Legal Question in Tax Law in California

Re: showing income for child care services provided to family members

Your wife needs to report her income on these services, unless of course she falls below federal tax reporting exemptions (nothing to do with family employees or child care). I don't know who told you her income was exempt, but almost definitely they are incorrect. You need to speak with your CPA, but most likely your wife will be defined as an independent contractor and need to file quarterly reports with the IRS (depending on how much she is making).

There are family employee rules (unrelated to child care) but they most likely do not apply here. And even if they did... she would still need to report her income.