Leave tax unit dependents' income out of Arkansas, Mississippi, New Jersey and Iowa income

changelog.d/fix-9814-dependent-income-ar-ms-nj-ia.fixed.md

@@ -0,0 +1 @@
+Leave tax unit dependents' income out of Arkansas, Mississippi and New Jersey adjusted gross income and Iowa net income; dependents report it on their own state returns. Mississippi now limits only the head's and spouse's own capital loss, so a dependent's capital gains no longer change the filers' Mississippi adjusted gross income.

policyengine_us/parameters/gov/states/ms/tax/income/income_sources.yaml

@@ -5,7 +5,10 @@ values:
     - self_employment_income
     - sstb_self_employment_income
     - partnership_s_corp_income
-    - loss_limited_net_capital_gains_person
+    # Line 40: the filers' own capital gains and losses, with a net loss
+    # limited as on the federal return (26 USC 1211(b)). A dependent's
+    # gains and losses are on the dependent's own return.
+    - filer_loss_limited_net_capital_gains_person
     - rental_income
     # Line 41: rental real estates, royalties, partnerships, S corporations,
     # trusts, etc. (income or loss from federal Schedule E)

policyengine_us/tests/core/test_medical_expense_premium_conservation.py

@@ -293,9 +293,6 @@ def test_nj_excludes_each_dependents_deduction_only_from_their_own_premiums(
     simulation = _nj_simulation(members, reference_system)
     paid = np.array([sum(person["premiums"] for person in unit) for unit in members])
     other = np.array([sum(person["other"] for person in unit) for unit in members])
-    deductions = np.array(
-        [sum(person["deduction"] for person in unit) for unit in members]
-    )
     person_exclusions = [
         [min(person["deduction"], person["premiums"]) for person in unit]
         for unit in members
@@ -307,7 +304,10 @@ def test_nj_excludes_each_dependents_deduction_only_from_their_own_premiums(
         )
     excluded = np.array([sum(exclusions) for exclusions in person_exclusions])
     nj_deduction = simulation.calculate("nj_medical_expense_deduction", PERIOD)
-    actual_exclusion = paid + other + deductions - nj_deduction
+    # The dependents' separate SE deductions are on their own returns, with
+    # their income (nj_agi leaves both out), so the parent's deduction does
+    # not add them.
+    actual_exclusion = paid + other - nj_deduction
 
     # C.54A:3-3(c)(3) excludes only amounts separately deducted. Each person's
     # exclusion is bounded before summation, so no ALD can consume a different
@@ -316,7 +316,7 @@ def test_nj_excludes_each_dependents_deduction_only_from_their_own_premiums(
     assert (actual_exclusion >= 0).all()
     assert (actual_exclusion <= excluded).all()
     np.testing.assert_array_equal(actual_exclusion, excluded)
-    np.testing.assert_array_equal(nj_deduction, paid + other + deductions - excluded)
+    np.testing.assert_array_equal(nj_deduction, paid + other - excluded)
 
 
 # Flat strategies keep generation small while varying independent caller

policyengine_us/tests/core/test_state_tax_head_spouse_swap_invariance.py

@@ -11,8 +11,11 @@
 On main these depended on the label:
 - Arkansas, Delaware, Iowa, Mississippi and Montana put the dependents' income
   the model counts on the head's column before taxing each column separately.
-  It now goes on the column of the spouse with the greater income of their
-  own, and an exact tie splits it (move_dependent_amounts_to_filer).
+  In Delaware and Montana it now goes on the column of the spouse with the
+  greater income of their own, and an exact tie splits it
+  (move_dependent_amounts_to_filer). Arkansas, Iowa and Mississippi now leave
+  a dependent's income off the filers' columns altogether, since it belongs
+  on the dependent's own return (PolicyEngine/policyengine-us#9814).
 - Delaware's combined separate return routed the EITC and the dependent care
   credit by label on equal incomes and split the dependent personal credits
   with a heuristic. They are now chosen together to minimise tax.
@@ -45,10 +48,11 @@
    is finite and the same to the cent.
 2. The per-person columns (`ar_agi_indiv`, `de_agi_indiv`, `ia_net_income`,
    `ms_agi`, `mt_agi_indiv`) are the same for each person, to the cent.
-3. Differential: in Arkansas, Delaware, Iowa and Mississippi those columns
-   equal an independent numpy allocation of each person's own amount, which
-   conserves the tax unit's total. Montana's own amounts are not
-   reconstructed, so it is checked by 1 and 2 only.
+3. Differential: in Delaware the column equals an independent numpy
+   allocation of each person's own amount, which conserves the tax unit's
+   total. In Arkansas, Iowa and Mississippi it equals each filer's own amount,
+   and zero for a dependent. Montana's own amounts are not reconstructed, so
+   it is checked by 1 and 2 only.
 """
 
 import numpy as np
@@ -71,6 +75,9 @@
     "state_income_tax_before_refundable_credits",
 ]
 COLUMNS = ["ar_agi_indiv", "de_agi_indiv", "ia_net_income", "ms_agi", "mt_agi_indiv"]
+# Columns that move the dependents' amounts to a filer's column; the others
+# leave a dependent's amount off the filers' return.
+MOVES_DEPENDENT_AMOUNTS = ["de_agi_indiv"]
 
 
 def money(high):
@@ -475,11 +482,9 @@ def calc(name):
         return calc("ia_gross_income") - calc("ia_income_adjustments")
     if column == "ms_agi":
         p = sim.tax_benefit_system.parameters(year).gov.states.ms.tax.income
-        net = sum(calc(source) for source in p.income_sources) - calc(
+        return sum(calc(source) for source in p.income_sources) - calc(
             "ms_agi_adjustments"
         )
-        dependent = calc("is_tax_unit_dependent").astype(bool)
-        return np.where(dependent, np.maximum(net, 0), net)
     raise ValueError(column)
 
 
@@ -547,7 +552,10 @@ def _check(units, year):
         # 3. Differential against the numpy allocation, where the column
         # applies (its state, and its years for Iowa).
         own = _own_amounts(sim, year, column)
-        reference = _reference_allocation(own, unit, head, spouse, dependent)
+        if column in MOVES_DEPENDENT_AMOUNTS:
+            reference = _reference_allocation(own, unit, head, spouse, dependent)
+        else:
+            reference = np.where(dependent, 0.0, own)
         in_state = states[unit // 2] == column[:2].upper()
         np.testing.assert_allclose(
             values[in_state],

policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/ar_agi_indiv.yaml

@@ -19,7 +19,7 @@
   output:
     ar_agi_indiv: [900, 1_800]
 
-- name: Dependent AGI goes to the spouse with the greater AGI, AGI capped at 0
+- name: A dependent's AGI stays off the filers' columns, and a negative column is floored at 0
   period: 2022
   input:
     people:
@@ -43,7 +43,9 @@
         members: [person1, person2, person3]
         state_code: AR 
   output:
-    ar_agi_indiv: [1_200, 0, 0]
+    # The dependent's 300 goes on the dependent's own return (Ark. Code
+    # 26-51-801(a)-(b)). The spouse's 100 - 200 is floored at 0.
+    ar_agi_indiv: [900, 0, 0]
 
 - name: Single filer with 401(k) distributions included in gross income and exempted
   period: 2024
@@ -65,7 +67,7 @@
     ar_capped_retirement_or_disability_benefits_exemption_person: 6_000
     ar_agi_indiv: 50_000
 
-- name: Dependent AGI goes to the spouse with the greater AGI when that spouse is not the head
+- name: A dependent's AGI stays off the filers' columns when the head and spouse labels are exchanged
   period: 2022
   input:
     people:
@@ -96,9 +98,9 @@
         state_code: AR
   output:
     # The same couple as above with the head and spouse labels exchanged.
-    ar_agi_indiv: [1_200, 0, 0]
+    ar_agi_indiv: [900, 0, 0]
 
-- name: Spouses with equal AGI split the dependent AGI equally
+- name: Spouses with equal AGI keep their own AGI; the dependent's is on the dependent's own return
   period: 2022
   input:
     people:
@@ -128,7 +130,7 @@
         members: [person1, person2, person3]
         state_code: AR
   output:
-    ar_agi_indiv: [1_150, 1_150, 0]
+    ar_agi_indiv: [1_000, 1_000, 0]
 
 - name: Only taxable disability benefits enter Arkansas gross income on line 18.
   period: 2024
@@ -152,3 +154,53 @@
     # The 3,000 is under the 6,000 cap and exempt in full.
     ar_capped_retirement_or_disability_benefits_exemption_person: 3_000
     ar_agi_indiv: 30_000
+
+- name: A dependent child's interest stays off the parent's Arkansas AGI
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 16
+        taxable_interest_income: 8_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: AR
+  output:
+    # The child files their own AR1000F if their gross income is over the
+    # filing minimum (Ark. Code 26-51-801(a)); the parent's columns hold only
+    # the parent's 40,000 of wages, as with no child income.
+    ar_gross_income_indiv: [40_000, 8_000]
+    ar_agi_indiv: [40_000, 0]
+    ar_agi_joint: [40_000, 0]
+
+- name: A dependent child's wages stay off the parent's Arkansas AGI and tax
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 16
+        employment_income: 5_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: AR
+  output:
+    ar_agi_indiv: [40_000, 0]
+    ar_agi_joint: [40_000, 0]
+    # The same tax as the parent with a child who has no income (issue
+    # #9814 reproduction): 957.
+    ar_income_tax: 957

policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/ar_agi_joint.yaml

@@ -19,7 +19,7 @@
   output:
     ar_agi_joint: [900, 1_800]
 
-- name: Dependent AGI gets attributed to the head; spouse net income is not floored on a joint return
+- name: A dependent's AGI stays off the filers' return; spouse net income is not floored on a joint return
   period: 2022
   input:
     people:
@@ -43,11 +43,11 @@
         members: [person1, person2, person3]
         state_code: AR 
   output:
-    # Head: 900 + dependent's 300 (dependent income floored at 0, then
-    # attributed to the head). Spouse: 100 - 200 = -100. On a joint return all
+    # Head: 900. The dependent's 300 goes on the dependent's own return (Ark.
+    # Code 26-51-801(a)-(b)). Spouse: 100 - 200 = -100. On a joint return all
     # income goes in Column A, so the spouse's amount offsets the head's; the
     # tax unit total is floored at 0 only when used as a tax base.
-    ar_agi_joint: [1_200, -100, 0]
+    ar_agi_joint: [900, -100, 0]
 
 - name: A spouse's business loss offsets the other spouse's income on a joint return
   period: 2024

policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/ar_gambling_winnings_and_losses.yaml

@@ -42,7 +42,7 @@
     ar_gross_income_joint: 60_000
     ar_gross_income_indiv: 60_000
 
-- name: A dependent's gambling winnings go to the head's Arkansas AGI
+- name: A dependent's gambling winnings stay off the head's Arkansas AGI
   period: 2025
   input:
     people:
@@ -61,7 +61,8 @@
         state_code: AR
   output:
     ar_gross_income_joint: [50_000, 1_000]
-    ar_agi_joint: [51_000, 0]
+    # The child's winnings go on the child's own Arkansas return.
+    ar_agi_joint: [50_000, 0]
 
 - name: 2015 itemizer with losses below winnings is taxed on net winnings
   period: 2015

policyengine_us/tests/policy/baseline/gov/states/ia/tax/income/ia_net_income.yaml

@@ -1,4 +1,4 @@
-- name: IA net income unit test 1
+- name: Dependents' gross income stays off the head's Iowa net income
   absolute_error_margin: 0.01
   period: 2021
   input:
@@ -24,9 +24,11 @@
         members: [person1, person2, person3]
         state_code: IA
   output:
-    ia_net_income: [9_400, 0, 0]
+    # 10,000 - 2,000. The dependents' 800 and 600 go on their own Iowa
+    # returns if they must file (Iowa Code 422.13(1)(a)).
+    ia_net_income: [8_000, 0, 0]
 
-- name: Spouses with equal net income split the dependent net income equally
+- name: Spouses keep their own net income; the dependent's is on the dependent's own return
   absolute_error_margin: 0.01
   period: 2022
   input:
@@ -52,10 +54,9 @@
         members: [person1, person2, person3]
         state_code: IA
   output:
-    # The spouses' net incomes are equal, so they split the dependent's.
-    ia_net_income: [8_300, 8_300, 0]
+    ia_net_income: [8_000, 8_000, 0]
 
-- name: Dependent net income goes to the spouse with the greater net income, here not the head
+- name: A dependent's net income stays off both spouses' columns
   absolute_error_margin: 0.01
   period: 2021
   input:
@@ -87,9 +88,9 @@
         members: [person1, person2, person3]
         state_code: IA
   output:
-    ia_net_income: [8_000, 30_600, 0]
+    ia_net_income: [8_000, 30_000, 0]
 
-- name: Dependent net income stays with the same spouse when the head and spouse labels are exchanged
+- name: A dependent's net income stays off both spouses' columns when the head and spouse labels are exchanged
   absolute_error_margin: 0.01
   period: 2021
   input:
@@ -121,7 +122,7 @@
         members: [person1, person2, person3]
         state_code: IA
   output:
-    ia_net_income: [8_000, 30_600, 0]
+    ia_net_income: [8_000, 30_000, 0]
 
 - name: 2022 single filer with wages and traditional IRA distribution
   period: 2022
@@ -167,4 +168,49 @@
     ia_pension_exclusion: 10_000
     ia_net_income: 50_000
 
+- name: A dependent child's interest stays off the parent's Iowa net income and 2022 tax
+  period: 2022
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 16
+        taxable_interest_income: 8_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: IA
+  output:
+    # Iowa net income starts from federal AGI (Iowa Code 422.7), which leaves
+    # out the child's interest; the child files their own IA 1040 with net
+    # income of 5,000 or more (Iowa Code 422.13(1)(a)).
+    ia_net_income: [40_000, 0]
+    # The same tax as with no child income (issue #9814 reproduction).
+    ia_income_tax: 1_332.05
 
+- name: A dependent child's wages stay off the parent's Iowa net income
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 16
+        employment_income: 5_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: IA
+  output:
+    ia_net_income: [40_000, 0]
+    state_agi: 40_000

policyengine_us/tests/policy/baseline/gov/states/ms/tax/income/adjustments/ms_health_savings_account_adjustment.yaml

@@ -120,7 +120,7 @@
     # The return claims 1,500, shared 1:2.
     ms_health_savings_account_adjustment: [500, 1_000]
 
-- name: A dependent's income is not reduced by the filer's deduction, nor by the dependent's own account
+- name: A dependent's income and own account stay off the filers' Mississippi AGI
   period: 2025
   input:
     people:
@@ -148,9 +148,9 @@
     # account is left out.
     ms_health_savings_account_adjustment: [1_500, 1_500, 0]
     ms_agi_adjustments: [1_500, 1_500, 0]
-    # The child's 5,000 reaches the Mississippi AGI of the spouse with the
-    # greater income in full: 40,000 - 1,500 + 5,000.
-    ms_agi: [43_500, 28_500, 0]
+    # The child's 5,000 goes on the child's own return: 40,000 - 1,500 and
+    # 30,000 - 1,500.
+    ms_agi: [38_500, 28_500, 0]
 
 - name: A married person filing a separate federal return takes their own deduction
   period: 2025