Is she caring for the daughter as part of a Medicaid waiver program? If so, then it may be done that way due to IRS Notice 2014-7 and those wages are excludable for federal purposes....in CA, the state does not tax them either, maybe your state does tax them which would explain the odd W2.
Just-Lisa-Now, yes, and you are a Champion!
I was actually thinking that, but I didn't think my state taxed that sort of income, either. There are withheld state taxes as well as state income, so I think I'm going to call the state and ask them. And if it is taxable for state purposes, I'll enter $1 for federal.