Turbotax users on ACA with dependent income

[monte1022]

When I go to page 2 of 1095a entry I get the question about different situations. The second line says "I have at least one dependent on my taxes who's filing a separate return." Well, that is true. She earned $7252 for 2023. However, I noticed that my refund immediately goes from $15745 to $14935 or -$810. I assume this is because the ACA subsidy is reduced. But, according to my understanding, IF my dependent's income is below the single standard deduction, she is not even required to file and her MAGI DOES NOT count into total household income, therefore it SHOULD NOT impact the subsidy amount in any manner. Why does it reduce my refund? She is only getting $484 back so based on this situation, it makes more sense to avoid filing a separate return for her and simply paying her $484 of the extra $810 I'll get back by not filing a separate return for her.

PS. Our refund will be much lower once I download Fidelity interest/div amounts. However, the question still remains.

 

[Big Gun]

You’re understanding is accurate - if your dependent files a tax return (required or not), their income gets added to yours for the ACA subsidy calculation.

In your case, the best option is for your dependent not to file, since they don’t have to - they forego their refund obviously.

For 2024 if the same situation applies, the solution is to ensure that your dependent doesn’t have any taxes withheld from their income. And keep their income below the Standard Deduction.

 

[SecondCor521]

The previous answer is inaccurate.

If the dependent is not required to file a return (for example, she is only filing to get a refund of withholding), then you are not obligated to report their income on line 2b of Form 8962. See the IRS instructions for that line on that form:

"Line 2b
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. Use
Worksheet 1-2 to figure these dependents’ combined modified
AGI. Do not include the modified AGI of dependents who are
filing a tax return only to claim a refund of tax withheld or
estimated tax."

-- https://www.irs.gov/pub/irs-pdf/i8962.pdf

She should still file her separate return(s) and get the $484 in withholding back. Perhaps she had some state income tax withheld as well?

It sounds like the tax preparation program ignores this wrinkle in the rules, or isn't aware of it, or something. If it were my return, I would answer the question "No" in order to get it to do the right thing.(*) Or use a different tax prep software which asks the question precisely and correctly.

(*) This assumes that she had most of her income from earned income like a job, and didn't meet any of the other requirements to file in Charts B, C, or D of the Form 1040 instructions, and is only filing to get withholding back, which is the most common scenario.

 

[monte1022]

Per the information I've found, dependents income only gets added once it exceeds their standard deduction ie. once they are required to file. However, what you are saying fits the Turbotax output perfectly. I'll have to make certain DD makes W4 changes for this year.


https://www.healthreformbeyondtheba...itions-for-marketplace-and-medicaid-coverage/

"Whose income is included in household income?

Household income is the MAGI of the tax filer and spouse, plus the MAGI of any dependent who is required to file a tax return. A dependent’s income is only included if they are required to file taxes; if they file taxes for another reason but had no legal filing requirement, their income is not included."

 

[monte1022]

The following is from the help section in TT for the TT line in question:

"What if I have a dependent that's filing a separate tax return?

If you have a dependent that is required to file a tax return and is filing a separate tax return, you'll need to include their income in your modified adjusted gross income (MAGI). If you received a health insurance plan through the Marketplace, your household MAGI is used to calculate the premium tax credit you may qualify for."

I think I will just ignore this line since it clearly states "if you have a dependent that is required" to file." Since she is not required to file then I don't feel like I am making an error by ignoring the question.

 

[SecondCor521]

I think I will just ignore this line since it clearly states "if you have a dependent that is required" to file." Since she is not required to file then I don't feel like I am making an error by ignoring the question.

You're doing it correctly, as I explained in post #3 and cited the IRS reference.

 

[monte1022]

Thanks to everyone for taking the time to reply.

 

[Dtail]

You're doing it correctly, as I explained in post #3 and cited the IRS reference.

Yup. I claim my brother as a dependent and he has to file a return.
I have to include his income in the overall MAGI.