Did 2018 tax reform change APTC household income inclusion of dependent income if required to file, and dependent filing rqmt now increased to $12,000?

[rahosmer]

In previous years, the APTC HOUSEHOLD INCOME had to include dependent income if the dependent was required to file, which was based on their standard deduction of $6350.  The tax law change this year increased the standard deduction for dependents to $12000 which should increase the filing requirement for dependents to $12000.  Does this mean that for tax year 2018, APTC household income will NOT have to include dependent income until such income is more than $12,000? 

[TaxGuyBill · Accepted solution]

The rule is still the same for the Premium Tax Credit:  Household Income includes the dependent's income *IF* the dependent has "taxable income" on their tax return (income after the Standard Deduction or Itemized deductions).

If the dependent only has earned income (such as from a job or self employment), then yes, the dependent can earn up to $12,000 of income in 2018 before it would be included.  However, if the dependent has more than $350 of "unearned" income (interest, dividends, capital gains, taxable scholarships, unemployment, etc.), then that could trigger the requirement to include the dependent's income (because the Standard Deduction for a dependent with unearned income is lower).

[jprg0791]

TaxGuyBill- if the dependent's income is only around $3000 for 2018, but $750 of this is self-employment (tutoring) income, does the entire $3000 count towards MAGI for the parents who are getting the Premium Tax Credit?  The IRS rules appear to require the dependent to file a return due to the $750 of self-employment income, but the standard deduction would reduce the dependent's taxable income to zero.

[TaxGuyBill]

No.  As I said above, it is only added if the dependent has "taxable income" on their tax return.

[jprg0791]

TaxGuyBill- thanks.  Yet, a potentially confusing issue because TuroboTax instructions simply say you must include dependent's income in MAGI if "required to file a tax return and is filing a separate tax return. [presumably, for any reason]"   Healthcare.gov website says something similar.   However,  I see that IRS instructions for form 8962 (Premium Tax Credit) say you only count income of dependents who are required to file an income tax return "because their income meets the income tax return filing threshold."   I assume this is the basis for your view?  And in above example, although $750 of self-employment income would require filing a return per IRS rules ($400 threshold for self-employment income), I assume your view is that the form 8962 IRS language also suggests no need to include the dependent's income here (because IRS language refers to $12,000 overall income threshold not self-employment income threshold)?

[TaxGuyBill]

I based it on the actual law itself.  The law says "were required to file a return of tax imposed by section 1 for the taxable year".  Section 1 is the tax based on "taxable income".  So if you don't have taxable income, you are not required "file a return of tax imposed by section 1".

[rahosmer]

Wow, guess I hit a nerve with my question.  I did not think about the self-employment income requiring a dependent to file a return, but that is a good point and thanks to TaxGuyBill for addressing that.   In going through 2018 Turbo Tax Deluxe step by step this year, when you come to this question the wording needs to be improved because it just says "required to file a tax return and is filing a separate tax return".  This wording could cause someone to make a huge mistake and include a dependents income in the MAGI for PTC purposes, potentially causing a significantly lower PTC or no PTC, could cause tax due when actually no tax should be due.  I actually had to catch myself and read that statement about 4 times, the key word is the "AND" because if the dependent is NOT required to file a return then the whole statement becomes FALSE and the check box should NOT be checked.  But if the actual law says the dependent must have taxable income, then the Turbo Tax question does not even say that at all, so should be changed to what the law says.  

[TaxGuyBill]

I'm sorry if my response made you think you "hit a nerve", as you certainly did not do that.

What does "hit a nerve" for me is this:  Unfortunately, there are A LOT of misleading or outright incorrect things in TurboTax, and I've given up on pointing them out to the Developers because they usually don't fix things anyways.