The consensus in this forum is that they need to report the income as self employment. In addition to food and utilities as expenses, they may deduct a portion of mortgage interest (or rent), real estate tax and maybe even depreciation on a part of the home. The taxable income (and amount subject to self employment tax) will be much lower than the $6500 they received.
But the opinion that it is self employment income is not unanimous. Some think that if the grandmother is watching the child in the grandmother's home, then the grandmother should report that income as "other income". Watching ONLY your grandchild is NOT a business to be reported on Schedule C. That keeps the income from being subject to self employment tax, but then they are not allowed to deduct any expenses. But, that's not a problem with their low income.
If you look at the hobby vs business rules, there is almost no way that a grandparent that only watches their grandchild is a business.
@AmeliesUncle FYI
