It's not a bug. You can file as Qualifying Surviving Spouse if you have a child (not a grandchild) whom you could claim as a dependent except for the fact that her income was $4,700 or more. Since your daughter's income is the only thing that prevents you from claiming her as a dependent, she does qualify you to file as Qualifying Surviving Spouse even though she is not your dependent.
On your Form 1040 your daughter's name will be entered on the line below your filing status where it says "enter the child's name if the qualifying person is a child but not your dependent."
