Should I say my dependent's MAGI = $0 during the Affordable Care Act (Form 1095-A) interview question?

[newusernameagain]

My dependent college child made Less than $10K earned income and $2 Dividend Income  so I dont believe she is required to file Federal taxes except to claim a tax refund.

During the interview for the Affordable Care Act (Form 1095-A) Turbotax  asks "What's your child's modified adjusted gross income (MAGI)?" 

There is a big difference in the Premium Tax Credit depending how I answer this.

Since she is not required to file Federal taxes (Except fot the refund) Should I answer the question by saying MAGI = 0?

[rjs · Accepted solution]

That is correct. If your daughter is not required to file a tax return, or she files only to get a refund of all the tax that was withheld, you do not include her MAGI in the Affordable Care Act calculation. You can leave the amount blank, or don't check the box that says you have a dependent who is filing a separate tax return.

[newusernameagain]

Can you please clarify if I  have to report Dependent income on Parent's form 8962 Line 2B if the Dependent earns over  $400 in Self Employed Income but still does not meet the Federal Income (single) threshold of $12,550 ? If she earns more than $400 for dog or baby sitting, it's considered Self Employment income and my understanding is she is therefore REQUIRED to file a federal income tax return.

I believe the Turbotax 2021 Help prompt indicated I needed to report dependend income on 8962 Line 2b IF THE DEPENDENT IS REQUIRED TO FILE A FEDERAL INCOME TAX RETURN". In other words, any event that would "trigger" a requirement to file, even if the $12,550 income threshold was not met, would require reporting dependent income on Parents 8962.

Form 8962 Line 2B instructions state (partial quote): 

"Enter on line 2b the combined modified AGI for your dedpendents who are required to file an income tax return because their income meets the income tax return filing threshold. Do not include the modified AGI of dependents who are filing a tax return only to claim a refund of tax withheld or estimated taxes"

I cannot get access the  turbotax help question anymore to confirm the turbotax question was worded the way I stated since I already filed for 2021 but I am trying to  plan for 2022 taxes.

[NCperson]

yes, if your child received a 1099 and it exceeds $400 there is a filing requirement,

as the income is below $12,550 there is no INCOME tax.  But there is a "SELF EMPLOYMENT" tax, which represents the social secruity and medicare taxes that would have been withheld from the child's paycheck had they been a W-2 employee

[newusernameagain]

I understand there is a requirement to file if she makes >$400 Self Employment income but my question is: "does this trigger the need to report dependent income on Parent's form 8962 Line 2B"?

The IRS Pub which I referenced earlier indicates the trigger to report dependent income on Parent's 8962 is based on total income eaned by the dependent exceeding $12,550 but a Turbotax help menu seemed to indicate income needs to be reported on the 8962 IF THERE IS ANY FILING REQUIREMENT by the dependent.

[NCperson]

don't confuse INCOME tax with SELF-EMPLOYMENT tax..  They are separate and different.  Your child's INCOME is less than $12,550 so there is no INCOME tax, but there is a SELF-EMPLOYMENT tax.

I do not see where the IRS language states IF THERE IS ANY FILING REQUIREMENT - where is that reference?

from the IRS website: 

https://www.irs.gov/instructions/i8962

Household income.

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.

[newusernameagain]

I agree with your statement: " I do not see where the IRS language states IF THERE IS ANY FILING REQUIREMENT - where is that reference?"     ---- I don't see that reference either.

The reason I am asking this question  is when I was going thru the 2021 Turbotax Online interview a couple months ago, there was a "help" prompt in the PTC section  I remember reading that stated I had to report dependent income on the 8962 Line 2B if there was ANY filing requirement - but I can't get back to that screen to confirm it since I already filed. 

I am asking this question for 2022 tax planning since  my daughter wants to earn Self Employment income in 2022 which might exceed $400 and based on what I remember in that TT Help question that would force us to report ALL of her income which could be close to $10K and severely impact our  PTC credit all because of $401 of Self Employment income. Perhaps I am just remembering the TT prompt incorrectly but I could SWEAR that is what it said : "ANY" reason to file means she has to report ALL her dependent income. I wish I could get back into the program and find that help prompt. 

I just don't want to misunderstand the tax code and end up losing a huge Premium Tax Credit all because of a small amount of Self Employment income my daughter might make this year. There are stranger quirks in the tax code than this so I just want to be sure I'm not missing something and that TT Help prompt was simply misread by me or incorrect.

[NCperson]

all I can state is that you have the IRS reference; that is better than a Turbo Tax reference...

Here is what it states in the desktop version of TT: 

Line 2b You only need to add the Modified Adjusted Gross Income (MAGI) (see below for detail) for dependents listed on this return who are required to file a tax return (excluding if they filed a return to only claim a full refund of taxes withheld or estimated taxes paid).

[NCperson]

at the same IRS link I provided earlier, under the instructions for Line 2b it states: 

"Enter on line 2b the combined modified AGI for your dependents who are required to file an income tax return because their income meets the income tax return filing threshold"

your child is NOT filing because their income meets the income tax return filing threshhold; they are filing because they meet the SELF EMPLOYMENT tax filing thresshold. 

[newusernameagain]

YES! What you quoted DOES look like the help prompt I remember! The way I read what you quoted, if she is REQUIRED to file a return (except just to get a refund) then she HAS to report income on line 2b. This would mean if she HAD to file due to Self Employment income of $401 she would end up reporting ALL of her income on our PTC form, even if it was below the reporting requirment. I think the TT prompt is confusing or wrong based on what I read in the IRS pub.

Line 2b You only need to add the Modified Adjusted Gross Income (MAGI) (see below for detail) for dependents listed on this return who are required to file a tax return (excluding if they filed a return to only claim a full refund of taxes withheld or estimated taxes paid).

[newusernameagain]

Yes so do you see why the TT prompt which you quoted is confusing?

She should NOT have to report her income on line 2B simply because she made  $401 of self employment income.

[NCperson]

lesson learned: when in doubt, go with the IRS explanation; they are the rule makers

[newusernameagain]

I agree, but when a non-tax smart person like me goes thru the TT  interview  and help prompts, we rely on those to fill out the TT questions. If I took the TT Prompt you quoted literally, I would have reported all of her income unecessarily.

I just happen to dig a little further into the IRS Pubs but most people just rely on the interview screens, which in this case would  lead to receiving a much lower Premium Tax Credit.

I will go under the assumption "She should NOT have to report her income on line 2B simply because she made  $401 of self employment income."

[newusernameagain]

OK this statement you made helps clear up my confusion and this is an important distiction I was struggling with:

your child is NOT filing because their income meets the income tax return filing threshhold; they are filing because they meet the SELF EMPLOYMENT tax filing thresshold. 

[SweetieJean]

State filing requirements may be different.