Base Alabama's miscellaneous itemized deduction on the expenses and Alabama's 2% floor, not the suspended federal deduction

changelog.d/al-misc-deduction-own-floor.fixed.md

@@ -0,0 +1 @@
+Compute Alabama's miscellaneous itemized deduction from unreimbursed employee and other section 212 expenses above 2% of Alabama AGI, which Alabama kept after the federal suspension, instead of from the federal deduction.

policyengine_us/tests/policy/baseline/gov/states/al/tax/income/deductions/itemized/al_misc_deduction.yaml

@@ -1,20 +1,48 @@
 - name: Alabama work related itemized deductions unit test 1
   period: 2021
   input:
-    misc_deduction: 2_000
+    total_misc_deductions: 2_000
     al_agi: 70_000
     state_code: AL
   output:
     al_misc_deduction: 600
-#2000-70000*0.2=600
+#2000-70000*0.02=600
 
 
 - name: Alabama work related itemized deductions unit test 2
   period: 2021
   input:
-    misc_deduction: 7_000
+    total_misc_deductions: 7_000
     al_agi: 30_000
     state_code: AL
   output:
     al_misc_deduction: 6_400
 #7000-30000*0.02=6400
+
+# Ala. Code 40-18-15(a)(23); 2024 Form 40 instructions, Schedule A lines 20 to
+# 24: unreimbursed employee expenses (line 20) and other expenses such as tax
+# preparation fees (line 21), less 2% of Alabama AGI (line 23). The federal
+# miscellaneous deduction is zero from 2018.
+- name: Case 3, 2025 Alabama keeps the miscellaneous deduction the federal return suspends.
+  period: 2025
+  input:
+    unreimbursed_business_employee_expenses: 3_000
+    tax_preparation_fees: 500
+    al_agi: 50_000
+    state_code: AL
+  output:
+    misc_deduction: 0
+    # 3,500 - 2% * 50,000
+    al_misc_deduction: 2_500
+
+- name: Case 4, 2017 only Alabama's 2% floor applies, not the federal floor as well.
+  period: 2017
+  input:
+    adjusted_gross_income: 100_000
+    total_misc_deductions: 5_000
+    al_agi: 90_000
+    state_code: AL
+  output:
+    # Federal deduction 5,000 - 2,000 = 3,000; Alabama 5,000 - 1,800.
+    misc_deduction: 3_000
+    al_misc_deduction: 3_200

policyengine_us/variables/gov/states/al/tax/income/deductions/itemized/al_misc_deduction.py

@@ -11,11 +11,18 @@ class al_misc_deduction(Variable):
         "https://law.justia.com/codes/alabama/2022/title-40/chapter-18/article-1/section-40-18-15/",  # Code of Alabama Section 40-18-15, h(23)
         "https://www.revenue.alabama.gov/ultraviewer/viewer/basic_viewer/index.html?form=2023/01/22f40schabdc_blk.pdf#page=1",  # 2022 Schedule A (Form 1040)
         "https://www.revenue.alabama.gov/ultraviewer/viewer/basic_viewer/index.html?form=2022/06/21f40schabdc_blk.pdf#page=1",  # 2021 Schedule A (Form 1040)
+        # 2024 Form 40 instructions, Schedule A lines 20 to 24.
+        "https://www.revenue.alabama.gov/wp-content/uploads/2025/01/24f40bk.pdf#page=20",
     )
     defined_for = StateCode.AL
 
     def formula(tax_unit, period, parameters):
-        misc_expense = add(tax_unit, period, ["misc_deduction"])
+        # Ala. Code 40-18-15(a)(23) allows unreimbursed employee business
+        # expenses and section 212 expenses above 2% of Alabama AGI. Alabama
+        # kept this deduction after the federal suspension (26 U.S.C. 67(g)),
+        # so start from the expenses, not the federal misc_deduction, which is
+        # zero from 2018 and already net of the federal 2% floor.
+        misc_expense = tax_unit("total_misc_deductions", period)
         p = parameters(period).gov.states.al.tax.income.deductions.itemized
         misc_floor = p.work_related_expense_rate * tax_unit("al_agi", period)
         return max_(0, misc_expense - misc_floor)