HOH Mom of 2 gets less credit than Single person with no kids?!?!?!?

[ShoeBox Taxes]

Client is divorced with 2 kids. She's not sure whether she can claim them or not, and whether her husband will be claiming them. I figured the tax both ways -- with the kids and without them. The refund is SMALLER if she claims the kids.

I thought, "That doesn't make sense." So I started to look at it.

Customer has marketplace insurance, and she didn't take any of the premium tax credit during the year. 

When I entered the information including the kids, it gives her $0 as a premium tax credit on her return. 

When I take out the kids, it gives her $5,784 as a premium tax credit.

In other words, a single woman with no kids gets a SIGNIFICANTLY larger credit than a head-of-household woman with two kids (who also qualified for EIC, CTC, etc.)?!?!?!?!?

I even right-clicked to see where it was pulling the information from. The pull says it should put $5,784 in that cell, but when I add the kids, it decides not to do that. When I take out the kids, it adds it back in.

Please tell me this is a software error, and not something actually written into our tax code? I mean, I know a lot of it is designed to screw poor people, but this would be beyond obnoxious.

[Just-Lisa-Now-]

Changing the household size must be  manipulating the PTC?   @TaxGuyBill  is that how it works?

[TaxGuyBill]

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@ShoeBox Taxes wrote:

she didn't take any of the premium tax credit during the year. 

When I entered the information including the kids, it gives her $0 as a premium tax credit on her return. 

When I take out the kids, it gives her $5,784 as a premium tax credit.

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Her income is too low.

With the kids, her Federal Poverty Level is less than 100%.  Because she did not receive Advance credit (column C of the 1095-A), she does not qualify for the credit.

Without the kids, her Federal Poverty Level is over 100%, so she qualifies for the credit.

Just so you can see how it works, test it out with both kids and enter $1 of Advance credit for one month.  But unfortunately, that is a flaw in the law and she doesn't qualify because her income is too LOW.

[ShoeBox Taxes]

Please tell me you're kidding. She doesn't qualify for the credit because she didn't claim it during the year?!?!?!?

My understanding was that one qualifies for the credit based on their income, regardless of when they take it, and they can choose to take it during the year, as a discount on the premium, or at the end of the year.

If you're right, I'm surprised no one has challenged that point. Telling someone they don't qualify for a credit just because they opt to take it at the end of the year instead of each month as a discount on their premium?!?!?!? That is a SERIOUS flaw in the law, because too often, people don't know what their income is going to be, and when they request to take it throughout the year, they end up owing at the end of the year. Good grief!!!!

[TaxGuyBill]

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@ShoeBox Taxes wrote:

My understanding was that one qualifies for the credit based on their income, regardless of when they take it, and they can choose to take it during the year, as a discount on the premium, or at the end of the year.

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Unfortunately, that is only partly correct.  The taxpayer's income needs to be between 100% and 400% of the Federal Poverty level to qualify for the credit (with a few exceptions and some temporary provisions to allow over 400%).  See the 8962 Instructions and IRC §36B(c)(1).

https://www.irs.gov/instructions/i8962#en_US_2023_publink100077021

https://www.law.cornell.edu/uscode/text/26/36B#c