You can find IRS Pub 501 at this link:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p501.pdf">https://www.irs.gov/pub/irs-pdf/p501.pdf</a>
When you claim the credit for it, you must list her SSN and the IRS will check to see that she files and reports the income.
I suppose you could gift her the money, but then you cannot claim the Child Care Credit on your own return.
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-...
Your ("you" being the taxpayer) parent cares for your child who is either of the following:
1. Under the age of 18.
2.Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter services were performed.
Your marital status is one of the following.
1.You’re divorced and haven't remarried.
2.You’re a widow or widower.
3.You’re living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p926/ar02.html#en_US_2017_publink100086735">https://www.irs.gov/pub...>
However, if Grandpa has enough income that they need to file a tax return anyways, reporting it on Line 21 as "other income" will probably cost MORE in taxes. That is because a daycare provider who has a business can deduct A LOT of things, resulting in a low profit (or often a loss). The Income taxes on the FULL cost of "other income" would likely be more than the combined total of the Income taxes and SE taxes for the PROFIT of the "business".