Yes, grandparents can get paid for childcare. Families handle it two ways: parents pay the grandparent directly, or a state childcare subsidy program pays the grandparent as an approved relative provider. Either path is legitimate, and the tax rules are more favorable for grandparent caregivers than for hired nannies, but only if you set the arrangement up correctly from the start.
Setting Up a Private Pay Arrangement
The simplest option is for parents to pay the grandparent directly. No agency, no application, no waiting list. The arrangement can be as flexible as both sides want.
Put it in writing anyway. A short document covering the weekly schedule, the pay rate, how meals and transportation are handled, and how either side can change the terms prevents the kind of misunderstandings that damage family relationships. It also creates the paper trail parents need to claim the Child and Dependent Care Tax Credit, which requires the grandparent’s name, address, and Social Security number on the return.
Wage floors still apply. The federal minimum wage is $7.25 per hour, and many states set their own rate higher. If the grandparent qualifies as a household employee, the applicable state rate governs.
Is the Grandparent an Employee or Self-Employed?
The IRS looks at where care happens and who controls how it’s done. A grandparent who watches the children in the parents’ home, on the parents’ schedule and routine, is almost always a household employee. A grandparent who provides care in their own home, using their own supplies and setting their own routine, generally is not.
The IRS test: if you can control not only what work is done but how it’s done, the worker is your employee, whether the work is full-time or part-time.1Internal Revenue Service. Hiring Household Employees
This distinction drives which tax forms get filed and whether Social Security and Medicare taxes come into play.
The FICA Exemption Most Families Miss
Here is where hiring a grandparent beats hiring a stranger. When a parent employs their own parent as a household worker, the wages are generally exempt from Social Security and Medicare taxes, no matter how much is paid. The 15.3% FICA cost that normally applies to household employment simply doesn’t apply. The wages are also exempt from federal unemployment tax in the typical case.2Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
The exemption only disappears when all of the following are true at the same time:
- The grandparent is caring for a child under 18, or a child with a physical or mental condition requiring adult care for at least four continuous weeks in the quarter.
- The parent is divorced and not remarried, is widowed, or is living with a spouse who has a physical or mental condition that prevents them from caring for the child for at least four continuous weeks in the quarter.
In a household with two able-bodied parents, this exception almost never applies, and the wages stay exempt from FICA.3Internal Revenue Service. Family Employees
For reference, without the family exemption, a household employer owes FICA once cash wages hit $3,000 in the year, at a combined 15.3% rate split between employer and employee.2Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide4Social Security Administration. Employment Coverage Thresholds
How the Grandparent Reports the Income
Childcare pay is taxable income whether it comes from family or a subsidy program. How the grandparent reports it depends on whether they’re running a childcare business.
A grandparent who watches only their own grandchildren and doesn’t operate a daycare is not in the “trade or business” of providing childcare. The income goes on Schedule 1 (Form 1040), line 8j, as other income. No self-employment tax is owed.5Internal Revenue Service. Family Caregivers and Self-Employment Tax
A grandparent who runs an actual daycare, taking in other children in addition to grandchildren, is in a trade or business. That income goes on Schedule C, and self-employment tax applies to the net profit.5Internal Revenue Service. Family Caregivers and Self-Employment Tax A grandparent in this category can deduct ordinary business expenses like food, supplies, mileage, and a portion of home costs.
This is where a lot of families slip up. A grandparent who only watches their own grandkids often gets pushed onto Schedule C, which triggers self-employment tax they don’t actually owe. Getting the classification right can save hundreds or thousands of dollars a year.
What Parents Can Claim
Parents paying a grandparent for childcare may be able to claim the Child and Dependent Care Tax Credit. Starting in 2026, the credit runs up to 50% of qualifying expenses for lower-income households and 35% for moderate-income households, with qualifying expenses capped at $3,000 for one child and $6,000 for two or more.
To claim it, parents need the grandparent’s name, address, and Social Security number or taxpayer identification number on the return. Cash-only, no-paperwork arrangements make the credit impossible to claim, which is another reason the written agreement matters.
A dependent care flexible spending account through an employer is a second option, with pre-tax contributions of up to $7,500 in 2026. FSA dollars reduce the expenses eligible for the tax credit dollar-for-dollar, so families should compare both before choosing.
Government Subsidies That Pay Grandparents
The federal Child Care and Development Fund (CCDF) sends block grants to states, which use the money to help lower-income families pay for childcare. Grandparents are explicitly eligible providers under the rules: the CCDF regulations recognize a caregiver who is at least 18 and provides care only to related children, including grandchildren and great-grandchildren.6eCFR. 45 CFR Part 98 – Child Care and Development Fund
States run these programs their own way, so registration, payment rates, and requirements vary. The parent applies for the subsidy, not the grandparent. The state then pays the grandparent-provider directly or reimburses the family. Rates for relative providers are often lower than rates for licensed centers, though some states pay the same either way.
The CCDF income ceiling is 85% of state median income for a family of the same size; states can set their initial cutoff lower than that but not higher.6eCFR. 45 CFR Part 98 – Child Care and Development Fund The parent typically must be working, in school, or in job training, and the child generally must be under 13. Applications go through the state childcare assistance agency.
Federal health and safety rules apply to CCDF providers, but states have the option to exempt relative providers from some or all of them. Whether your state requires a background check, training, or a home inspection depends on where you live, so ask your state’s childcare assistance office before assuming you’re exempt.
Two other federal programs pay grandparents in a different situation. Temporary Assistance for Needy Families (TANF) child-only grants are available to grandparents raising grandchildren without the parents present, and the grandparent’s own income isn’t always counted the same way.7U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE). Children in Temporary Assistance for Needy Families (TANF) Child-Only Cases with Relative Caregivers The federal Guardianship Assistance Program helps states pay grandparents who previously fostered a grandchild and then took legal guardianship.8The Administration for Children and Families. Kinship Care Both are aimed at custodial situations, not routine daytime childcare.
How Childcare Pay Can Affect a Grandparent’s Benefits
This is the part grandparents often don’t think about until the reduced check arrives.
Social Security Retirement
If you collect Social Security before full retirement age and earn more than $24,480 in 2026, Social Security withholds $1 in benefits for every $2 you earn above that limit. In the year you reach full retirement age, the threshold rises to $65,160 and the reduction drops to $1 for every $3 over.9Social Security Administration. Exempt Amounts Under the Earnings Test Once you’re past full retirement age, the earnings test goes away.
Withheld benefits aren’t gone forever. Social Security recalculates your monthly benefit at full retirement age to credit you for the months benefits were reduced.10Social Security Administration. Program Explainer: Retirement Earnings Test But the short-term hit is real.
Supplemental Security Income
SSI is tighter. The 2026 federal benefit rate is $994 per month for an individual, and earned income above a small exclusion reduces your benefit dollar-for-dollar after applicable disregards.11Social Security Administration. What’s New in 2026 Enough childcare income can reduce or eliminate your SSI payment, and in states that link Medicaid to SSI, that can affect your health coverage too.
Medicaid
Medicaid income limits vary by state, but many set the adult threshold at 138% of the federal poverty level, which works out to roughly $22,000 for an individual in 2026. Childcare income counts. If your earnings cross the line, you could lose coverage, though many states offer a transition period. Check with your state Medicaid office before agreeing to a paid arrangement so you know exactly where the line falls for your household size.