Grandparents are generally exempt from the "Nanny tax". You do
NOT need to do withholding or pay FICA tax or issue her a W-2. She will
still need to report the income (unless he total income is under the filing
threshold). Paying her by check and/or issuing pay statements may help her with
that, but it is not mandatory.
She will
still declare the income as Household Employee Income but will not have to pay
FICA (social security and medicare tax). That can be a little tricky entering in TurboTax
Reference: https://www.irs.gov/taxtopics/tc756.html
See
page 5 at https://www.irs.gov/pub/irs-pdf/p926.pdf
for exceptions to the grandparent exemption.
