Your understanding of how to treat Food Program reimbursements is correct.
Here's how you handle receiving a Form 1099. Put the entire amount from the Form 1099 on line 6 of Schedule C. Write "1099" to the left of this number so the IRS can see that your reported this (they are looking to match a number on your tax form with the 1099 number).
Next, include the meals and snacks served to your own children in your food expense. This will wipe out their income.
Join me on February 28th for my webinar "How to Reduce Your Taxes for 2010 and 2011. For more info:
https://www.daycare.com/news/taxes/t...d-webinar.html