They are not subject to FICA tax, because the amount is less than $2200 (each). They most likely also qualify under the grandparent exception, but that depends on your marital status.
They should report it as household employee income, which makes it earned income.
In TurboTax, enter at:
Federal Taxes
Click on Wages and Income
Scroll down to Less Common Income
On Miscellaneous Income, 1099-A, 1099-C click the start button
On the next screen click the start button on Other Income not already reported on Form W-2 or Form 1099
Answer Yes on the next screen and enter the amount under Household Employee Wages.
TurboTax will put the income on line 1 of form 1040 with the notation "HSH". This income is earned income and would qualify for the Earned Income Credit (if they're under 65) and for making an IRA contribution.
