If I claim the Child and Dependent Care Credit, does grandma have to pay taxes on that amount of money we gave her?

[jerry2000 · Accepted solution]

Absolutely, yes she does. To claim the expense you have to give her SSN or tax ID number and then she has to claim the income as self-employment income and pay self-employment tax on it even if she doesn't owe ordinary income tax on it. And she must report it because the IRS will check to see that she does and if she doesn't, it will not be pretty.

[jykima]

Even if it's under $2000?

[jerry2000]

Absolutely yes. Anything over $400. See 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>