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Excludes certain dependents’ wages and self-employment income when calculating eligibility and amount of the premium tax credit, so that earnings of qualifying minors and some young adults in school, training, or apprenticeships do not reduce a household’s health insurance tax credit. The change includes limits and special rules for taxpayers in States that have not expanded Medicaid and adds a new reporting requirement under the Affordable Care Act. It applies to tax years beginning after the law is enacted.
Adds a new subparagraph (C) to paragraph (2) of section 36B(d) of the Internal Revenue Code creating an exception that certain dependent income is not taken into account for purposes of computing the premium tax credit. The excluded income is wages (per section 3401(a)) or net earnings from self-employment (per section 1402(a)).
Specifies which dependents' earned income is excluded: (I) any dependent who has not attained age 18 as of the last day of the calendar year, or (II) any dependent who has not attained age 24 as of that day and who, during each of 5 calendar months of that year, is either (a) described in subparagraph (A) or (B) of section 152(f)(2) as applied by the bill, (b) participating in a qualified job-training program, or (c) participating in an apprenticeship program registered under the National Apprenticeship Act.
Defines 'qualified job-training program' to mean any program of training services described in section 134(c)(3) of the Workforce Innovation and Opportunity Act.
Limits the total amount of dependent income excluded: clause (i) does not apply to that portion of the aggregate income of all dependents which exceeds an amount equal to 15 percent of the taxpayer's modified adjusted gross income.
For taxpayers who live in a State that (as of the first day of the taxable year) does not provide certain Medicaid eligibility (specified clauses of 42 U.S.C. 1396a(a)(10)(A)) or an approved section 1115 waiver, the dependent-income exclusion applies only to the extent it would not reduce household income below 100 percent of the federal poverty line for the family size.
Families claiming dependents who earn wages or have self-employment income will be the primary beneficiaries: excluding qualifying dependents' earnings from household income can increase premium tax credits and lower net insurance premiums. Dependents themselves (minors and certain young adults in school, training, or apprenticeships) are directly affected because their earnings will not reduce household PTC eligibility or credit amounts. Taxpayers in States that did not expand Medicaid are subject to special rules and limits that may reduce or modify the benefit compared with residents of expansion States. The IRS and ACA Marketplace administrators will need to update tax forms, guidance, verification systems, and reporting processes to implement the exclusion and the new reporting requirement, producing administrative work and potential short-term implementation costs. Overall fiscal impact depends on how many households claim qualifying dependents with earnings and on the interaction with Medicaid-related rules; the change primarily affects benefits calculation rather than creating new recurring spending programs.
Last progress June 5, 2025 (8 months ago)
Introduced on June 5, 2025 by Steven Horsford
Referred to the House Committee on Ways and Means.