I hate to disagree with MacUser, but I agree with the OP; a grandparent watching only their grandchild is rarely a business. In most cases it should be reported as "other income".
The source of the payments do not matter.
However, properly reporting it as "other income" will likely result in MORE tax than if it was reported as a business.
If it was a business, all of the expenses would be a deduction. For a daycare business, that is A LOT of deductions. It would almost certainly result in a loss. Interestingly, if the grandparent were to continue to report losses year after year, the IRS could audit her, look at the situation, and reclassify it as a non-business ... which would be reported as "other income" with no deductions.
