Grandma must report the income, but in my opinion she is not required to pay SE tax, assuming she takes care only of her own grandkids, in her own home. That's because she's not in the trade or business of providing day care in her home. Grandma should report the income on line 21 of her Form 1040. She does not need to do a Schedule C or SE. My opinion is based on the examples in this IRS reference: https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-...
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
