Premium tax credit for 2021 year, and unemployment received by a dependent

[danjoesam]

My daughter received unemployment compensation (UC) in 2021 and we are all under ACA plans as a family.

I understand that the ARPA in March 2021 removed the cliff on the premium tax credit (PTC), and also sets max premiums at 133% poverty level if household received UC. 

My Question:  Does my daughters UC count in the household income and UC credit for the PTC?  The question TurboTax asks is not clear about if it's just the husband and wife who can claim this UC credit or do dependents also count.  I do know the PTC is based on household Income MAGI.

[KrisD15]

Yes, your daughter's unemployment compensation might be included in household income.

It depends on how it affects her Adjusted Modified Gross Income. 

If your daughters income with the unemployment is less than the filing threshold, (meaning she does not need to fie a return) it would not affect (not included in) household income. 

No, your daughter's unemployment does not count as you or your spouse receiving unemployment. 

The TurboTax program asks if you, or your spouse, received, or were approved to receive, unemployment since that would make your household income considered as no greater than 133% of the poverty level. This would not include the fact that your dependent received unemployment, however that unemployment (received by dependent) may be included in Household Income.

According to the IRS: 

"If a taxpayer, or the spouse of the taxpayer (if filing a joint return), received, or is approved to receive, unemployment compensation for any week beginning during 2021, the amount of the taxpayer's household income is considered to be no greater than 133% of the federal poverty line for the taxpayer's family size."

"For purposes of the PTC, household income is the modified adjusted gross income (modified AGI) of you and your spouse (if filing a joint return) (see Line 2a, later) plus the modified AGI of each individual whom you claim as a dependent and who is required to file an income tax return because his or her income meets the income tax return filing threshold (see Line 2b, later). Household income does not include the modified AGI of those individuals whom you claim as dependents and who are filing a 2021 return only to claim a refund of withheld income tax or estimated tax."

For purposes of the PTC, modified AGI is the AGI on your tax return plus certain income that is not subject to tax (foreign earned income, tax-exempt interest, and the portion of social security benefits that is not taxable). Use Worksheet 1-1 and Worksheet 1-2 to determine your modified AGI."

IRS LINK

@danjoesam

[Edited 02/18/22 I 12:05pm PST]

[danjoesam]

on the response "No, your daughter's unemployment does count as you or your spouse receiving unemployment" did you mean "Does not" for the red "does".

Her UC plus earned income does exceeds the filing limit so she will need to file.  However, it appears since UC is not earned income, the standard deduction is reduced to only her earned income since that is less than the max standard deduction value of $12550. Does this sound right?

[DianeW777]

Yes, you are correct. The standard deduction for dependents is a different amount than for an independent person for tax purposes. And yes, the intent of our awesome Tax Expert @KrisD15 was that your daughter's unemployment does NOT count as the income of the parents. 

• Dependents – If you can be claimed as a dependent by another taxpayer, your standard deduction for 2021 is limited to the greater of:
  • (1) $1,100, or
  • (2) your earned income plus $350 (but the total can't be more than the basic standard deduction for your filing status).