Do we as retired grandparents have to report all income paid to us by our daughter for watching her child.

[Phillip1 · Accepted solution]

Yes.

It is likely that your daughter will be claiming the child and dependent care credit. This credit requires that she report the amount she paid you, your name, and your social security number. The IRS uses this Form 2441 to match with babysitting income that is reported on your return. If there is a difference in the amounts, you may end up with a letter from the IRS for the additional assessment of additional taxes, interest, and penalties.