Ok ... since you want to use either the day care credit form 2441 OR use up the FSA funds then the person you pay MUST declare the income on their return so they MUST complete a Sch C. The IRS allows you to take the tax deduction ONLY IF someone else is reporting it on your tax return. That is the only reason these tax deductions were allowed.
Now ... if you were not claiming one of those deductions then giving mom a few dollars to watch the kid(s) is usually considered a non taxable gift and not reported on anyone's income tax return.
So you see the reason behind the action is the key.
