You can claim dependent care credit for the money paid. The best way to report your parents income will be up to you. If they are not already household employees, you are rather stuck with claiming them as contractors and that could be disallowed later. You are in a danger zone since they live with you and the IRS does not require Medicare and Social Security be withheld when the parents live with you.
They are acting as household employees rather than contractors. As contractors, they would have more children they care for.
FUTA - unemployment tax must be paid on employees. For Social Security , see Household Workers - Social Security
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