@ss74
someone who is paid to perform a service in their own home would generally be considered self-employed. They would be required to file a schedule C to report their business income, deduct any business expenses, and pay income tax plus self-employment tax on the net profit.
If the DCFSA checks were made out to one grandparent, it would be simplest for that grandparent to have a schedule C and declare all the money as their business income. However, if both grandparents actually perform services, it would be legally acceptable for both grandparents to include a schedule C on their tax return each reporting their share of the income and expenses. (But more complicated.)
Expenses can include transportation (if they transported the child to activities out of the home and if they have records), can include meals, and potentially a deduction of part of their utilities and other household expenses for business use of their home.
Some IRS information is here.
https://www.irs.gov/pub/irs-pdf/p587.pdf
