Reduce Oregon's federal tax subtraction by the OR-17 worksheet's refundable credits only

changelog.d/or-federal-tax-subtraction-worksheet.fixed.md

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+Reduce Oregon's federal tax liability subtraction by the premium tax credit and only the other refundable credits on the Publication OR-17 federal tax worksheet, and leave out the net investment income tax.

policyengine_us/parameters/gov/states/or/tax/income/subtractions/federal_tax_liability/refundable_credits.yaml

@@ -0,0 +1,50 @@
+description: Oregon reduces the federal income tax liability it subtracts by these federal refundable credits.
+values:
+  # Federal tax worksheet, Part A, of each year's Publication OR-17. The earned
+  # income credit is never listed (ORS 316.685(1)(b)), and outside 2021 neither
+  # is the additional child tax credit.
+  2017-01-01:
+    - refundable_american_opportunity_credit # Line 6
+    - assigned_aca_ptc # Line 7 (Form 8962, line 24)
+  2020-01-01:
+    - refundable_american_opportunity_credit # Line 6
+    - assigned_aca_ptc # Line 7 (Form 8962, line 24)
+    - recovery_rebate_credit # Line 8, with the stimulus payments received
+  2021-01-01:
+    # Line 8 is the child tax credit on Schedule 8812, line 14e. Line 2 adds
+    # back the nonrefundable part that line 1 already nets out.
+    - refundable_ctc
+    - refundable_american_opportunity_credit # Line 9
+    - recovery_rebate_credit # Line 10, with the stimulus payments received
+    - assigned_aca_ptc # Line 11 (Form 8962, line 24)
+    - cdcc # Line 12 (Schedule 3, line 13g)
+  2022-01-01:
+    - refundable_american_opportunity_credit # Line 6
+    - assigned_aca_ptc # Line 7 (Form 8962, line 24)
+    # From 2025, line 7 is the refundable adoption credit (Form 1040, line 30),
+    # which is not modeled, and the premium tax credit moves to line 8.
+metadata:
+  unit: list
+  period: year
+  label: Oregon federal tax liability subtraction refundable credits
+  reference:
+    - title: ORS 316.680(1)(b) and 316.685
+      href: https://www.oregonlegislature.gov/bills_laws/ors/ors316.html
+    - title: "2017 Publication OR-17, federal tax worksheet, Part A, lines 6 to 8 #page 63"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2017.pdf#page=63
+    - title: "2018 Publication OR-17, federal tax worksheet, Part A, lines 6 to 8 #page 68"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2018.pdf#page=68
+    - title: "2019 Publication OR-17, federal tax worksheet, Part A, lines 6 to 8 #page 63"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2019.pdf#page=63
+    - title: "2020 Publication OR-17, federal tax worksheet, Part A, lines 6 to 9 #page 65-66"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2020.pdf#page=66
+    - title: "2021 Publication OR-17, federal tax worksheet, Part A, lines 2 and 8 to 13 #page 72-73"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2021.pdf#page=72
+    - title: "2022 Publication OR-17, federal tax worksheet, Part A, lines 6 to 8 #page 73"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2022.pdf#page=73
+    - title: "2023 Publication OR-17, federal tax worksheet, Part A, lines 6 to 8 #page 73"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2023.pdf#page=73
+    - title: "2024 Publication OR-17, federal tax worksheet, Part A, lines 6 to 8 #page 71"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2024.pdf#page=71
+    - title: "2025 Publication OR-17, federal tax worksheet, Part A, lines 6 to 9 #page 71-72"
+      href: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2025.pdf#page=71

policyengine_us/tests/core/test_or_federal_tax_liability_subtraction_invariants.py

@@ -0,0 +1,119 @@
+"""Oregon's federal tax liability subtraction follows the OR-17 worksheet.
+
+ORS 316.680(1)(b) and 316.685; Publication OR-17, federal tax worksheet,
+Part A. The subtraction is federal tax after nonrefundable credits plus other
+income taxes, less only the refundable credits the worksheet lists, floored at
+zero and capped by federal AGI. These properties hold for every input:
+
+1. 0 <= subtraction <= min(federal tax before refundable credits, cap).
+2. The earned income credit never changes it (ORS 316.685(1)(b)), and outside
+   2021 neither does the additional child tax credit.
+3. Raising a listed credit (the premium tax credit) by d lowers it by at most d.
+4. Raising federal tax before refundable credits by d raises it by at most d.
+
+Each Hypothesis example evaluates a batch of tax units and their variants in
+one vectorized simulation.
+"""
+
+import numpy as np
+import pytest
+from hypothesis import HealthCheck, given, settings
+from hypothesis import strategies as st
+
+from policyengine_us import Simulation
+
+TOLERANCE = 0.01
+FILING_STATUSES = ("SINGLE", "JOINT", "HEAD_OF_HOUSEHOLD", "SEPARATE")
+CREDITS = (
+    "eitc",
+    "refundable_ctc",
+    "refundable_american_opportunity_credit",
+    "assigned_aca_ptc",
+    "recovery_rebate_credit",
+    "cdcc",
+)
+VARIANTS = ("base", "eitc", "refundable_ctc", "assigned_aca_ptc", "tax")
+
+
+@st.composite
+def tax_unit(draw):
+    return {
+        "filing_status": draw(st.sampled_from(FILING_STATUSES)),
+        "adjusted_gross_income": draw(st.integers(0, 300_000)),
+        "income_tax_before_refundable_credits": draw(st.integers(0, 20_000)),
+        "net_investment_income_tax": draw(st.integers(0, 2_000)),
+        "unreported_payroll_tax": draw(st.integers(0, 1_000)),
+        **{credit: draw(st.integers(0, 6_000)) for credit in CREDITS},
+        "delta": draw(st.integers(1, 5_000)),
+    }
+
+
+def _run(units, year):
+    situation = {"people": {}, "tax_units": {}, "households": {}}
+    rows = []
+    for i, unit in enumerate(units):
+        for variant in VARIANTS:
+            inputs = {k: v for k, v in unit.items() if k != "delta"}
+            if variant == "tax":
+                inputs["income_tax_before_refundable_credits"] += unit["delta"]
+            elif variant != "base":
+                inputs[variant] += unit["delta"]
+            name = f"{i}_{variant}"
+            situation["people"][name] = {"age": {year: 40}}
+            situation["tax_units"][name] = {
+                "members": [name],
+                **{k: {year: v} for k, v in inputs.items()},
+            }
+            situation["households"][name] = {
+                "members": [name],
+                "state_code": {year: "OR"},
+            }
+            rows.append((i, variant))
+    simulation = Simulation(situation=situation)
+    values = simulation.calculate("or_federal_tax_liability_subtraction", year)
+    result = {}
+    for (i, variant), value in zip(rows, values):
+        result.setdefault(i, {})[variant] = float(value)
+    # The largest cap, at zero AGI, from the simulation's own parameters.
+    p = (
+        simulation.tax_benefit_system.parameters(f"{year}-01-01")
+        .gov.states["or"]
+        .tax.income.subtractions.federal_tax_liability.cap
+    )
+    zero = np.array([0.0])
+    cap = {
+        "SINGLE": p.single.calc(zero)[0],
+        "JOINT": p.joint.calc(zero)[0],
+        "HEAD_OF_HOUSEHOLD": p.head_of_household.calc(zero)[0],
+        "SEPARATE": p.separate.calc(zero)[0],
+    }
+    return result, cap
+
+
+@pytest.mark.parametrize("year", [2020, 2021, 2025])
+@settings(
+    max_examples=4,
+    deadline=None,
+    derandomize=True,
+    suppress_health_check=[HealthCheck.too_slow, HealthCheck.data_too_large],
+)
+@given(units=st.lists(tax_unit(), min_size=6, max_size=6))
+def test_or_federal_tax_liability_subtraction_invariants(year, units):
+    result, cap = _run(units, year)
+    for i, unit in enumerate(units):
+        r = result[i]
+        base, delta = r["base"], unit["delta"]
+        # 1. Bounds.
+        assert -TOLERANCE <= base
+        assert base <= unit["income_tax_before_refundable_credits"] + TOLERANCE
+        assert base <= cap[unit["filing_status"]] + TOLERANCE
+        # 2. Credits the worksheet never lists.
+        assert r["eitc"] == pytest.approx(base, abs=TOLERANCE)
+        if year == 2021:
+            assert base - delta - TOLERANCE <= r["refundable_ctc"] <= base + TOLERANCE
+        else:
+            assert r["refundable_ctc"] == pytest.approx(base, abs=TOLERANCE)
+        # 3. A listed credit lowers the subtraction by at most its increase.
+        assert base - delta - TOLERANCE <= r["assigned_aca_ptc"] <= base + TOLERANCE
+        # 4. More federal tax raises it by at most the increase.
+        assert base - TOLERANCE <= r["tax"] <= base + delta + TOLERANCE

policyengine_us/tests/policy/baseline/gov/states/or/tax/income/subtractions/or_federal_tax_liability_subtraction.yaml

@@ -4,7 +4,7 @@
     state_code: OR
     filing_status: SINGLE
     adjusted_gross_income: 80_000
-    income_tax: 10_000
+    income_tax_before_refundable_credits: 10_000
     eitc: 0
   output:
     or_federal_tax_liability_subtraction: 7_050
@@ -15,7 +15,8 @@
     state_code: OR
     filing_status: SINGLE
     adjusted_gross_income: 80_000
-    income_tax: 6_000
+    # 6,000 of federal income tax plus the 1,000 EITC it nets out.
+    income_tax_before_refundable_credits: 7_000
     eitc: 1_000
   output:
     or_federal_tax_liability_subtraction: 7_000
@@ -26,7 +27,7 @@
     state_code: OR
     filing_status: SINGLE
     adjusted_gross_income: 145_000
-    income_tax: 10_000
+    income_tax_before_refundable_credits: 10_000
     eitc: 0
   output:
     or_federal_tax_liability_subtraction: 0
@@ -37,7 +38,7 @@
     state_code: OR
     filing_status: SEPARATE
     adjusted_gross_income: 80_000
-    income_tax: 10_000
+    income_tax_before_refundable_credits: 10_000
     eitc: 0
   output:
     or_federal_tax_liability_subtraction: 3_525
@@ -48,7 +49,7 @@
     state_code: OR
     filing_status: SEPARATE
     adjusted_gross_income: 145_000
-    income_tax: 10_000
+    income_tax_before_refundable_credits: 10_000
     eitc: 0
   output:
     or_federal_tax_liability_subtraction: 0
@@ -59,8 +60,8 @@
     state_code: OR
     filing_status: JOINT
     adjusted_gross_income: 80_000
-    income_tax: 10_000
-    eitc: 0 
+    income_tax_before_refundable_credits: 10_000
+    eitc: 0
   output:
     or_federal_tax_liability_subtraction: 7_050
 
@@ -70,7 +71,7 @@
     state_code: OR
     filing_status: JOINT
     adjusted_gross_income: 290_000
-    income_tax: 10_000
+    income_tax_before_refundable_credits: 10_000
     eitc: 0
   output:
     or_federal_tax_liability_subtraction: 0
@@ -85,7 +86,7 @@
     state_code: OR
     filing_status: SINGLE
     adjusted_gross_income: 80_000
-    income_tax: 10_000
+    income_tax_before_refundable_credits: 10_000
     eitc: 0
   output:
     or_federal_tax_liability_subtraction: 8_750
@@ -96,7 +97,7 @@
     state_code: OR
     filing_status: JOINT
     adjusted_gross_income: 255_000
-    income_tax: 30_000
+    income_tax_before_refundable_credits: 30_000
     eitc: 0
   output:
     or_federal_tax_liability_subtraction: 7_000
@@ -107,8 +108,123 @@
     state_code: OR
     filing_status: SEPARATE
     adjusted_gross_income: 80_000
-    income_tax: 10_000
+    income_tax_before_refundable_credits: 10_000
     eitc: 0
   output:
     # 50% x 8,750
     or_federal_tax_liability_subtraction: 4_375
+
+# Federal tax worksheet, Part A, 2025 Publication OR-17, PDF pages 71-72: line 5
+# (federal tax after nonrefundable credits plus other income taxes) less the
+# American Opportunity, refundable adoption and premium tax credits (lines 6 to
+# 9), floored at zero (line 10), then capped (line 12).
+- name: Case 11, 2025 premium tax credit reduces the subtraction.
+  period: 2025
+  input:
+    state_code: OR
+    filing_status: SINGLE
+    adjusted_gross_income: 45_000
+    income_tax_before_refundable_credits: 4_000
+    assigned_aca_ptc: 1_500
+    eitc: 0
+  output:
+    # 4,000 - 1,500
+    or_federal_tax_liability_subtraction: 2_500
+
+- name: Case 12, 2025 additional child tax credit does not reduce the subtraction.
+  period: 2025
+  input:
+    state_code: OR
+    filing_status: JOINT
+    adjusted_gross_income: 60_000
+    # Form 1040 line 22 is 0; a 1,000 additional tax on an early retirement
+    # plan distribution is Schedule 2, line 8 (worksheet line 4).
+    income_tax_before_refundable_credits: 1_000
+    refundable_ctc: 3_000
+    assigned_aca_ptc: 0
+    eitc: 500
+  output:
+    or_federal_tax_liability_subtraction: 1_000
+
+- name: Case 13, 2025 listed credits above the liability floor the subtraction at zero.
+  period: 2025
+  input:
+    state_code: OR
+    filing_status: SINGLE
+    adjusted_gross_income: 40_000
+    income_tax_before_refundable_credits: 2_000
+    refundable_american_opportunity_credit: 1_000
+    assigned_aca_ptc: 1_500
+    eitc: 0
+  output:
+    # max(0, 2,000 - 1,000 - 1,500)
+    or_federal_tax_liability_subtraction: 0
+
+- name: Case 14, 2025 net investment income tax and unreported payroll tax are not subtracted.
+  period: 2025
+  input:
+    state_code: OR
+    filing_status: SINGLE
+    adjusted_gross_income: 90_000
+    income_tax_before_refundable_credits: 5_000
+    # Schedule 2, lines 12 and 5, which worksheet line 4 leaves out.
+    net_investment_income_tax: 600
+    unreported_payroll_tax: 400
+    assigned_aca_ptc: 0
+    eitc: 0
+  output:
+    # 5,000 - 600 - 400
+    or_federal_tax_liability_subtraction: 4_000
+
+# 2021 Publication OR-17, PDF page 72: lines 8 to 12 subtract the refundable
+# child tax credit, the American Opportunity credit, the recovery rebate credit
+# with stimulus payments received, the premium tax credit and the refundable
+# child and dependent care credit.
+- name: Case 15, 2021 refundable child tax, recovery rebate and child care credits reduce the subtraction.
+  period: 2021
+  input:
+    state_code: OR
+    filing_status: JOINT
+    adjusted_gross_income: 80_000
+    income_tax_before_refundable_credits: 9_000
+    refundable_ctc: 3_000
+    recovery_rebate_credit: 2_800
+    cdcc: 1_000
+    assigned_aca_ptc: 0
+    eitc: 0
+  output:
+    # 9,000 - 3,000 - 2,800 - 1,000
+    or_federal_tax_liability_subtraction: 2_200
+
+# 2020 Publication OR-17, PDF page 66: line 8 subtracts the stimulus payments
+# received plus the recovery rebate credit; the additional child tax credit is
+# not listed.
+- name: Case 16, 2020 recovery rebate credit reduces the subtraction but the additional child tax credit does not.
+  period: 2020
+  input:
+    state_code: OR
+    filing_status: JOINT
+    adjusted_gross_income: 50_000
+    income_tax_before_refundable_credits: 3_000
+    recovery_rebate_credit: 2_400
+    refundable_ctc: 1_000
+    assigned_aca_ptc: 0
+    eitc: 0
+  output:
+    # 3,000 - 2,400
+    or_federal_tax_liability_subtraction: 600
+
+- name: Case 17, 2026 premium tax credit and American Opportunity credit reduce the subtraction.
+  period: 2026
+  input:
+    state_code: OR
+    filing_status: HEAD_OF_HOUSEHOLD
+    adjusted_gross_income: 70_000
+    income_tax_before_refundable_credits: 6_000
+    refundable_american_opportunity_credit: 1_000
+    assigned_aca_ptc: 2_000
+    refundable_ctc: 1_700
+    eitc: 0
+  output:
+    # 6,000 - 1,000 - 2,000
+    or_federal_tax_liability_subtraction: 3_000