A gift is not reported on anyone's tax return. You did not give her a 'gift' if you paid her with your FSA funds.
If you report her name and SSN as your child care provider, she should report the income on her tax return.
She can report it as 'Miscellaneous Income' (not her regular job, not to make a profit) and it won't be taxed as 'self employment income' but it will still be considered taxable income. If she reports it as 'hobby income' it's still taxable income also.
However, if her total income is below Filing Requirements, she is not required to file a return to report it.
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