Unemployment Income is included in AGI when used to calculate Earned Income Credit (EIC)
In this situation, TurboTax is handling the inclusion of unemployment compensation, reported from 1099-G, correctly when figuring the earned income credit (EIC). The confusion may come from the instructions for EIC and what income factors into determining how much of the credit you're entitled to or if you qualify for the credit.
EIC takes into account both earned income and adjusted gross income (AGI) in determining how much credit you may be eligible for. For earned income, unemployment compensation is not included. However, unemployment compensation is included into the AGI amount.
This can be seen by looking at the Earned Income Credit Worksheet in TurboTax. Lines 1-6 of this worksheet are for figuring the earned income used to determine the eligible credit, which will appear on line 7. Line 8 is where AGI is factored in and is what will determine whether you exceed the AGI limits for receiving EIC. Page 2 of the Earned Income Credit Worksheet will provide more information as to why you are not receiving this credit.
For more information regarding Earned Income Credit and how it is calculated, please refer to the following IRS documents:
Instructions Form 1040 in PDF format.