Let farm and partnership plans take the self-employed plan deduction

CHANGELOG.md

@@ -1,3 +1,10 @@
+## [2.39.0] - 2026-10-11
+
+### Added
+
+- Add taxsim_v17, TAXSIM-35's itemized deductions in taxable income (0 for filers who take the standard deduction).
+
+
 ## [2.38.24] - 2026-10-11
 
 ### Fixed

changelog.d/fix-known-violations-il-aabd.fixed.md

@@ -0,0 +1 @@
+Remove the Illinois AABD expense exemption from the known person-adds-group violations, which #9902 fixed, so the ratchet test passes again.

changelog.d/fix-se-pension-earned-income-limit.fixed.md

@@ -0,0 +1 @@
+Limit the self-employed SEP, SIMPLE and qualified plan deduction to the Pub. 560 maximum, based on Schedule C net profit less the deductible part of self-employment tax, so it can no longer reach 100% of profit or make AGI negative.

changelog.d/se-plan-business-farm-partnership.fixed.md

@@ -0,0 +1 @@
+Let self-employed people whose SEP, SIMPLE or qualified plan is established under a farm (Schedule F) or partnership (K-1 box 14 code A) business deduct their contributions, by default from the combined earned income of every profitable self-employment business, with the self-employed health insurance limit subtracting only the plan deduction attributable to the health plan's business.

policyengine_us/parameters/gov/irs/gross_income/retirement_contributions/limit/profit_sharing_deduction_rate.yaml

@@ -0,0 +1,18 @@
+description: The US limits the deduction for employer contributions to a SEP or profit-sharing plan to this share of participants' compensation.
+values:
+  2002-01-01: 0.25
+metadata:
+  unit: /1
+  period: year
+  label: SEP and profit-sharing plan employer deduction limit rate
+  reference:
+  - title: 26 U.S. Code § 404(a)(3)(A)(i)(I) - Stock bonus and profit-sharing trusts
+    href: https://www.law.cornell.edu/uscode/text/26/404#a_3_A_i_I
+  - title: 26 U.S. Code § 404(h)(1)(C) - Simplified employee pensions
+    href: https://www.law.cornell.edu/uscode/text/26/404#h_1_C
+  - title: Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16, § 616 (15 to 25 percent, years beginning after 2001)
+    href: https://www.congress.gov/107/plaws/publ16/PLAW-107publ16.pdf#page=66
+  - title: IRS Publication 560 (2025), Rate Table for Self-Employed
+    href: https://www.irs.gov/pub/irs-pdf/p560.pdf#page=40
+  - title: IRS Publication 560 (2022), Rate Table for Self-Employed
+    href: https://www.irs.gov/pub/irs-prior/p560--2022.pdf#page=35

policyengine_us/tests/code_health/test_no_group_variables_in_person_adds.py

@@ -113,7 +113,6 @@
 KNOWN_VIOLATIONS = {
     # PolicyEngine/policyengine-us#9888.
     ("mt_misc_deductions", "adds", "casualty_loss_deduction"),
-    ("il_aabd_expense_exemption_person", "adds", "state_withheld_income_tax"),
     (
         "ca_riv_general_relief_countable_property_value",
         "adds",

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_ald.yaml

@@ -152,3 +152,18 @@
   output:
     # Form 7206 line 13: 10,000 - 0.25 x 2,825.91.
     self_employed_health_insurance_ald_person: 9_293.5225
+
+- name: Case 11, a farmer with health and retirement plans under the farm ends with AGI of zero.
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    is_self_employed: true
+    farm_operations_income: 20_000
+    self_employed_pension_contributions_desired: 3_000
+    health_insurance_premiums: 20_000
+  output:
+    # Form 7206 line 13: 20,000 - 1,412.955 - 3,000 = 15,587.045.
+    self_employed_pension_contribution_ald_person: 3_000
+    self_employed_health_insurance_ald_person: 15_587.045
+    # 20,000 - 1,412.955 - 3,000 - 15,587.045.
+    adjusted_gross_income: 0

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

@@ -4,7 +4,10 @@
 # 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.
+# is not supplied. Line 9 is the part of the Schedule 1 line 16 retirement plan
+# deduction attributable to that business: the retirement plan's businesses
+# (self_employed_pension_plan_business, by default every profitable one) take
+# it in proportion to their line 8 amounts.
 
 - name: Case 1, one business, the limit is net profit less half of self-employment tax.
   period: 2022
@@ -167,12 +170,13 @@
     # 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.
+- name: Case 15, a retirement plan under the Schedule C business leaves the partnership earning more.
   period: 2023
   absolute_error_margin: 0.01
   input:
     self_employment_income: 20_000
     self_employed_pension_contributions_desired: 15_000
+    self_employed_pension_plan_business: SCHEDULE_C
     partnership_self_employment_net_earnings: 10_000
   output:
     # Line 15: 30,000 x 0.9235 x 0.153 / 2 = 2,119.4325.
@@ -205,3 +209,63 @@
   output:
     self_employment_tax_ald_person: 706.4775
     self_employed_health_insurance_earned_income_limit: 9_293.5225
+
+- name: Case 18, retirement plans under both businesses split the plan deduction by earned income.
+  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
+    # Line 8: Schedule C 18,587.045 and partnership 9,293.5225, together the
+    # retirement plan's earned income (Pub. 560 step 3), 27,880.5675.
+    self_employed_pension_earned_income: 27_880.5675
+    # Within the 2023 limit of min(66,000, 5,576.11 + 22,500,
+    # (27,880.57 + 22,500) / 2) = 25,190.28.
+    self_employed_pension_contribution_ald_person: 15_000
+    # Line 9: Schedule C 2 / 3 x 15,000 = 10,000; partnership 5,000.
+    # Line 10: Schedule C 8,587.045; partnership 4,293.5225.
+    self_employed_health_insurance_earned_income_limit: 8_587.045
+
+- name: Case 19, a retirement plan under the partnership leaves the Schedule C business's earned income whole.
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income: 20_000
+    self_employed_pension_contributions_desired: 15_000
+    self_employed_pension_plan_business: PARTNERSHIP
+    partnership_self_employment_net_earnings: 10_000
+  output:
+    # The partnership's earned income, 9,293.5225, caps the plan deduction.
+    self_employed_pension_contribution_ald_person: 9_293.5225
+    # Line 10: Schedule C 18,587.045 (line 9 is 0); partnership 0.
+    self_employed_health_insurance_earned_income_limit: 18_587.045
+
+- name: Case 20, a farm's own retirement plan reduces the farm's limit.
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    farm_operations_income: 20_000
+    self_employed_pension_contributions_desired: 3_000
+  output:
+    # Line 8: 20,000 - 1,412.955. Line 9: the farm's plan deduction, 3,000.
+    self_employed_pension_contribution_ald_person: 3_000
+    self_employed_health_insurance_earned_income_limit: 15_587.045
+
+- name: Case 21, a health plan under the farm subtracts only the farm's share of the retirement plan deduction.
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income: 30_000
+    farm_operations_income: 10_000
+    self_employed_pension_contributions_desired: 4_000
+    self_employed_health_insurance_plan_business: SCHEDULE_F
+  output:
+    # Line 15: 2,825.91. Line 8: Schedule C 27,880.5675 and farm 9,293.5225.
+    self_employed_pension_contribution_ald_person: 4_000
+    # Line 9 for the farm: 9,293.5225 / 37,174.09 x 4,000 = 1,000.
+    # Line 10: 9,293.5225 - 1,000.
+    self_employed_health_insurance_earned_income_limit: 8_293.5225

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_pension_contribution_ald.yaml

@@ -0,0 +1,87 @@
+- name: Case 1, the deduction cannot make AGI negative when Schedule C profit is the only income.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 40
+        self_employment_income: 20_000
+        self_employed_pension_contributions_desired: 20_000
+  output:
+    # Half of self-employment tax: 20,000 x 92.35% x 15.3% / 2 = 1,412.96.
+    # Pub. 560 Deduction Worksheet step 3: 20,000 - 1,412.96 = 18,587.05,
+    # the most the plan deduction can be (26 U.S.C. 404(a)(8)(C)).
+    self_employment_tax_ald: 1_412.96
+    self_employed_pension_contribution_ald_person: [18_587.05]
+    self_employed_pension_contribution_ald: 18_587.05
+    adjusted_gross_income: 0
+
+- name: Case 2, contributions supplied directly are still limited.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 40
+        self_employment_income: 20_000
+        self_employed_pension_contributions: 20_000
+  output:
+    self_employed_pension_contribution_ald_person: [18_587.05]
+    adjusted_gross_income: 0
+
+- name: Case 3, a married couple's limits are each spouse's own.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 40
+        self_employment_income: 200_000
+        self_employed_pension_contributions_desired: 100_000
+      person2:
+        age: 40
+        self_employment_income: 30_000
+        self_employed_pension_contributions_desired: 30_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    marital_units:
+      marital_unit:
+        members: [person1, person2]
+  output:
+    # Person 1: 20% x 186,403.65 + 23,500 = 60,780.73 (the Pub. 560 2025
+    # example's step 3). Person 2: (27,880.57 + 23,500) / 2 = 25,690.28.
+    self_employed_pension_contribution_ald_person: [60_780.73, 25_690.28]
+    self_employed_pension_contribution_ald: 86_471.01
+
+- name: Case 4, a farm's own plan is deductible and cannot make AGI negative.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 40
+        farm_operations_income: 20_000
+        self_employed_pension_contributions_desired: 20_000
+  output:
+    # Pub. 560 step 1 is Schedule F line 34: 20,000. Step 3:
+    # 20,000 - 1,412.955 = 18,587.045, all of which deferrals can cover.
+    self_employed_pension_contribution_ald_person: [18_587.045]
+    adjusted_gross_income: 0
+
+- name: Case 5, a partner's plan is deductible from K-1 box 14 code A earnings.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 40
+        # The partnership's earnings enter gross income through
+        # partnership_income and self-employment tax through
+        # partnership_self_employment_net_earnings.
+        partnership_income: 20_000
+        partnership_self_employment_net_earnings: 20_000
+        self_employed_pension_contributions_desired: 20_000
+  output:
+    self_employed_pension_contribution_ald_person: [18_587.045]
+    adjusted_gross_income: 0

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employment_income.yaml

@@ -18,11 +18,14 @@
 
 - name: Self-employed pension ALD uses SSTB income
   period: 2024
+  absolute_error_margin: 0.01
   input:
     sstb_self_employment_income: 8_000
     self_employed_pension_contributions_desired: 9_000
   output:
-    self_employed_pension_contribution_ald_person: 8_000
+    # Earned income: 8,000 - 7,388 x 15.3% / 2 = 7,434.82, all of which
+    # elective deferrals can cover (Pub. 560 Deduction Worksheet steps 9-19).
+    self_employed_pension_contribution_ald_person: 7_434.82
 
 - name: Loss ALD includes SSTB self-employment losses
   period: 2024