My wife earned $4800 babysitting our 1 year old grandchild. The baby's parents do not deduct for this on their taxes. Do we need to pay income taxes and ss taxes on this?

[Critter-3]

Personally ... if you do no watch any other kids and they will not apply for the day care credit then I would consider this a gift and not report it on any tax return. 

[Mike9241]

@Critter-3  the wife did perform services. therefore, it's hard to justify calling it a gift.  should the parents later decide to claim the expense, this will cause tax problems for the grandparents.  but it's really up to them to decide. 

[Critter-3]

This is a discussion you need to have with the parents of the child ... but if they don't "turn you in" by using the form 2441 day care credit how is the IRS ever going to know ???   Anyone can give anyone up to $16K per year as a non reportable gift.   

[NCperson]

@larry810 - so from the above...... technically, by the letter of the law, it is taxable income to you and the parents can claim a tax credit if they are eligible to do so.  

But as @Critter-3 points out, why go through all that.  this is family.