@Hal_Al wrote:
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
I think that's a reasonable argument on its face, although I would like to see an audit result or tax court case. The biggest problem I see if that argument is applied to this case, is that the grandparents most likely would not file any tax return (since SS plus $6500 of hobby income is below the filing threshold). That would raise a red flag at the IRS because there would be a caregiver claimed by the parent but no corresponding income reported by the caregiver, and the caregiver would get an IRS letter. They can reply by making the above argument and see what happens.
