Fix state taxpayer-choice bugs: NJ property tax election and NE itemized deductions

changelog.d/state-choice-bugs-nj-ne.fixed.md

@@ -0,0 +1 @@
+New Jersey now weighs the change in its refundable child tax credit and child and dependent care credit when choosing between the property tax deduction and the $50 credit, and Nebraska itemized deductions now subtract the full state and local income taxes on Schedule A line 5a from federal itemized deductions, before the federal SALT cap, under Neb. Rev. Stat. 77-2716.01(4).

policyengine_us/tests/policy/baseline/gov/states/ne/tax/income/deductions/ne_itemized_deductions.yaml

@@ -1,23 +1,159 @@
+# Neb. Rev. Stat. 77-2716.01(4) and Form 1040N lines 7-9: federal itemized
+# deductions (Schedule A line 17) minus the income taxes on Schedule A line 5a,
+# in full, before the federal SALT cap. Nothing is removed when line 5a holds
+# sales taxes.
+
 - name: Unit test 1
+  # Federal: 2,000 + 24,000 + 10,000 capped SALT = 36,000. Income taxes (5,000)
+  # exceed sales taxes (0), so all 5,000 is removed: 36,000 - 5,000 = 31,000.
   period: 2021
   input:
     filing_status: JOINT
     charitable_deduction: 2_000
     deductible_interest_expense: 24_000
     salt_deduction: 10_000
     real_estate_taxes: 9_000
+    state_withheld_income_tax: 5_000
+    local_income_tax: 0
+    state_sales_tax: 0
+    local_sales_tax: 0
     state_code: NE
   output:
-    ne_itemized_deductions: 2_000 + 24_000 + 9_000
+    ne_itemized_deductions: 31_000
 
 - name: Unit test 2
+  # Federal: 3,000 + 7,000 + 10,000 capped SALT = 20,000. Income taxes (5,000)
+  # exceed sales taxes (0): 20,000 - 5,000 = 15,000.
   period: 2022
   input:
     filing_status: JOINT
     charitable_deduction: 3_000
     deductible_interest_expense: 7_000
     salt_deduction: 10_000
     real_estate_taxes: 6_000
+    state_withheld_income_tax: 5_000
+    local_income_tax: 0
+    state_sales_tax: 0
+    local_sales_tax: 0
+    state_code: NE
+  output:
+    ne_itemized_deductions: 15_000
+
+- name: Sales taxes on Schedule A line 5a stay in the Nebraska deduction
+  # Federal: 15,000 interest + 8,000 SALT = 23,000. Sales taxes (3,000) exceed
+  # income taxes (1,000), so line 5a holds sales taxes and Nebraska removes
+  # nothing: 23,000.
+  period: 2023
+  input:
+    filing_status: SINGLE
+    deductible_interest_expense: 15_000
+    salt_deduction: 8_000
+    real_estate_taxes: 5_000
+    state_withheld_income_tax: 1_000
+    local_income_tax: 0
+    state_sales_tax: 3_000
+    local_sales_tax: 0
+    state_code: NE
+  output:
+    ne_itemized_deductions: 23_000
+
+- name: Income taxes on Schedule A line 5a are removed when the cap does not bind
+  # Federal: 15,000 interest + 7,000 SALT (2,000 income taxes + 5,000 real
+  # estate taxes) = 22,000. Nebraska: 22,000 - 2,000 = 20,000.
+  period: 2023
+  input:
+    filing_status: SINGLE
+    deductible_interest_expense: 15_000
+    salt_deduction: 7_000
+    real_estate_taxes: 5_000
+    state_withheld_income_tax: 2_000
+    local_income_tax: 0
+    state_sales_tax: 500
+    local_sales_tax: 0
+    state_code: NE
+  output:
+    ne_itemized_deductions: 20_000
+
+- name: Income taxes above the federal SALT cap are removed in full, floored at zero
+  # 2025, single, AGI 700,000. Federal SALT cap: 40,000 - 30% x (700,000 -
+  # 500,000) = -20,000, floored at 10,000. Schedule A line 5a: 35,000 income
+  # taxes; SALT deduction min(35,000 + 30,000, 10,000) = 10,000. Federal
+  # itemized: 10,000 + 20,000 mortgage interest = 30,000 (above the 15,750
+  # federal standard deduction, so the filer itemizes).
+  # Nebraska: 30,000 - 35,000 = -5,000, floored at 0. Taxable income takes the
+  # larger 8,600 standard deduction: 700,000 - 8,600 = 691,400.
+  period: 2025
+  input:
+    filing_status: SINGLE
+    employment_income: 700_000
+    real_estate_taxes: 30_000
+    deductible_mortgage_interest: 20_000
+    state_withheld_income_tax: 35_000
+    local_income_tax: 0
+    state_sales_tax: 0
+    local_sales_tax: 0
+    state_code: NE
+  output:
+    salt_deduction: 10_000
+    itemized_taxable_income_deductions: 30_000
+    ne_itemized_deductions: 0
+    ne_taxable_income: 691_400
+
+- name: A binding SALT cap does not shield income taxes below the cap
+  # 2024, single. SALT: min(8,000 income taxes + 5,000 real estate taxes,
+  # 10,000) = 10,000. Federal itemized: 10,000 + 15,000 mortgage interest =
+  # 25,000. Nebraska removes all 8,000 of income taxes: 25,000 - 8,000 =
+  # 17,000.
+  period: 2024
+  input:
+    filing_status: SINGLE
+    employment_income: 100_000
+    real_estate_taxes: 5_000
+    deductible_mortgage_interest: 15_000
+    state_withheld_income_tax: 8_000
+    local_income_tax: 0
+    state_sales_tax: 0
+    local_sales_tax: 0
+    state_code: NE
+  output:
+    salt_deduction: 10_000
+    itemized_taxable_income_deductions: 25_000
+    ne_itemized_deductions: 17_000
+
+- name: Income taxes above the cap and above real estate taxes are removed in full
+  # Federal: 15,000 interest + 10,000 capped SALT = 25,000. Income taxes
+  # (12,000) exceed sales taxes (1,000): 25,000 - 12,000 = 13,000.
+  period: 2023
+  input:
+    filing_status: SINGLE
+    deductible_interest_expense: 15_000
+    salt_deduction: 10_000
+    real_estate_taxes: 4_000
+    state_withheld_income_tax: 12_000
+    local_income_tax: 0
+    state_sales_tax: 1_000
+    local_sales_tax: 0
+    state_code: NE
+  output:
+    ne_itemized_deductions: 13_000
+
+- name: Income taxes equal to sales taxes count as sales taxes, so nothing is removed
+  # Income taxes 3,000 = sales taxes 2,000 + 1,000. Line 5a holds 3,000 either
+  # way; a tie counts as sales taxes. SALT: 3,000 + 5,000 real estate taxes =
+  # 8,000. Federal itemized: 8,000 + 15,000 mortgage interest = 23,000.
+  # Nebraska removes nothing: 23,000.
+  period: 2023
+  input:
+    filing_status: SINGLE
+    employment_income: 100_000
+    real_estate_taxes: 5_000
+    deductible_mortgage_interest: 15_000
+    state_withheld_income_tax: 3_000
+    local_income_tax: 0
+    state_sales_tax: 2_000
+    local_sales_tax: 1_000
     state_code: NE
   output:
-    ne_itemized_deductions: 3_000 + 7_000 + 6_000
+    salt_deduction: 8_000
+    itemized_taxable_income_deductions: 23_000
+    ne_itemized_deductions: 23_000

policyengine_us/tests/policy/baseline/gov/states/nj/tax/income/deductions/property_tax/nj_taking_property_tax_deduction.yaml

@@ -33,3 +33,174 @@
     state_code: NJ
   output:
     nj_taking_property_tax_deduction: false
+
+- name: Deduction that moves taxable income into a higher NJ child tax credit bracket beats the $50 credit
+  # 2023 single rates: 1.4% to $20,000, 1.75% from $20,000 to $35,000.
+  # Tax on $30,500 = 280 + 10,500 x 1.75% = 463.75; on $27,800 = 280 +
+  # 7,800 x 1.75% = 416.50; saving 47.25 is below the $50 credit.
+  # The NJ child tax credit rises from $800 (over $30,000) to $1,000 (up to
+  # $30,000) for the one child: 47.25 + 200 = 247.25 > 50.
+  period: 2023
+  absolute_error_margin: 0
+  input:
+    people:
+      parent:
+        age: 35
+      child:
+        age: 3
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+        filing_status: SINGLE
+        nj_property_tax_deduction_eligible: true
+        nj_potential_property_tax_deduction: 2_700
+        nj_taxable_income_before_property_tax_deduction: 30_500
+        cdcc: 0
+    households:
+      household:
+        members: [parent, child]
+        state_code: NJ
+  output:
+    nj_ctc_qualifying_children: 1
+    nj_taking_property_tax_deduction: true
+
+- name: Same tax saving without a qualifying child keeps the $50 credit
+  period: 2023
+  absolute_error_margin: 0
+  input:
+    nj_property_tax_deduction_eligible: true
+    nj_potential_property_tax_deduction: 2_700
+    nj_taxable_income_before_property_tax_deduction: 30_500
+    filing_status: SINGLE
+    cdcc: 0
+    state_code: NJ
+  output:
+    nj_taking_property_tax_deduction: false
+
+- name: Separate filer with a child gets no NJ child tax credit gain, so keeps the $50 credit
+  # Tax saving 463.75 - 416.50 = 47.25 < 50; a separate filer cannot claim the
+  # NJ child tax credit, so its bracket change adds nothing.
+  period: 2023
+  absolute_error_margin: 0
+  input:
+    people:
+      parent:
+        age: 35
+      child:
+        age: 3
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+        filing_status: SEPARATE
+        cohabitating_spouses: false
+        nj_property_tax_deduction_eligible: true
+        nj_potential_property_tax_deduction: 2_700
+        nj_taxable_income_before_property_tax_deduction: 30_500
+        cdcc: 0
+    households:
+      household:
+        members: [parent, child]
+        state_code: NJ
+  output:
+    nj_ctc_qualifying_children: 1
+    nj_ctc_eligible: false
+    nj_taking_property_tax_deduction: false
+
+- name: Deduction that raises the NJ child and dependent care credit rate beats the $50 credit
+  # Tax saving: (30,500 - 28,500) x 1.75% = 35. The NJ CDCC match rate rises
+  # from 40% (over $30,000) to 50% (up to $30,000) of the $600 federal
+  # credit: 35 + 60 = 95 > 50.
+  period: 2023
+  absolute_error_margin: 0
+  input:
+    nj_property_tax_deduction_eligible: true
+    nj_potential_property_tax_deduction: 2_000
+    nj_taxable_income_before_property_tax_deduction: 30_500
+    filing_status: SINGLE
+    cdcc: 600
+    state_code: NJ
+  output:
+    nj_taking_property_tax_deduction: true
+
+- name: A small NJ child and dependent care credit gain does not beat the $50 credit
+  # 35 tax saving + 10% x $100 federal credit = 45 < 50.
+  period: 2023
+  absolute_error_margin: 0
+  input:
+    nj_property_tax_deduction_eligible: true
+    nj_potential_property_tax_deduction: 2_000
+    nj_taxable_income_before_property_tax_deduction: 30_500
+    filing_status: SINGLE
+    cdcc: 100
+    state_code: NJ
+  output:
+    nj_taking_property_tax_deduction: false
+
+- name: Deduction that lands NJ taxable income exactly on $30,000 gets the 50% NJ CDCC rate
+  # Tax saving: 500 x 1.75% = 8.75. At $30,000 the NJ CDCC rate is 50%, not
+  # 40%: 8.75 + 10% x $600 = 68.75 > 50.
+  period: 2023
+  absolute_error_margin: 0
+  input:
+    nj_property_tax_deduction_eligible: true
+    nj_potential_property_tax_deduction: 500
+    nj_taxable_income_before_property_tax_deduction: 30_500
+    filing_status: SINGLE
+    cdcc: 600
+    state_code: NJ
+  output:
+    nj_taking_property_tax_deduction: true
+
+- name: Renter with one child takes the deduction and gets the higher NJ child tax credit
+  # Wages $33,000 less $2,500 exemptions (1,000 personal + 1,500 dependent)
+  # = $30,500. Property tax: 18% x $15,000 rent = $2,700. Taking the
+  # deduction gives $27,800 taxable income, $416.50 tax and a $1,000 NJ
+  # child tax credit; the credit route gives $463.75 tax, an $800 child tax
+  # credit and the $50 property tax credit.
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 35
+        employment_income: 33_000
+        rent: 15_000
+      child:
+        age: 3
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    spm_units:
+      spm_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: NJ
+  output:
+    nj_taxable_income_before_property_tax_deduction: 30_500
+    nj_potential_property_tax_deduction: 2_700
+    nj_taking_property_tax_deduction: true
+    nj_taxable_income: 27_800
+    nj_main_income_tax: 416.50
+    nj_ctc: 1_000
+    nj_property_tax_credit: 0
+
+- name: Cohabiting separate filer weighs the deduction against a $25 credit
+  # Tax saving 463.75 - 416.50 = 47.25. A separate filer who lives with
+  # the spouse gets half the $50 credit, $25, so the filer takes the
+  # deduction: 47.25 exceeds 25.
+  period: 2023
+  absolute_error_margin: 0
+  input:
+    nj_property_tax_deduction_eligible: true
+    nj_potential_property_tax_deduction: 2_700
+    nj_taxable_income_before_property_tax_deduction: 30_500
+    filing_status: SEPARATE
+    cohabitating_spouses: true
+    cdcc: 0
+    state_code: NJ
+  output:
+    nj_taking_property_tax_deduction: true

policyengine_us/variables/gov/states/ne/tax/income/deductions/ne_itemized_deductions.py

@@ -8,12 +8,30 @@ class ne_itemized_deductions(Variable):
     unit = USD
     definition_period = YEAR
     reference = (
+        "https://nebraskalegislature.gov/laws/statutes.php?statute=77-2716.01",
         "https://revenue.nebraska.gov/files/doc/tax-forms/2021/f_1040n_booklet.pdf",
         "https://revenue.nebraska.gov/files/doc/2022_Ne_Individual_Income_Tax_Booklet_8-307-2022_final_5.pdf",
     )
     defined_for = StateCode.NE
 
     def formula(tax_unit, period, parameters):
-        itm_deds_less_salt = tax_unit("itemized_deductions_less_salt", period)
-        capped_property_taxes = tax_unit("capped_property_taxes", period)
-        return itm_deds_less_salt + capped_property_taxes
+        # Neb. Rev. Stat. 77-2716.01(4): federal itemized deductions "except
+        # for the amount for state or local income taxes included in federal
+        # itemized deductions before any federal disallowance".
+        # Form 1040N line 7: federal Schedule A line 17.
+        federal_itemized = tax_unit("itemized_taxable_income_deductions", period)
+        # Form 1040N line 8: the income taxes on Schedule A line 5a, even when
+        # the federal SALT cap limits line 5e, so they are removed in full.
+        # Line 5a holds income taxes or general sales taxes, whichever is
+        # larger (state_and_local_sales_or_income_tax); a tie counts as sales
+        # taxes, and then nothing is removed.
+        income_taxes = add(
+            tax_unit, period, ["state_withheld_income_tax", "local_income_tax"]
+        )
+        sales_taxes = add(tax_unit, period, ["state_sales_tax", "local_sales_tax"])
+        claims_income_taxes = income_taxes > sales_taxes
+        income_taxes_removed = where(claims_income_taxes, income_taxes, 0)
+        # Form 1040N line 9 (line 7 minus line 8) can be negative, but line 10
+        # takes the larger of it and the standard deduction, so the floor
+        # changes no tax.
+        return max_(0, federal_itemized - income_taxes_removed)

policyengine_us/variables/gov/states/nj/tax/income/credits/ctc/nj_ctc.py

@@ -22,12 +22,7 @@ def formula(tax_unit, period, parameters):
         taxable_income = tax_unit("nj_taxable_income", period)
         amount_per_qualifying_child = p.amount.calc(taxable_income)
 
-        # Get the number of eligible children dependents
-        person = tax_unit.members
-        age_eligible = person("age", period) < p.age_limit
-        dependent = person("is_tax_unit_dependent", period)
-        age_eligible_dependent = age_eligible & dependent
-        count_eligible = tax_unit.sum(age_eligible_dependent)
+        count_eligible = tax_unit("nj_ctc_qualifying_children", period)
 
         # Calculate total child tax credit
         return count_eligible * amount_per_qualifying_child