spaceman91,
I agree that it is more like babysitting income which I had my children report as simply Other Income. In light of the formal 1099-NEC, though, you may get a letter from the IRS asking you about the 1099-NEC and but you would then reply with the circumstances. However, if you are worried about interacting with the IRS, go ahead and do the simple schedule C (she can even use the mileage spent going to and from rehearsals and the performances plus any outlays towards costumes and the like), fork over the 15.3% tax for Social Security and Medicare and let it go.
For the 1098-T, you will use it on your own return unless your income is so high that you don't qualify for the American Opportunity Credit. IRS Publication 970 states that the income limit is $180,000 for Married Filing Jointly and $90,000 for all other filing statuses.
Assuming you aren't blocked by high income, you enter the 1098-T on your own return. Your out-of-pocket qualified expenses for the AOC will be the Box 1 qualified expenses minus the Box 5 scholarship minus any 529 plan distributions that were used for qualified expenses rather than things like room and board. As long as the out-of-pocket qualified expenses are $4,000 or higher, you get $2,500 of AOC credit.
If you are blocked by income limits, then your daughter would file the 1098-T on her return. Her standard deduction would be the larger of $1,150 or her earned income plus the small scholarship plus $400, though no more than $12,950. She would need to complete the "kiddie tax" form 8615 though that will do no more that thicken her tax return as her taxable income is zero assuming the performance pay plus scholarship were less than $12,950.
