Count the pre-2018 miscellaneous deduction once in Mississippi and Missouri itemized deductions

changelog.d/ms-mo-misc-deduction-double-count.fixed.md

@@ -0,0 +1 @@
+Count the pre-2018 federal miscellaneous deduction once in Mississippi and Missouri itemized deductions.

policyengine_us/parameters/gov/states/mo/tax/income/deductions/itemized.yaml

@@ -1,8 +1,9 @@
 description: Missouri lets filers itemize the following deductions.
 values:
   1993-01-01:
-    - itemized_taxable_income_deductions # includes casualty_loss_deduction, charitable_deduction, interest_deduction, salt_deduction ,and medical_expense_deduction
-    - misc_deduction
+    # Form MO-A Part 2 line 1: total federal itemized deductions, which include
+    # the miscellaneous deduction above the 2% floor before 2018.
+    - itemized_taxable_income_deductions
     - employee_social_security_tax
     - employee_medicare_tax
     - additional_medicare_tax
@@ -22,3 +23,5 @@ metadata:
       href: https://dor.mo.gov/forms/MO-1040%20Instructions_2021.pdf#page=16
     - title: 2024 Form MO-A - Individual Income Tax Adjustments, Part 2 - Missouri Itemized Deductions
       href: https://dor.mo.gov/forms/MO-A_2024.pdf#page=2
+    - title: "2017 Form MO-1040 instructions, Form MO-A Part 2 line 1 #page 22,42"
+      href: https://dor.mo.gov/forms/MO-1040%20Instructions_2017.pdf#page=22

policyengine_us/tests/policy/baseline/gov/states/mo/tax/income/deductions/mo_itemized_deductions.yaml

@@ -5,33 +5,32 @@
     itemized_taxable_income_deductions: 0
     employee_social_security_tax: 0
     employee_medicare_tax: 0
-    misc_deduction: 0
     mo_net_state_income_taxes: 0
     state_code: MO
   output:
     mo_itemized_deductions: 0.0
 
-- name: 60 in Federal itemizations, 10 in net_state_income_taxes
+- name: 20 in Federal itemizations, 10 in net_state_income_taxes
   period: 2021
   absolute_error_margin: 0.01
   input:
-    itemized_taxable_income_deductions: 10
+    # Form MO-A Part 2 line 1 is the federal total, which already includes
+    # any miscellaneous deduction.
+    itemized_taxable_income_deductions: 20
     employee_social_security_tax: 0
     employee_medicare_tax: 0
-    misc_deduction: 10
     mo_net_state_income_taxes: 10
     state_code: MO
   output:
     mo_itemized_deductions: 10.00
 
-- name:  6000 in Federal itemizations, 1000 in net_state_income_taxes
+- name: 2000 in Federal itemizations, 1000 in net_state_income_taxes
   period: 2021
   absolute_error_margin: 0.01
   input:
-    itemized_taxable_income_deductions: 1000
+    itemized_taxable_income_deductions: 2000
     employee_social_security_tax: 0
     employee_medicare_tax: 0
-    misc_deduction: 1000
     mo_net_state_income_taxes: 1000
     state_code: MO
   output:
@@ -51,3 +50,66 @@
     households: {household: {members: [head, spouse], state_code: MO}}
   output:
     mo_itemized_deductions: 50_000
+
+# 2017 Form MO-A Part 2 line 1 is total federal itemized deductions from Form
+# 1040 line 40, which already includes the miscellaneous deduction above the
+# 2% floor; Part 2 has no separate line for it.
+- name: 2017 miscellaneous deduction counted once
+  period: 2017
+  absolute_error_margin: 0.01
+  input:
+    charitable_deduction: 9_000
+    misc_deduction: 1_000
+    employee_social_security_tax: 0
+    employee_medicare_tax: 0
+    mo_net_state_income_taxes: 0
+    state_code: MO
+  output:
+    itemized_taxable_income_deductions: 10_000
+    mo_itemized_deductions: 10_000
+
+# RSMo 143.141 starts from the allowable federal itemized deductions, and the
+# 2017 instructions (MO-A Part 2 line 1) take the federal total once.
+- name: 2017 federal total that includes miscellaneous deductions counted once
+  period: 2017
+  input:
+    itemized_taxable_income_deductions: 10_000
+    misc_deduction: 1_000
+    employee_social_security_tax: 0
+    employee_medicare_tax: 0
+    additional_medicare_tax: 0
+    self_employment_tax: 0
+    mo_net_state_income_taxes: 0
+    state_code: MO
+  output:
+    # The 10,000 already includes the 1,000; before the fix 11,000.
+    mo_itemized_deductions: 10_000
+
+- name: 2017 state income tax adjustment without duplicating miscellaneous deductions
+  period: 2017
+  input:
+    itemized_taxable_income_deductions: 10_000
+    misc_deduction: 1_000
+    employee_social_security_tax: 0
+    employee_medicare_tax: 0
+    additional_medicare_tax: 0
+    self_employment_tax: 0
+    mo_net_state_income_taxes: 2_000
+    state_code: MO
+  output:
+    # 10,000 - 2,000; before the fix 9,000.
+    mo_itemized_deductions: 8_000
+
+- name: 2016 miscellaneous deduction counted once
+  period: 2016
+  input:
+    charitable_deduction: 9_000
+    misc_deduction: 1_000
+    employee_social_security_tax: 0
+    employee_medicare_tax: 0
+    additional_medicare_tax: 0
+    self_employment_tax: 0
+    mo_net_state_income_taxes: 0
+    state_code: MO
+  output:
+    mo_itemized_deductions: 10_000

policyengine_us/tests/policy/baseline/gov/states/ms/tax/income/deductions/itemized/ms_itemized_deductions_unit.yaml

@@ -0,0 +1,43 @@
+# 2017 Form 80-108 lines 7a to 7d take miscellaneous expenses above 2% of
+# federal AGI once; itemized_deductions_less_salt already includes them.
+- name: 2017 miscellaneous deduction counted once
+  absolute_error_margin: 0.01
+  period: 2017
+  input:
+    charitable_deduction: 2_000
+    misc_deduction: 1_000
+    state_code: MS
+  output:
+    ms_itemized_deductions_unit: 3_000
+
+- name: 2025 no miscellaneous deduction subject to the 2% floor
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    charitable_deduction: 2_000
+    state_code: MS
+  output:
+    ms_itemized_deductions_unit: 2_000
+
+# Miss. Code Ann. 27-7-17(4) bars deducting the same item more than once.
+- name: 2017 non-SALT total that includes miscellaneous deductions counted once
+  period: 2017
+  input:
+    itemized_deductions_less_salt: 10_000
+    misc_deduction: 1_000
+    ms_real_estate_tax_deduction: 0
+    state_code: MS
+  output:
+    # The 10,000 already includes the 1,000; before the fix 11,000.
+    ms_itemized_deductions_unit: 10_000
+
+- name: 2017 real estate taxes added without duplicating miscellaneous deductions
+  period: 2017
+  input:
+    itemized_deductions_less_salt: 10_000
+    misc_deduction: 1_000
+    ms_real_estate_tax_deduction: 2_000
+    state_code: MS
+  output:
+    # 10,000 + 2,000; before the fix 13,000.
+    ms_itemized_deductions_unit: 12_000

policyengine_us/tests/unit/test_ms_mo_misc_deduction_once_properties.py

@@ -0,0 +1,151 @@
+"""Mississippi and Missouri count the federal miscellaneous deduction once.
+
+Before 2018 the federal miscellaneous deduction above the 2% floor is part of
+itemized_taxable_income_deductions and of itemized_deductions_less_salt.
+RSMo 143.141 starts Missouri's itemized deduction from the allowable federal
+itemized deductions, and Miss. Code Ann. 27-7-17(4) bars deducting the same
+item more than once. So for every generated tax unit and year:
+
+1. Holding the federal totals fixed, the miscellaneous deduction does not
+   change mo_itemized_deductions or ms_itemized_deductions_unit.
+2. Mississippi's total is its non-SALT federal total plus its real estate
+   tax deduction.
+3. Missouri's total is never negative and never exceeds the federal total
+   plus payroll taxes. The worked cases also show it falls with the state
+   income tax adjustment.
+
+Property 1 fails whenever the miscellaneous deduction is positive if either
+state adds misc_deduction on top of the federal total; the strategy draws it
+from $1 to $20,000, never zero, and the years include 2016 and 2017, when
+the federal deduction applies.
+"""
+
+import hypothesis
+import hypothesis.strategies as st
+import numpy as np
+import pytest
+
+from policyengine_us import Simulation
+
+YEARS = (2016, 2017, 2025)
+TOLERANCE = 0.01
+
+
+def build_situation(cases, state):
+    people, tax_units, households = {}, {}, {}
+    for i, case in enumerate(cases):
+        for with_misc in (True, False):
+            key = f"{i}_{int(with_misc)}"
+            person = f"person_{key}"
+            people[person] = {
+                "age": {year: 40 for year in YEARS},
+                "employee_social_security_tax": {
+                    year: case["payroll_tax"] for year in YEARS
+                },
+                "employee_medicare_tax": {year: 0 for year in YEARS},
+                "self_employment_tax": {year: 0 for year in YEARS},
+            }
+            misc = case["misc"] if with_misc else 0
+            tax_unit = {
+                "members": [person],
+                "misc_deduction": {year: misc for year in YEARS},
+                "additional_medicare_tax": {year: 0 for year in YEARS},
+            }
+            if state == "MO":
+                tax_unit["itemized_taxable_income_deductions"] = {
+                    year: case["federal_total"] for year in YEARS
+                }
+                tax_unit["mo_net_state_income_taxes"] = {
+                    year: case["state_tax"] for year in YEARS
+                }
+            else:
+                tax_unit["itemized_deductions_less_salt"] = {
+                    year: case["federal_total"] for year in YEARS
+                }
+                tax_unit["ms_real_estate_tax_deduction"] = {
+                    year: case["real_estate"] for year in YEARS
+                }
+            tax_units[f"tax_unit_{key}"] = tax_unit
+            households[f"household_{key}"] = {
+                "members": [person],
+                "state_code": {year: state for year in YEARS},
+            }
+    return {"people": people, "tax_units": tax_units, "households": households}
+
+
+def calculate(cases, state, variable):
+    simulation = Simulation(situation=build_situation(cases, state))
+    return {
+        year: np.asarray(simulation.calculate(variable, year)).reshape(len(cases), 2)
+        for year in YEARS
+    }
+
+
+def assert_properties(cases):
+    mo = calculate(cases, "MO", "mo_itemized_deductions")
+    ms = calculate(cases, "MS", "ms_itemized_deductions_unit")
+    for i, case in enumerate(cases):
+        for year in YEARS:
+            # Column 0 has the miscellaneous deduction, column 1 has none.
+            assert mo[year][i, 0] == pytest.approx(mo[year][i, 1], abs=TOLERANCE), (
+                case,
+                year,
+            )
+            assert ms[year][i, 0] == pytest.approx(ms[year][i, 1], abs=TOLERANCE), (
+                case,
+                year,
+            )
+            assert ms[year][i, 0] == pytest.approx(
+                case["federal_total"] + case["real_estate"], abs=TOLERANCE
+            ), (case, year)
+            assert mo[year][i, 0] >= 0, (case, year)
+            assert (
+                mo[year][i, 0]
+                <= case["federal_total"] + case["payroll_tax"] + TOLERANCE
+            ), (case, year)
+
+
+def test_state_tax_adjustment_does_not_raise_missouri_deduction():
+    base = {
+        "federal_total": 10_000,
+        "misc": 1_000,
+        "payroll_tax": 0,
+        "real_estate": 2_000,
+        "state_tax": 0,
+    }
+    cases = [base, {**base, "state_tax": 2_000}, {**base, "state_tax": 50_000}]
+    mo = calculate(cases, "MO", "mo_itemized_deductions")
+    # 10,000 once, less the state income tax adjustment, floored at zero.
+    assert mo[2017][:, 0] == pytest.approx([10_000, 8_000, 0], abs=TOLERANCE)
+    ms = calculate(cases[:1], "MS", "ms_itemized_deductions_unit")
+    # 10,000 once, plus 2,000 real estate taxes.
+    assert ms[2017][0, 0] == pytest.approx(12_000, abs=TOLERANCE)
+    assert_properties(cases)
+
+
+AMOUNTS = st.integers(min_value=0, max_value=50_000)
+
+
+@hypothesis.settings(
+    max_examples=10,
+    deadline=None,
+    derandomize=True,
+    suppress_health_check=[hypothesis.HealthCheck.too_slow],
+)
+@hypothesis.given(
+    st.lists(
+        st.fixed_dictionaries(
+            {
+                "federal_total": AMOUNTS,
+                "misc": st.integers(min_value=1, max_value=20_000),
+                "payroll_tax": st.integers(min_value=0, max_value=10_000),
+                "real_estate": AMOUNTS,
+                "state_tax": AMOUNTS,
+            }
+        ),
+        min_size=1,
+        max_size=8,
+    )
+)
+def test_ms_mo_misc_deduction_counted_once(cases):
+    assert_properties(cases)

policyengine_us/variables/gov/states/ms/tax/income/deductions/itemized/ms_itemized_deductions_unit.py

@@ -12,12 +12,20 @@ class ms_itemized_deductions_unit(Variable):
         "https://www.dor.ms.gov/sites/default/files/tax-forms/individual/80100221.pdf#page=15",
         "https://www.dor.ms.gov/sites/default/files/tax-forms/individual/80108228.pdf",  # Line 7
         "https://law.justia.com/codes/mississippi/title-27/chapter-7/article-1/section-27-7-17/",
+        # Miss. Code Ann. 27-7-17(4), 2016 and 2020 editions.
+        "https://law.justia.com/codes/mississippi/2016/title-27/chapter-7/article-1/section-27-7-17/",
+        "https://law.justia.com/codes/mississippi/2020/title-27/chapter-7/article-1/section-27-7-17/",
+        # 2017 instructions, Form 80-108 lines 7a to 7d.
+        "https://taxsim.nber.org/historical_state_tax_forms/MS/2017/80100178.pdf#page=15",
     )
     defined_for = StateCode.MS
 
+    # itemized_deductions_less_salt already includes the federal miscellaneous
+    # deduction above the 2% floor (Form 80-108 lines 7a to 7d before 2018), so
+    # misc_deduction is not added again: Miss. Code Ann. 27-7-17(4) bars
+    # deducting the same item more than once.
     adds = [
         "itemized_deductions_less_salt",
-        "misc_deduction",
         "ms_real_estate_tax_deduction",
     ]