You are correct in that if you claim her as a dependent, her income will be included in household income for you. She is your qualifying child for EIC if she meets the qualifications below. However, you stated that she lives away year round. She is your qualifying child for dependency if she lives with you, except for temporary absences. She would have had to live with you more than 6 months for EIC.

What is a qualifying child for the Earned Income Credit (EIC) in 2019?

• Be your child (including legally adopted), stepchild, eligible foster child, sibling, half-sibling, step-sibling, or a descendant of any of them (for example, your grandchild or niece); and
• Be permanently and totally disabled or under the age of 19 as of December 31, 2019 (under 24 if a full-time student) and younger than you (or your spouse, if filing jointly); and
• Have lived with you (or your spouse, if filing jointly) for more than half the year in the United States (unless you were in the military); and
• Not file jointly with their spouse unless they weren't required to file but did so anyway to claim a tax refund.

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@99questions wrote:

Daughter is 22 and lives away at school year round, and I do not financially support her in anyway.  My ex husband (not her real or adoptive father, so no relation at all) pays for college, rent, car, phone, etc.  According to the “four tests” for a dependent, I can still claim her as a dependent.  Am I correct in thinking that if I claim her as a dependent, then I have to include her income in the household income calculation?  She more than doubled her previous income last year and made $16,600.  If I include that then I am basically disqualified for any Premium Tax Credit and will have to repay the $2600 I used in 2019.  I earned $34,000 I have one other child I can claim as dependent and another who is claimed by his father, but he is a qualifying child for me in regards to the Earned Income Credit. 

The problem is occurring this year because of her increase in income.  The premium tax credit was based off a household of three, so if I don’t claim her as a dependent won’t the amount I qualified for drop?  And I will then owe the difference.

Do I have to claim her as a dependent?  I would be better off not receiving any credit for her then if I do claim her and have to report her income. 

If I don’t claim her as a dependent, does she still count as a qualifying child?

I’m not sure what to do, as the amount of money available in my household didn’t change, but her income did.  I simply followed the instructions regarding how many people to include in my household, but only now am I seeing that her income is actually hurting me.

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Correct, if you claim her as a dependent, her income of $16,600 will be factored in for the Premium Tax Credit.  You are also correct that if you don't claim her, you now have a Household Size of 2, which will reduce your Premium Tax Credit.

One potential problem of not claiming her as a dependent is the college educational credit.  If you don't claim her, you don't get to claim that credit on your tax return.  Although she could potentially claim the educational credit on her tax return, in most cases the results are better if it were to be on your tax return.

So you are right, you don't have a good situation.  However, a couple of possible options to consider:

(1) Have her contribute $4400-ish to a Traditional IRA for 2019 (it needs to be done by April 15th).  If you get get her "taxable income" down to $0 (after the Standard Deduction), then you won't need to add her income at all for the Premium Tax Credit even if you claim her as a dependent.  Of course, that means trying to come up with $4400-ish to contribute.  Then you can claim her as a dependent AND the college credit on your tax return.

(2)  You mentioned your son, who is claimed by his father.  Does your son live with you, and you let the father claim the son by giving Form 8332)?  If so, are you on decent terms with the father, and would it be legally allowable for you to claim your son?

I suspect the father would get $2000 on the Federal tax return by claiming your son as a dependent (but there could be other factors involved, so that will vary).  If he was agreeable to letting you claim your son (and if it is allowable), then you would get the Child Tax Credit for him (up to $2000) AND increase your Household Size for the Premium Tax Credit.  So you could give that $2000 to the father (or whatever the amount the father would receive if he had claimed him), and it would benefit you by increasing your Household Size (and therefore increase your Premium Tax Credit).