your children in your home, they are your household employee. You are supposed to give them a W-2 for their wages, and pay household employee tax on your federal tax return. If you pay someone to watch your children in their home, they will usually be treated as self-employed/independent contractor. You do not give them tax paperwork, but they are required to report self-employment income on their own tax return.
Also, the way the income tax system works, is that you are not entitled to any deduction or credit unless you can prove it.
If you can't prove you paid your daughter, you may lose any dependent care credit you got from New York State. If your daughter didn't report the payments on her tax return, then you claiming the credit may have also triggered an audit of her.
You and your daughter need to decide if this is informal "family helping family" (you help with her bills and she helps you with child care)--in which case you aren't allowed any tax credits; or whether this is a real business relationship, in which case your care provider should be giving you receipts and paying taxes or your provider is your employee and you should be giving a W-2 and paying household employee taxes. You can't have it half-way.
