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>>I agree with walters, that sch c needs to be filed when the daughter claims child care credit<< I do not agree with this. The question is how to treat it on the payee's return. The payor can not determine that, and doesn't care. As long as she properly reports on her own return, she can claim the credit regardless of what the care provider does with it. In the same way, how the grandmother treats it does not depend on whether the payments qualify for a credit. The two returns are separate. In fact, if the daughter is also a client it would probably be an ethics violation to tell the grandmother she has to use Schedule C because of the credit.