I have spent days/countless hours attempting to get a real answer to how grandparents report income earned by providing childcare for grandchildren. Finally figured it out. It is pretty simple. Grandparents providing childcare for grandchildren in either the grandparents home or the child's home, are exempt from any payroll taxes. The IRS does not allow payment of social security/medicaid taxes on income paid to grandparents for providing domestic service. There are exceptions for divorced/widowed parents of the child who are allowed to pay social security taxes for the grandparent.
The parent of the child can claim the daycare tax credit but must provide the name and social security number of grandparent providing childcare on the child tax credit form.
The grandparent reports the exact amount earned (as reported by the child's parent on the daycare tax credit) on Schedule 1, line 8 with the description childcare for grandchildren. The schedule 1 provides the documentation so a 1099 MISC is not necessary. The important thing is that the parents daycare expense reported must be the same as the income reported by the grandparent.
The income reported on Schedule 1 is then reported on 1040 line 8.
When using an on-line/efile service the grandparent will need to scroll through to Misc Income (not 1099 misc) and then scroll down to Other Income-fill in the amount and the description box. The on-line service will generate a Schedule 1 to go along with the 1040.
