Fix the 2021 CTC split and surviving-spouse phaseout threshold

changelog.d/ctc-2021-refundable-split.fixed.md

@@ -0,0 +1,5 @@
+Correct the 2021 child tax credit split after both phaseouts so the credit for other dependents remains nonrefundable, including its effect on solar-credit ordering and Oklahoma conformity.
+
+Correct the ordinary CTC phaseout threshold for surviving spouses to $200,000 from 2018 onward, while retaining their separate $150,000 ARPA threshold.
+
+Stop adding the 2021 nonrefundable child tax credit back to the federal tax in Iowa's federal tax deduction, so the deduction reflects the credit for other dependents.

policyengine_us/parameters/gov/irs/credits/ctc/phase_out/threshold.yaml

@@ -13,7 +13,7 @@ HEAD_OF_HOUSEHOLD:
   2018-01-01: 200_000
 SURVIVING_SPOUSE:
   2013-01-01: 75_000
-  2018-01-01: 400_000
+  2018-01-01: 200_000
 metadata:
   propagate_metadata_to_children: true
   unit: currency-USD
@@ -27,6 +27,8 @@ metadata:
     # TCJA:
     - title: U.S.C 26 U.S. Code § 24(h)(3)
       href: https://www.law.cornell.edu/uscode/text/26/24#h_3
+    - title: 2021 Schedule 8812, line 9
+      href: https://www.irs.gov/pub/irs-prior/f1040s8--2021.pdf#page=1
     - title: H.R.1 - One Big Beautiful Bill Act
       href: https://www.congress.gov/bill/119th-congress/house-bill/1/text
     # OBBB extends TCJA CTC phaseout thresholds.

policyengine_us/tests/policy/baseline/gov/irs/credits/ctc/ctc.yaml

@@ -6,3 +6,31 @@
     ctc_phase_out: 1
   output:
     ctc: 2
+
+- name: A surviving spouse phases out the 2021 child credit above 200000.
+  period: 2021
+  input:
+    people:
+      parent:
+        age: 40
+        is_tax_unit_head: true
+        employment_income: 200_001
+      child:
+        age: 5
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+        filing_status: SURVIVING_SPOUSE
+    households:
+      household:
+        members: [parent, child]
+        state_code: TX
+  output:
+    ctc_arpa_phase_out_threshold: 150_000
+    ctc_arpa_phase_out: 1_600
+    ctc_phase_out_threshold: 200_000
+    ctc_phase_out: 50
+    ctc: 1_950
+    refundable_ctc: 1_950
+    non_refundable_ctc: 0

policyengine_us/tests/policy/baseline/gov/irs/credits/ctc/phase_out/arpa/ctc_arpa_phase_out_cap.yaml

@@ -6,3 +6,21 @@
     ctc_arpa_max_addition: 15_000 # e.g. 15 kids * $1,000 extra.
   output:
     ctc_arpa_phase_out_cap: 12_500 # 400k - 150k = 250k * 0.05 = 12.5k
+
+- name: The first ARPA reduction cannot exceed the child credit enhancement.
+  period: 2021
+  input:
+    filing_status: JOINT
+    ctc_arpa_max_addition: 1_600
+  output:
+    ctc_arpa_phase_out_cap: 1_600
+
+- name: Surviving spouses use the 2500 threshold-difference cap in the Line 5 Worksheet.
+  period: 2021
+  input:
+    filing_status: SURVIVING_SPOUSE
+    ctc_arpa_max_addition: 5_000
+  output:
+    ctc_arpa_phase_out_threshold: 150_000
+    ctc_phase_out_threshold: 200_000
+    ctc_arpa_phase_out_cap: 2_500

policyengine_us/tests/policy/baseline/gov/irs/credits/ctc/phase_out/ctc_phase_out_threshold.yaml

@@ -5,9 +5,40 @@
   output:
     ctc_phase_out_threshold: 200_000
 
-- name: CTC phases out at $400,000 for singles while TCJA is active.
+- name: CTC phases out at $400,000 for joint filers while TCJA is active.
   period: 2022
   input:
     filing_status: JOINT
   output:
     ctc_phase_out_threshold: 400_000
+
+# Section 24(h)(3) reserves $400,000 for joint returns. A surviving spouse
+# shares joint tax rates under section 1(a), but does not file a joint return.
+- name: Before TCJA surviving spouses retain the nonjoint threshold.
+  period: 2017
+  input:
+    filing_status: [SURVIVING_SPOUSE, JOINT]
+  output:
+    ctc_phase_out_threshold: [75_000, 110_000]
+
+- name: TCJA gives surviving spouses the ordinary nonjoint threshold.
+  period: 2018
+  input:
+    filing_status: [SURVIVING_SPOUSE, JOINT]
+  output:
+    ctc_phase_out_threshold: [200_000, 400_000]
+
+- name: ARPA does not make surviving spouses joint filers for ordinary phaseout.
+  period: 2021
+  input:
+    filing_status: [SURVIVING_SPOUSE, JOINT]
+  output:
+    ctc_phase_out_threshold: [200_000, 400_000]
+    ctc_arpa_phase_out_threshold: [150_000, 150_000]
+
+- name: OBBB retains the nonjoint ordinary threshold for surviving spouses.
+  period: 2026
+  input:
+    filing_status: [SURVIVING_SPOUSE, JOINT]
+  output:
+    ctc_phase_out_threshold: [200_000, 400_000]