From 32aec888d8031574fed2c093e62d264ba8057a90 Mon Sep 17 00:00:00 2001 From: Max Ghenis Date: Sun, 11 Oct 2026 16:15:21 -0400 Subject: [PATCH 1/5] Widen the self-employed health insurance limit to farm, partnership and S corporation plans Form 7206 allows the plan to be established under a Schedule F farm, a partnership with K-1 box 14 code A earnings, or an S corporation in which the person is a more-than-2% shareholder (162(l)(5), line 11), one form per plan. Add self_employed_health_insurance_plan_business (default: the business with the largest earned income) and s_corp_shareholder_medicare_wages. Co-Authored-By: Claude Opus 5.5 --- .../self_employed_health_insurance_ald.yaml | 52 ++++++++ ..._health_insurance_earned_income_limit.yaml | 114 +++++++++++++++++- ...ed_health_insurance_earned_income_limit.py | 80 ++++++++---- ...employed_health_insurance_plan_business.py | 35 ++++++ .../s_corp_shareholder_medicare_wages.py | 25 ++++ 5 files changed, 280 insertions(+), 26 deletions(-) create mode 100644 policyengine_us/variables/household/expense/health/self_employed_health_insurance_plan_business.py create mode 100644 policyengine_us/variables/household/income/person/self_employment/s_corp_shareholder_medicare_wages.py diff --git a/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_ald.yaml b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_ald.yaml index 2937a6441e7..e1683e2ce58 100644 --- a/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_ald.yaml +++ b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_ald.yaml @@ -100,3 +100,55 @@ health_insurance_premiums: 3_000 output: self_employed_health_insurance_ald_person: 0 + +- name: Case 7, a farmer whose plan is established under the farm deducts up to farm earned income. + period: 2024 + absolute_error_margin: 0.01 + input: + is_self_employed: true + farm_operations_income: 20_000 + health_insurance_premiums: 25_000 + output: + # Form 7206: line 3 is 25,000; line 13 is 20,000 - 1,412.955. + self_employed_health_insurance_ald_person: 18_587.045 + # 20,000 - 1,412.955 - 18,587.045. + adjusted_gross_income: 0 + +- name: Case 8, a partner deducts up to their K-1 box 14 code A earnings less half of self-employment tax. + period: 2025 + absolute_error_margin: 0.01 + input: + is_self_employed: true + partnership_income: 30_000 + partnership_self_employment_net_earnings: 30_000 + health_insurance_premiums: 40_000 + output: + # Form 7206 line 13: 30,000 - 2,119.4325. + self_employed_health_insurance_ald_person: 27_880.5675 + adjusted_gross_income: 0 + +- name: Case 9, an S corporation shareholder deducts up to their wages from the corporation. + period: 2025 + absolute_error_margin: 0.01 + input: + is_self_employed: true + employment_income: 10_000 + s_corp_shareholder_medicare_wages: 10_000 + health_insurance_premiums: 12_000 + output: + # Form 7206: line 3 is 12,000; line 13 is line 11, 10,000. + self_employed_health_insurance_ald_person: 10_000 + adjusted_gross_income: 0 + +- name: Case 10, a plan named under the smaller farm is limited to the farm's earned income. + period: 2024 + absolute_error_margin: 0.01 + input: + is_self_employed: true + self_employment_income: 30_000 + farm_operations_income: 10_000 + self_employed_health_insurance_plan_business: SCHEDULE_F + health_insurance_premiums: 20_000 + output: + # Form 7206 line 13: 10,000 - 0.25 x 2,825.91. + self_employed_health_insurance_ald_person: 9_293.5225 diff --git a/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.yaml b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.yaml index 4c9af5e3662..8c2390748c0 100644 --- a/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.yaml +++ b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.yaml @@ -1,6 +1,10 @@ # Form 7206 lines 4-13 (Pub. 535 Worksheet 6-A before 2023). Expected values # are hand-computed from the form: the deductible part of self-employment tax # is net profit x 0.9235 x 15.3% / 2 below the Social Security wage base. +# One Form 7206 per plan: the limit is the earned income of the business under +# which the plan is established (self_employed_health_insurance_plan_business), +# or of the person's business with the largest earned income when that input +# is not supplied. - name: Case 1, one business, the limit is net profit less half of self-employment tax. period: 2022 @@ -85,11 +89,119 @@ self_employment_tax_ald_person: 0 self_employed_health_insurance_earned_income_limit: 400 -- name: Case 8, a Schedule C loss leaves no limit. +- name: Case 8, a plan established under a Schedule C business with a loss has no limit. period: 2025 absolute_error_margin: 0.01 input: self_employment_income: -5_000 partnership_self_employment_net_earnings: 20_000 + self_employed_health_insurance_plan_business: SCHEDULE_C output: self_employed_health_insurance_earned_income_limit: 0 + +- name: Case 9, a Schedule C loss leaves the partnership as the plan business. + period: 2025 + absolute_error_margin: 0.01 + input: + self_employment_income: -5_000 + partnership_self_employment_net_earnings: 20_000 + output: + # Line 15: (20,000 - 5,000) x 0.9235 x 0.153 / 2 = 1,059.71625. + self_employment_tax_ald_person: 1_059.71625 + # Line 5 leaves out the loss, so line 6 is 1: 20,000 - 1,059.71625. + self_employed_health_insurance_earned_income_limit: 18_940.28375 + +- name: Case 10, a farm is the only business. + period: 2024 + absolute_error_margin: 0.01 + input: + farm_operations_income: 20_000 + output: + # Line 15: 20,000 x 0.9235 x 0.153 / 2 = 1,412.955. + self_employment_tax_ald_person: 1_412.955 + # Lines 4 to 8 for Schedule F: 20,000 - 1,412.955. + self_employed_health_insurance_earned_income_limit: 18_587.045 + +- name: Case 11, a partnership with K-1 box 14 code A earnings is the only business. + period: 2025 + absolute_error_margin: 0.01 + input: + partnership_self_employment_net_earnings: 30_000 + output: + # Line 15: 30,000 x 0.9235 x 0.153 / 2 = 2,119.4325. + self_employment_tax_ald_person: 2_119.4325 + self_employed_health_insurance_earned_income_limit: 27_880.5675 + +- name: Case 12, without a named business the larger farm is the plan business. + period: 2024 + absolute_error_margin: 0.01 + input: + self_employment_income: 5_000 + farm_operations_income: 40_000 + output: + # Line 15: 45,000 x 0.9235 x 0.153 / 2 = 3,179.14875. + self_employment_tax_ald_person: 3_179.14875 + # Farm: 40,000 - 40,000 / 45,000 x 3,179.14875 = 37,174.09. + # Schedule C: 5,000 - 5,000 / 45,000 x 3,179.14875 = 4,646.76125. + self_employed_health_insurance_earned_income_limit: 37_174.09 + +- name: Case 13, a named Schedule C business sets the limit even when the farm earns more. + period: 2024 + absolute_error_margin: 0.01 + input: + self_employment_income: 5_000 + farm_operations_income: 40_000 + self_employed_health_insurance_plan_business: SCHEDULE_C + output: + self_employed_health_insurance_earned_income_limit: 4_646.76125 + +- name: Case 14, a named farm business takes its own share of the self-employment tax deduction. + period: 2024 + absolute_error_margin: 0.01 + input: + self_employment_income: 30_000 + farm_operations_income: 10_000 + self_employed_health_insurance_plan_business: SCHEDULE_F + output: + # Line 15: 40,000 x 0.9235 x 0.153 / 2 = 2,825.91. + # Lines 5 to 8: 10,000 / 40,000 = 0.25; 10,000 - 0.25 x 2,825.91. + self_employed_health_insurance_earned_income_limit: 9_293.5225 + +- name: Case 15, the plan deduction is attributable to Schedule C, so the partnership earns more. + period: 2023 + absolute_error_margin: 0.01 + input: + self_employment_income: 20_000 + self_employed_pension_contributions_desired: 15_000 + partnership_self_employment_net_earnings: 10_000 + output: + # Line 15: 30,000 x 0.9235 x 0.153 / 2 = 2,119.4325. + self_employment_tax_ald_person: 2_119.4325 + self_employed_pension_contribution_ald_person: 15_000 + # Schedule C: 20,000 - 2 / 3 x 2,119.4325 - 15,000 = 3,587.045. + # Partnership (line 9 is 0): 10,000 - 1 / 3 x 2,119.4325 = 9,293.5225. + self_employed_health_insurance_earned_income_limit: 9_293.5225 + +- name: Case 16, an S corporation shareholder's wages are the earned income. + period: 2025 + absolute_error_margin: 0.01 + input: + employment_income: 50_000 + s_corp_shareholder_medicare_wages: 50_000 + self_employment_income: 10_000 + output: + # Line 11: 50,000. The Schedule C business would give + # 10,000 - 10,000 x 0.9235 x 0.153 / 2 = 9,293.5225. + self_employed_health_insurance_earned_income_limit: 50_000 + +- name: Case 17, a named Schedule C business ignores the S corporation wages. + period: 2025 + absolute_error_margin: 0.01 + input: + employment_income: 50_000 + s_corp_shareholder_medicare_wages: 50_000 + self_employment_income: 10_000 + self_employed_health_insurance_plan_business: SCHEDULE_C + output: + self_employment_tax_ald_person: 706.4775 + self_employed_health_insurance_earned_income_limit: 9_293.5225 diff --git a/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.py b/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.py index 91cb5423d44..c58807e606f 100644 --- a/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.py +++ b/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.py @@ -10,19 +10,31 @@ class self_employed_health_insurance_earned_income_limit(Variable): "Earned income, within the meaning of 26 U.S.C. 401(c), from the " "business under which the health plan is established; the " "self-employed health insurance deduction cannot exceed it (Form " - "7206 line 13). The model treats the person's Schedule C business as " - "that business. Its net profit is reduced by the part of the " - "deductible part of self-employment tax attributable to it (lines 5 " - "to 7) and by the self-employed SEP, SIMPLE and qualified plan " - "deduction (line 9), which the model also bases on Schedule C income. " - "S corporation wages (line 11) are not modeled, and self-employment " + "7206 line 13). The plan may be established under a Schedule C " + "business, a Schedule F farm, a partnership that reports net earnings " + "on Schedule K-1 box 14 code A, or an S corporation in which the " + "person is a more-than-2% shareholder, and earned income from other " + "businesses does not count. For each of the first three, earned income " + "is net profit less the part of the deductible part of " + "self-employment tax attributable to that business (lines 4 to 8) and " + "less the self-employed SEP, SIMPLE and qualified plan deduction " + "attributable to it (lines 9 and 10); the model bases that plan " + "deduction on Schedule C income, so only the Schedule C business " + "subtracts it. For an S corporation it is the shareholder's wages " + "from the corporation (line 11). self_employed_health_insurance_plan_" + "business names the business; when it is not supplied, the limit uses " + "the business with the largest earned income, as one plan established " + "under the person's most profitable business would. Self-employment " "income inputs are already net of any section 911 exclusion (line 12)." ) definition_period = YEAR reference = ( "https://www.law.cornell.edu/uscode/text/26/162#l_2_A", + "https://www.law.cornell.edu/uscode/text/26/162#l_5", "https://www.law.cornell.edu/uscode/text/26/401#c_2_A", "https://www.irs.gov/pub/irs-prior/f7206--2023.pdf#page=1", + # Where a plan may be established, and one Form 7206 per plan. + "https://www.irs.gov/pub/irs-prior/i7206--2023.pdf#page=1", # The worksheet Form 7206 replaced, used before 2023. "https://www.irs.gov/pub/irs-prior/p535--2022.pdf#page=23", # The single-business worksheet in the Form 1040 instructions. @@ -30,35 +42,53 @@ class self_employed_health_insurance_earned_income_limit(Variable): ) def formula(person, period, parameters): - # Line 4: net profit from the business under which the plan is - # established. - plan_business_profit = max_(0, person("total_self_employment_income", period)) + # Line 4 for each business that can establish a plan: its net profit, + # or a partner's net earnings from self-employment. + schedule_c_profit = max_(0, person("total_self_employment_income", period)) + farm_profit = max_(0, person("farm_operations_income", period)) + partnership_profit = max_( + 0, person("partnership_self_employment_net_earnings", period) + ) # Line 5: net profits of every business whose earnings are subject to # self-employment tax, leaving out net losses. - other_business_profits = max_( - 0, person("farm_operations_income", period) - ) + max_(0, person("partnership_self_employment_net_earnings", period)) - all_business_profits = plan_business_profit + other_business_profits - # Line 6: the plan business's share of those profits. - plan_business_share = np.divide( - plan_business_profit, + all_business_profits = schedule_c_profit + farm_profit + partnership_profit + # Lines 6 and 7: each business takes the deductible part of + # self-employment tax (Schedule 1 line 15) in proportion to its share + # of line 5. + self_employment_tax_deduction = person("self_employment_tax_ald_person", period) + self_employment_tax_deduction_rate = np.divide( + self_employment_tax_deduction, all_business_profits, out=np.zeros_like(all_business_profits), where=all_business_profits > 0, ) - # Lines 7 and 8: the deductible part of self-employment tax - # (Schedule 1 line 15) attributable to the plan business. - self_employment_tax_deduction = ( - person("self_employment_tax_ald_person", period) * plan_business_share - ) # Lines 9 and 10: the SEP, SIMPLE and qualified plan deduction - # (Schedule 1 line 16) for the plan business. + # (Schedule 1 line 16) is attributable to the Schedule C business. retirement_plan_deduction = person( "self_employed_pension_contribution_ald_person", period ) - return max_( + # Line 10 for each self-employment business. + schedule_c = max_( 0, - plan_business_profit - - self_employment_tax_deduction + schedule_c_profit * (1 - self_employment_tax_deduction_rate) - retirement_plan_deduction, ) + farm = max_(0, farm_profit * (1 - self_employment_tax_deduction_rate)) + partnership = max_( + 0, partnership_profit * (1 - self_employment_tax_deduction_rate) + ) + # Line 11: an S corporation shareholder's wages from the corporation. + s_corporation = max_(0, person("s_corp_shareholder_medicare_wages", period)) + plan_business = person("self_employed_health_insurance_plan_business", period) + businesses = plan_business.possible_values + return select( + [ + plan_business == businesses.SCHEDULE_C, + plan_business == businesses.SCHEDULE_F, + plan_business == businesses.PARTNERSHIP, + plan_business == businesses.S_CORPORATION, + ], + [schedule_c, farm, partnership, s_corporation], + # UNSPECIFIED: the business with the largest earned income. + default=max_(max_(schedule_c, farm), max_(partnership, s_corporation)), + ) diff --git a/policyengine_us/variables/household/expense/health/self_employed_health_insurance_plan_business.py b/policyengine_us/variables/household/expense/health/self_employed_health_insurance_plan_business.py new file mode 100644 index 00000000000..1d665c415fa --- /dev/null +++ b/policyengine_us/variables/household/expense/health/self_employed_health_insurance_plan_business.py @@ -0,0 +1,35 @@ +from policyengine_us.model_api import * + + +class SelfEmployedHealthInsurancePlanBusiness(Enum): + SCHEDULE_C = "Schedule C business" + SCHEDULE_F = "Schedule F farm" + PARTNERSHIP = "Partnership" + S_CORPORATION = "S corporation" + UNSPECIFIED = "Unspecified" + + +class self_employed_health_insurance_plan_business(Variable): + value_type = Enum + entity = Person + possible_values = SelfEmployedHealthInsurancePlanBusiness + default_value = SelfEmployedHealthInsurancePlanBusiness.UNSPECIFIED + definition_period = YEAR + label = ( + "Business under which the self-employed health insurance plan is established" + ) + documentation = ( + "The trade or business under which the person's health insurance plan " + "is established, or considered to be established: the Schedule C " + "business, the Schedule F farm, a partnership in which the person has " + "Schedule K-1 box 14 code A net earnings, or an S corporation in which " + "the person is a more-than-2% shareholder. The self-employed health " + "insurance deduction is limited to the earned income from that " + "business alone (one Form 7206 per plan). UNSPECIFIED (the default) " + "means the business was not supplied, and the limit uses the person's " + "business with the largest earned income." + ) + reference = ( + "https://www.law.cornell.edu/uscode/text/26/162#l_2_A", + "https://www.irs.gov/pub/irs-prior/i7206--2023.pdf#page=1", + ) diff --git a/policyengine_us/variables/household/income/person/self_employment/s_corp_shareholder_medicare_wages.py b/policyengine_us/variables/household/income/person/self_employment/s_corp_shareholder_medicare_wages.py new file mode 100644 index 00000000000..7b1d2c67f3a --- /dev/null +++ b/policyengine_us/variables/household/income/person/self_employment/s_corp_shareholder_medicare_wages.py @@ -0,0 +1,25 @@ +from policyengine_us.model_api import * + + +class s_corp_shareholder_medicare_wages(Variable): + value_type = float + entity = Person + label = "S corporation shareholder Medicare wages" + unit = USD + documentation = ( + "Medicare wages (Form W-2 box 5) from an S corporation in which the " + "person is a more-than-2% shareholder (section 1372(b)). Section " + "162(l)(5) treats these wages as the shareholder's earned income for " + "the self-employed health insurance deduction (Form 7206 line 11). " + "Like the other income inputs, enter the amount left after any " + "section 911 foreign earned income exclusion attributable to these " + "wages (line 12). They are part of employment_income, not in addition " + "to it." + ) + definition_period = YEAR + reference = ( + "https://www.law.cornell.edu/uscode/text/26/162#l_5", + "https://www.law.cornell.edu/uscode/text/26/1372", + "https://www.irs.gov/pub/irs-prior/f7206--2023.pdf#page=1", + ) + uprating = "calibration.gov.irs.soi.employment_income" From 97e05a7935f3a0e6eee7f9c35fe31297b55f9f3e Mon Sep 17 00:00:00 2001 From: Max Ghenis Date: Sun, 11 Oct 2026 16:28:17 -0400 Subject: [PATCH 2/5] Extend the Form 7206 properties to farm, partnership and S corporation plans Co-Authored-By: Claude Opus 5.5 --- ...lf_employed_health_insurance_properties.py | 259 ++++++++++++------ 1 file changed, 168 insertions(+), 91 deletions(-) diff --git a/policyengine_us/tests/unit/test_self_employed_health_insurance_properties.py b/policyengine_us/tests/unit/test_self_employed_health_insurance_properties.py index 9d6cf8ffe5a..b2e7398e6c9 100644 --- a/policyengine_us/tests/unit/test_self_employed_health_insurance_properties.py +++ b/policyengine_us/tests/unit/test_self_employed_health_insurance_properties.py @@ -4,29 +4,44 @@ within the meaning of section 401(c), from the business under which the plan is established. Section 401(c)(2)(A)(v) and (vi) determine that earned income with regard to the section 404 plan deduction and the section 164(f) deduction -for half of self-employment tax. Form 7206 (Pub. 535 Worksheet 6-A before -2023) computes it as the plan business's net profit (line 4), less the part of -Schedule 1 line 15 attributable to that business by its share of all net -profits subject to self-employment tax (lines 5 to 8), less the Schedule 1 line -16 plan deduction (lines 9 and 10); the deduction is the smaller of the -premiums and that amount (line 14). The model treats a person's Schedule C -income as the plan business. +for half of self-employment tax, and section 162(l)(5) makes an S corporation +shareholder's wages from the corporation their earned income. Form 7206 (Pub. +535 Worksheet 6-A before 2023), one form per plan, computes it as the plan +business's net profit (line 4), less the part of Schedule 1 line 15 +attributable to that business by its share of all net profits subject to +self-employment tax (lines 5 to 8), less the Schedule 1 line 16 plan deduction +attributable to it (lines 9 and 10), or as the S corporation wages (line 11); +the deduction is the smaller of the premiums and that amount (line 14). The +plan business may be a Schedule C business, a Schedule F farm, a partnership +(K-1 box 14 code A) or an S corporation. When +self_employed_health_insurance_plan_business is not supplied, the model uses +the business with the largest earned income. The model bases the line 16 plan +deduction on Schedule C income, so only the Schedule C business subtracts it. Hypothesis draws batches of self-employed single filers and runs each batch as -one vectorized baseline simulation. Each drawn filer appears twice, the second -time with higher premiums. For every filer and year: - -1. Reference: the limit equals a closed-form Form 7206 computation that takes - lines 15 and 16 from the model, and line 15 equals half of the - self-employment tax. -2. Bounds: 0 <= deduction <= premiums, and deduction <= Schedule C profit less - the attributable part of line 15 (earned income after the self-employment - tax deduction), which never exceeds Schedule C profit. -3. Monotone in premiums: raising premiums by d raises the deduction by at +one vectorized baseline simulation. Each drawn filer appears six times: with +no named plan business, again with higher premiums, and once naming each of +the four businesses. For every filer and year: + +1. Reference: each limit equals a closed-form Form 7206 computation for its + plan business that takes lines 15 and 16 from the model, and line 15 + equals half of the self-employment tax. Without a named business, the + limit is the largest of the four. +2. Differential: the limit without a named business equals the largest of the + limits the model computes when each business is named. +3. Bounds: 0 <= deduction <= premiums; the limit is at least the Schedule C + limit (widening the base never lowers the deduction) and at most the sum + of the four businesses' limits (one plan cannot pool businesses). +4. Monotone in premiums: raising premiums by d raises the deduction by at least 0 and at most d, and leaves the limit unchanged. -4. The deduction never makes adjusted gross income negative for a filer whose - only income is Schedule C profit: such a filer with negative AGI (from the - plan deduction) has no health insurance deduction. +5. For a filer with no business losses whose income is wages and + self-employment income, the deduction never takes adjusted gross income + below the Schedule C line 10 amount before its floor at zero. That amount + is negative only when the plan deduction exceeds Schedule C earned income, + which the plan contribution limit (based on Schedule C profit, not + 401(c) earned income) allows; otherwise adjusted gross income stays at or + above zero. Intended: a plan under the farm or partnership does not + subtract the Schedule C plan deduction. """ import numpy as np @@ -36,8 +51,15 @@ from policyengine_us import Simulation TOLERANCE = 0.01 +# Model outputs are float32, whose spacing exceeds a cent above $131,072. +RTOL = 1e-6 YEARS = [2022, 2024, 2026] PREMIUM_RAISE = 2_500 +BUSINESSES = ["SCHEDULE_C", "SCHEDULE_F", "PARTNERSHIP", "S_CORPORATION"] +# (name prefix, named plan business, premium raise) for each copy of a filer. +COPIES = [("u", "UNSPECIFIED", 0), ("r", "UNSPECIFIED", PREMIUM_RAISE)] + [ + (business.lower(), business, 0) for business in BUSINESSES +] def every_year(value): @@ -45,12 +67,11 @@ def every_year(value): def build_situation(filers): - """One single-filer household per drawn filer, then again with higher premiums.""" + """One single-filer household for each copy of each drawn filer.""" people, tax_units, households = {}, {}, {} - for raised in (False, True): + for prefix, plan_business, raise_ in COPIES: for i, filer in enumerate(filers): - name = f"{'r' if raised else 'b'}{i}" - premiums = filer["premiums"] + (PREMIUM_RAISE if raised else 0) + name = f"{prefix}{i}" people[name] = { "age": every_year(45), "is_self_employed": every_year(True), @@ -59,11 +80,18 @@ def build_situation(filers): "partnership_self_employment_net_earnings": every_year( filer["partnership"] ), - "employment_income": every_year(filer["wages"]), + # The partnership's earnings also enter gross income. + "partnership_income": every_year(filer["partnership"]), + # S corporation wages are part of employment income. + "employment_income": every_year(filer["wages"] + filer["s_corp"]), + "s_corp_shareholder_medicare_wages": every_year(filer["s_corp"]), "self_employed_pension_contributions_desired": every_year( filer["plan"] ), - "health_insurance_premiums": every_year(premiums), + "health_insurance_premiums": every_year(filer["premiums"] + raise_), + "self_employed_health_insurance_plan_business": every_year( + plan_business + ), } tax_units[name] = {"members": [name]} households[name] = {"members": [name], "state_code": every_year("TX")} @@ -71,24 +99,50 @@ def build_situation(filers): return situation, len(filers) -def form_7206_limit(schedule_c, farm, partnership, line_15, line_16): - """Form 7206 lines 4 to 10 and 13, with lines 15 and 16 as given amounts.""" - line_4 = np.maximum(schedule_c, 0) - line_5 = line_4 + np.maximum(farm, 0) + np.maximum(partnership, 0) - line_6 = np.where(line_5 > 0, line_4 / np.where(line_5 > 0, line_5, 1), 0) - line_8 = line_4 - line_15 * line_6 - return np.maximum(line_8 - line_16, 0), line_8 +def form_7206_limits(schedule_c, farm, partnership, s_corp, line_15, line_16): + """Form 7206 line 13 for each plan business, with lines 15 and 16 given. + + Also returns the Schedule C line 10 amount before its floor at zero. + """ + line_4 = { + "SCHEDULE_C": np.maximum(schedule_c, 0), + "SCHEDULE_F": np.maximum(farm, 0), + "PARTNERSHIP": np.maximum(partnership, 0), + } + line_5 = sum(line_4.values()) + safe_line_5 = np.where(line_5 > 0, line_5, 1) + line_10 = {} + for business, profit in line_4.items(): + line_6 = np.where(line_5 > 0, profit / safe_line_5, 0) + line_8 = profit - line_15 * line_6 + line_9 = line_16 if business == "SCHEDULE_C" else 0 + line_10[business] = line_8 - line_9 + line_13 = {business: np.maximum(amount, 0) for business, amount in line_10.items()} + line_13["S_CORPORATION"] = np.maximum(s_corp, 0) + return line_13, line_10["SCHEDULE_C"] + + +def close(actual, expected): + np.testing.assert_allclose(actual, expected, rtol=RTOL, atol=TOLERANCE) -def column(filers, key, n_copies=2): - return np.tile(np.array([float(f[key]) for f in filers]), n_copies) +def at_least(actual, bound): + return np.all(actual >= bound - TOLERANCE - RTOL * np.abs(bound)) + + +def column(filers, key): + return np.array([float(f[key]) for f in filers]) def check_properties(sim, filers, n): + def copy(array, prefix): + index = [p for p, _, _ in COPIES].index(prefix) + return array[index * n : (index + 1) * n] + schedule_c = column(filers, "schedule_c") farm = column(filers, "farm") partnership = column(filers, "partnership") - wages = column(filers, "wages") + s_corp = column(filers, "s_corp") for year in YEARS: premiums = sim.calculate("self_employed_health_insurance_premiums", year) limit = sim.calculate( @@ -98,34 +152,51 @@ def check_properties(sim, filers, n): line_15 = sim.calculate("self_employment_tax_ald_person", year) line_16 = sim.calculate("self_employed_pension_contribution_ald_person", year) se_tax = sim.calculate("self_employment_tax", year) + agi = sim.calculate("adjusted_gross_income", year) - # 1. Reference. - np.testing.assert_allclose(line_15, se_tax / 2, atol=TOLERANCE) - expected_limit, after_se_tax = form_7206_limit( - schedule_c, farm, partnership, line_15, line_16 - ) - np.testing.assert_allclose(limit, expected_limit, atol=TOLERANCE) - np.testing.assert_allclose( - deduction, np.minimum(premiums, expected_limit), atol=TOLERANCE + # Lines 15 and 16 and the deduction for every copy. + close(line_15, se_tax / 2) + close(deduction, np.minimum(premiums, limit)) + # Lines 15 and 16 do not depend on premiums or the named business. + for prefix, _, _ in COPIES[1:]: + close(copy(line_15, prefix), copy(line_15, "u")) + close(copy(line_16, prefix), copy(line_16, "u")) + line_13, schedule_c_line_10 = form_7206_limits( + schedule_c, + farm, + partnership, + s_corp, + copy(line_15, "u"), + copy(line_16, "u"), ) + largest = np.max(np.stack(list(line_13.values())), axis=0) - # 2. Bounds. + # 1. Reference. + close(copy(limit, "u"), largest) + for business in BUSINESSES: + close(copy(limit, business.lower()), line_13[business]) + + # 2. Differential: the default equals the best named business. + named = np.stack([copy(limit, b.lower()) for b in BUSINESSES]) + close(copy(limit, "u"), named.max(axis=0)) + + # 3. Bounds. assert np.all(deduction >= 0) - assert np.all(deduction <= premiums + TOLERANCE) - assert np.all(deduction <= np.maximum(after_se_tax, 0) + TOLERANCE) - assert np.all(after_se_tax <= np.maximum(schedule_c, 0) + TOLERANCE) - - # 3. Monotone and 1-Lipschitz in premiums; the limit ignores premiums. - base, raised = deduction[:n], deduction[n:] - assert np.all(raised >= base - TOLERANCE) - assert np.all(raised <= base + PREMIUM_RAISE + TOLERANCE) - np.testing.assert_allclose(limit[:n], limit[n:], atol=TOLERANCE) - - # 4. The deduction never takes Schedule C-only AGI below zero. - schedule_c_only = (farm == 0) & (partnership == 0) & (wages == 0) - agi = sim.calculate("adjusted_gross_income", year) - negative_agi = schedule_c_only & (agi < -TOLERANCE) - assert np.all(deduction[negative_agi] <= TOLERANCE) + assert at_least(premiums, deduction) + assert at_least(copy(limit, "u"), line_13["SCHEDULE_C"]) + assert at_least(named.sum(axis=0), copy(limit, "u")) + + # 4. Monotone and 1-Lipschitz in premiums; the limit ignores premiums. + base, raised = copy(deduction, "u"), copy(deduction, "r") + assert at_least(raised, base) + assert at_least(base + PREMIUM_RAISE, raised) + close(copy(limit, "u"), copy(limit, "r")) + + # 5. Adjusted gross income floor for filers with no business losses. + no_losses = (schedule_c >= 0) & (farm >= 0) & (partnership >= 0) + floor = np.minimum(0, schedule_c_line_10) + for prefix, _, _ in COPIES: + assert at_least(copy(agi, prefix)[no_losses], floor[no_losses]) money = st.integers(0, 120_000) @@ -137,6 +208,7 @@ def check_properties(sim, filers, n): ), "farm": st.one_of(st.just(0), st.integers(-30_000, 100_000)), "partnership": st.one_of(st.just(0), st.integers(-30_000, 100_000)), + "s_corp": st.one_of(st.just(0), st.integers(0, 150_000)), "wages": st.one_of(st.just(0), st.integers(0, 250_000)), "plan": st.one_of(st.just(0), money), "premiums": st.one_of(st.sampled_from([0, 1_000, 6_000]), money), @@ -157,43 +229,48 @@ def test_deduction_follows_form_7206(filers): check_properties(Simulation(situation=situation), filers, n) +def filer(schedule_c=0, farm=0, partnership=0, s_corp=0, wages=0, plan=0, premiums=0): + return dict( + schedule_c=schedule_c, + farm=farm, + partnership=partnership, + s_corp=s_corp, + wages=wages, + plan=plan, + premiums=premiums, + ) + + def test_reviewer_example_and_boundaries(): - """Fixed filers: the $2,000 example, the $400 threshold, and a wage-base case.""" + """Fixed filers: the $2,000 example, the $400 threshold, and the new bases.""" filers = [ - dict(schedule_c=2_000, farm=0, partnership=0, wages=0, plan=0, premiums=6_000), - dict(schedule_c=434, farm=0, partnership=0, wages=0, plan=0, premiums=6_000), - dict(schedule_c=433, farm=0, partnership=0, wages=0, plan=0, premiums=6_000), - dict( - schedule_c=10_000, - farm=0, - partnership=0, - wages=250_000, - plan=0, - premiums=20_000, - ), - dict( - schedule_c=30_000, - farm=10_000, - partnership=0, - wages=0, - plan=0, - premiums=40_000, - ), - dict( - schedule_c=20_000, - farm=0, - partnership=0, - wages=0, - plan=20_000, - premiums=5_000, - ), + filer(schedule_c=2_000, premiums=6_000), + filer(schedule_c=434, premiums=6_000), + filer(schedule_c=433, premiums=6_000), + filer(schedule_c=10_000, wages=250_000, premiums=20_000), + filer(schedule_c=30_000, farm=10_000, premiums=40_000), + filer(schedule_c=20_000, plan=20_000, premiums=5_000), + # A farm or a partnership as the only business. + filer(farm=2_000, premiums=6_000), + filer(partnership=2_000, premiums=6_000), + # S corporation wages. + filer(s_corp=5_000, premiums=6_000), + # A plan deduction at the Schedule C profit; the farm is the plan + # business, so adjusted gross income falls below zero (property 5). + filer(schedule_c=20_000, plan=20_000, farm=50_000, premiums=100_000), ] situation, n = build_situation(filers) sim = Simulation(situation=situation) check_properties(sim, filers, n) - deduction = sim.calculate("self_employed_health_insurance_ald_person", 2022) - # 2,000 - 2,000 x 0.9235 x 0.153 / 2. - assert abs(deduction[0] - 1_858.7045) < TOLERANCE + deduction = sim.calculate("self_employed_health_insurance_ald_person", 2022)[:n] + # 2,000 - 2,000 x 0.9235 x 0.153 / 2, for a Schedule C business, a farm and + # a partnership alike. + for i in (0, 6, 7): + assert abs(deduction[i] - 1_858.7045) < TOLERANCE # 434 x 0.9235 = 400.80 owes self-employment tax; 433 x 0.9235 = 399.88 does not. assert deduction[1] < 434 - TOLERANCE assert abs(deduction[2] - 433) < TOLERANCE + # Line 11: the S corporation wages, with no self-employment tax. + assert abs(deduction[8] - 5_000) < TOLERANCE + # Farm line 13: 50,000 - 50,000 / 70,000 x (70,000 x 0.9235 x 0.153 / 2). + assert abs(deduction[9] - (50_000 - 50_000 * 0.9235 * 0.153 / 2)) < TOLERANCE From 319445c2e7d86788e4dec8cbd4e2b7d50d27a219 Mon Sep 17 00:00:00 2001 From: Max Ghenis Date: Sun, 11 Oct 2026 16:35:37 -0400 Subject: [PATCH 3/5] Add changelog fragment Co-Authored-By: Claude Opus 5.5 --- changelog.d/sehi-plan-business-base.fixed.md | 1 + 1 file changed, 1 insertion(+) create mode 100644 changelog.d/sehi-plan-business-base.fixed.md diff --git a/changelog.d/sehi-plan-business-base.fixed.md b/changelog.d/sehi-plan-business-base.fixed.md new file mode 100644 index 00000000000..bc168c32248 --- /dev/null +++ b/changelog.d/sehi-plan-business-base.fixed.md @@ -0,0 +1 @@ +Let the self-employed health insurance deduction's earned income limit come from a Schedule F farm, a partnership's K-1 box 14 code A earnings, or a more-than-2% S corporation shareholder's wages when the plan is established under that business (26 U.S.C. 162(l)(2)(A) and (l)(5), Form 7206); the business can be named, and otherwise the person's business with the largest earned income is used. From 572c882d14d1c70f96eb22bf5aaf12a49c511343 Mon Sep 17 00:00:00 2001 From: Max Ghenis Date: Sun, 11 Oct 2026 16:37:02 -0400 Subject: [PATCH 4/5] State the property 5 floor without depending on the plan contribution limit Co-Authored-By: Claude Opus 5.5 --- ...est_self_employed_health_insurance_properties.py | 13 ++++++------- 1 file changed, 6 insertions(+), 7 deletions(-) diff --git a/policyengine_us/tests/unit/test_self_employed_health_insurance_properties.py b/policyengine_us/tests/unit/test_self_employed_health_insurance_properties.py index b2e7398e6c9..0e4a16eb642 100644 --- a/policyengine_us/tests/unit/test_self_employed_health_insurance_properties.py +++ b/policyengine_us/tests/unit/test_self_employed_health_insurance_properties.py @@ -37,11 +37,10 @@ 5. For a filer with no business losses whose income is wages and self-employment income, the deduction never takes adjusted gross income below the Schedule C line 10 amount before its floor at zero. That amount - is negative only when the plan deduction exceeds Schedule C earned income, - which the plan contribution limit (based on Schedule C profit, not - 401(c) earned income) allows; otherwise adjusted gross income stays at or - above zero. Intended: a plan under the farm or partnership does not - subtract the Schedule C plan deduction. + is negative only when the Schedule 1 line 16 plan deduction exceeds the + Schedule C business's net profit less its share of line 15; otherwise + adjusted gross income stays at or above zero. Intended: a plan under the + farm or partnership does not subtract the Schedule C plan deduction. """ import numpy as np @@ -255,8 +254,8 @@ def test_reviewer_example_and_boundaries(): filer(partnership=2_000, premiums=6_000), # S corporation wages. filer(s_corp=5_000, premiums=6_000), - # A plan deduction at the Schedule C profit; the farm is the plan - # business, so adjusted gross income falls below zero (property 5). + # A plan deduction as large as the Schedule C profit, with the farm as + # the plan business (property 5). filer(schedule_c=20_000, plan=20_000, farm=50_000, premiums=100_000), ] situation, n = build_situation(filers) From 47bba5e89375986057686ff7fc2f1952644436bc Mon Sep 17 00:00:00 2001 From: Max Ghenis Date: Sun, 11 Oct 2026 16:38:07 -0400 Subject: [PATCH 5/5] Clarify the default plan business and the S corporation premium gate Co-Authored-By: Claude Opus 5.5 --- .../self_employed_health_insurance_earned_income_limit.py | 6 +++--- .../self_employment/s_corp_shareholder_medicare_wages.py | 3 ++- 2 files changed, 5 insertions(+), 4 deletions(-) diff --git a/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.py b/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.py index c58807e606f..9fda60d1bcb 100644 --- a/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.py +++ b/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.py @@ -23,9 +23,9 @@ class self_employed_health_insurance_earned_income_limit(Variable): "subtracts it. For an S corporation it is the shareholder's wages " "from the corporation (line 11). self_employed_health_insurance_plan_" "business names the business; when it is not supplied, the limit uses " - "the business with the largest earned income, as one plan established " - "under the person's most profitable business would. Self-employment " - "income inputs are already net of any section 911 exclusion (line 12)." + "the business with the largest earned income, the most that one plan " + "can deduct. Self-employment income inputs are already net of any " + "section 911 exclusion (line 12)." ) definition_period = YEAR reference = ( diff --git a/policyengine_us/variables/household/income/person/self_employment/s_corp_shareholder_medicare_wages.py b/policyengine_us/variables/household/income/person/self_employment/s_corp_shareholder_medicare_wages.py index 7b1d2c67f3a..c9958cc6877 100644 --- a/policyengine_us/variables/household/income/person/self_employment/s_corp_shareholder_medicare_wages.py +++ b/policyengine_us/variables/household/income/person/self_employment/s_corp_shareholder_medicare_wages.py @@ -14,7 +14,8 @@ class s_corp_shareholder_medicare_wages(Variable): "Like the other income inputs, enter the amount left after any " "section 911 foreign earned income exclusion attributable to these " "wages (line 12). They are part of employment_income, not in addition " - "to it." + "to it. As for other self-employed people, the deduction counts " + "health_insurance_premiums only when is_self_employed is true." ) definition_period = YEAR reference = (