MaxGhenis · Oct 9, 2026 · Oct 9, 2026 · Oct 9, 2026 · Oct 10, 2026 · Oct 10, 2026
diff --git a/changelog.d/federal-claim-of-right-1341.added.md b/changelog.d/federal-claim-of-right-1341.added.md
@@ -0,0 +1 @@
+Add the federal claim of right repayment deduction and section 1341 credit (26 U.S.C. 1341), North Carolina's bar on its claim of right deduction when federal tax is computed under section 1341(a)(5), and North Carolina's tax payment for restored income (G.S. 105-266.2).
diff --git a/changelog.d/nj-claim-of-right.added.md b/changelog.d/nj-claim-of-right.added.md
@@ -0,0 +1 @@
+Offset New Jersey claim of right repayments against income of the same category in the year of repayment (N.J.S.A. 54A:5-2, TAM 2011-7), including in the pension exclusion's base and Worksheet D's earnings test.
diff --git a/policyengine_us/parameters/gov/household/household_refundable_credits.yaml b/policyengine_us/parameters/gov/household/household_refundable_credits.yaml
@@ -27,7 +27,7 @@ values:
     - mo_refundable_credits  # Missouri.
     - ms_refundable_credits  # Mississippi.
     - mt_refundable_credits  # Montana.
-    # Skip NC which has no refundable credits.
+    - nc_refundable_credits  # North Carolina.
     - nd_refundable_credits  # North Dakota.
     - ne_refundable_credits  # Nebraska.
     - nh_refundable_credits  # New Hampshire.

diff --git a/policyengine_us/parameters/gov/household/household_refundable_state_credits.yaml b/policyengine_us/parameters/gov/household/household_refundable_state_credits.yaml
@@ -26,7 +26,7 @@ values:
     - mo_refundable_credits  # Missouri.
     - ms_refundable_credits  # Mississippi.
     - mt_refundable_credits  # Montana.
-    # Skip NC which has no refundable credits.
+    - nc_refundable_credits  # North Carolina.
     - nd_refundable_credits  # North Dakota.
     - ne_refundable_credits  # Nebraska.
     - nh_refundable_credits  # New Hampshire.

diff --git a/policyengine_us/parameters/gov/household/household_tax_before_refundable_credits.yaml b/policyengine_us/parameters/gov/household/household_tax_before_refundable_credits.yaml
@@ -29,7 +29,7 @@ values:
     - mo_income_tax_before_refundable_credits
     - ms_income_tax_before_credits_unit
     - mt_income_tax_before_refundable_credits_unit
-    - nc_income_tax  # NC has no refundable credits.
+    - nc_income_tax_before_refundable_credits
     - nd_income_tax_before_refundable_credits
     - ne_income_tax_before_refundable_credits
     - nh_income_tax_before_refundable_credits

diff --git a/policyengine_us/parameters/gov/irs/credits/refundable.yaml b/policyengine_us/parameters/gov/irs/credits/refundable.yaml
@@ -6,6 +6,7 @@ values:
     - refundable_ctc
     - recovery_rebate_credit
     - refundable_payroll_tax_credit
+    - claim_of_right_credit
     # Currently, the premium tax credit is not included in the refundable tax credits.
   # Add CDCC in 2021.
   2021-01-01:
@@ -14,6 +15,7 @@ values:
     - refundable_ctc
     - recovery_rebate_credit
     - refundable_payroll_tax_credit
+    - claim_of_right_credit
     # Currently, the premium tax credit is not included in the refundable tax credits.
     - cdcc
   # Remove CDCC in 2022.
@@ -23,6 +25,7 @@ values:
     - refundable_ctc
     - recovery_rebate_credit
     - refundable_payroll_tax_credit
+    - claim_of_right_credit
     # Currently, the premium tax credit is not included in the refundable tax credits.
 metadata:
   unit: list

diff --git a/policyengine_us/parameters/gov/irs/deductions/itemized/claim_of_right/threshold.yaml b/policyengine_us/parameters/gov/irs/deductions/itemized/claim_of_right/threshold.yaml
@@ -0,0 +1,16 @@
+description: The IRS computes tax for the year of repayment as the lesser of the tax with a deduction for the repayment and the tax without it less the resulting decrease in prior-year tax, when the repayment of income held under a claim of right exceeds this amount.
+values:
+  1954-01-01: 3_000
+metadata:
+  unit: currency-USD
+  period: year
+  label: Claim of right repayment threshold
+  reference:
+    - title: 26 U.S. Code § 1341(a)(3)
+      href: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapQ-partV-sec1341.htm
+    - title: 26 U.S. Code § 67(b)(9)
+      href: https://www.law.cornell.edu/uscode/text/26/67#b_9
+    - title: 26 CFR 1.1341-1(a)(3)
+      href: https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR4c74bc8cf7c11fb/section-1.1341-1
+    - title: "Publication 525 (2025), Repayments #page 36-37"
+      href: https://www.irs.gov/pub/irs-prior/p525--2025.pdf#page=36
diff --git a/policyengine_us/parameters/gov/irs/deductions/itemized_deductions.yaml b/policyengine_us/parameters/gov/irs/deductions/itemized_deductions.yaml
@@ -7,6 +7,7 @@ values:
     - medical_expense_deduction
     - casualty_loss_deduction
     - misc_deduction
+    - claim_of_right_deduction
   2020-01-01:
     - charitable_deduction  
     - charitable_deduction_for_non_itemizers
@@ -15,13 +16,15 @@ values:
     - medical_expense_deduction
     - casualty_loss_deduction
     - misc_deduction
+    - claim_of_right_deduction
   2022-01-01:
     - charitable_deduction
     - interest_deduction
     - salt_deduction
     - medical_expense_deduction
     - casualty_loss_deduction
     - misc_deduction
+    - claim_of_right_deduction
 metadata:
   unit: list
   label: itemized deductions
diff --git a/...engine_us/parameters/gov/states/household/state_income_tax_before_refundable_credits.yaml b/...engine_us/parameters/gov/states/household/state_income_tax_before_refundable_credits.yaml
@@ -27,7 +27,7 @@ values:
     - mo_income_tax_before_refundable_credits
     - ms_income_tax_before_credits_unit
     - mt_income_tax_before_refundable_credits_unit
-    - nc_income_tax
+    - nc_income_tax_before_refundable_credits
     - nd_income_tax_before_refundable_credits
     - ne_income_tax_before_refundable_credits
     - nh_income_tax_before_refundable_credits

diff --git a/policyengine_us/parameters/gov/states/household/state_refundable_credits.yaml b/policyengine_us/parameters/gov/states/household/state_refundable_credits.yaml
@@ -26,7 +26,7 @@ values:
     - mo_refundable_credits  # Missouri.
     - ms_refundable_credits  # Mississippi.
     - mt_refundable_credits  # Montana.
-    # Skip NC which has no refundable credits.
+    - nc_refundable_credits  # North Carolina.
     - nd_refundable_credits  # North Dakota.
     - ne_refundable_credits  # Nebraska.
     - nh_refundable_credits  # New Hampshire.

diff --git a/...us/parameters/gov/states/mo/tax/income/deductions/federal_income_tax/ignored_credits.yaml b/...us/parameters/gov/states/mo/tax/income/deductions/federal_income_tax/ignored_credits.yaml
@@ -4,23 +4,27 @@ description: Missouri ignores the following credits in federal income tax deduct
 # Part I Line 3, and the net premium tax credit (Schedule 3 Line 9). Credits
 # claimed on Line 28 (refundable CTC) and Line 30 (recovery rebate), and the
 # 2021 refundable CDCC (Schedule 3 Line 13g), never reduce Line 22, so they
-# are added back here. The EIC is not added back: the Line 9 instructions say
+# are added back here. So is the section 1341 credit for repaid claim of right
+# income (Schedule 3 Line 13b). The EIC is not added back: the Line 9 instructions say
 # "If you have an earned income credit, you must subtract the credit from the
 # tax on your federal return."
 values:
   2018-01-01:
     - recovery_rebate_credit
     - refundable_ctc
+    - claim_of_right_credit
   # The CDCC is a refundable credit only in 2021 (ARPA); in other years it
   # already reduces income tax before refundable credits, so adding it back
   # would overstate the base.
   2021-01-01:
     - recovery_rebate_credit
     - refundable_ctc
+    - claim_of_right_credit
     - cdcc
   2022-01-01:
     - recovery_rebate_credit
     - refundable_ctc
+    - claim_of_right_credit
 metadata:
   unit: list
   label: Missouri ignored credits in federal income tax deduction

diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/deductions/itemized/misc_deductions.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/deductions/itemized/misc_deductions.yaml
@@ -6,13 +6,22 @@ description: Montana counts these sources as miscellaneous deductions.
 values:
   2021-01-01:
     - casualty_loss_deduction
-  2024-01-01: []
-
+    # Form 2 itemized deductions line 18 follows federal Schedule A line 16.
+    - mt_claim_of_right_deduction
+  # From 2024 Form 2 line 2 takes the federal itemized deductions (Worksheet A
+  # line 1: Form 1040 line 12), which include Schedule A line 16.
+  2024-01-01:
+    - mt_claim_of_right_deduction
+
 metadata:
   unit: list
-  label: Montana miscellaneous deductions 
+  label: Montana miscellaneous deductions
   period: year
   reference:
+    - title: 2023 Montana Form 2 instructions, itemized deductions line 18
+      href: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=39
+    - title: 2024 Montana Form 2 instructions, line 2 and Worksheet A
+      href: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2024_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=15
     - title: Montana Individual Income Tax Return (Form 2) 2024
       href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2024_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=8
     - title: Montana Individual Income Tax Return (Form 2) 2022

diff --git a/policyengine_us/parameters/gov/states/nc/tax/income/credits/refundable.yaml b/policyengine_us/parameters/gov/states/nc/tax/income/credits/refundable.yaml
@@ -0,0 +1,13 @@
+description: North Carolina provides these refundable income tax credits and payments.
+values:
+  1995-01-01:
+    - nc_claim_of_right_payment
+metadata:
+  unit: list
+  period: year
+  label: North Carolina refundable income tax credits
+  reference:
+    - title: N.C. Gen. Stat. § 105-266.2
+      href: https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_105/GS_105-266.2.html
+    - title: S.L. 1997-213, Section 2 (effective for taxable years beginning on or after January 1, 1995)
+      href: https://www.ncleg.gov/EnactedLegislation/SessionLaws/HTML/1997-1998/SL1997-213.html
diff --git a/...ov/states/nj/tax/income/gross_income/claim_of_right_category_exempt_sources/interest.yaml b/...ov/states/nj/tax/income/gross_income/claim_of_right_category_exempt_sources/interest.yaml
@@ -0,0 +1,15 @@
+description: New Jersey leaves these amounts out of the interest a claim of right repayment of interest can offset, because New Jersey does not tax them; it subtracts them from gross income separately.
+values:
+  2021-01-01:
+    - us_govt_interest_person  # Interest on U.S. obligations, exempt in New Jersey
+metadata:
+  unit: list
+  period: year
+  label: New Jersey claim of right repayment offset, category (e) exempt interest
+  reference:
+    - title: N.J.S.A. 54A:5-1(e)
+      href: https://law.justia.com/codes/new-jersey/title-54a/section-54a-5-1/
+    - title: N.J.S.A. 54A:5-2
+      href: https://lis.njleg.state.nj.us/nxt/gateway.dll/statutes/1/53569/53634
+    - title: 2025 NJ-1040 instructions, income New Jersey does not tax (direct federal obligations)
+      href: https://www.nj.gov/treasury/taxation/pdf/current/1040i.pdf#page=10
diff --git a/...meters/gov/states/nj/tax/income/gross_income/claim_of_right_category_sources/alimony.yaml b/...meters/gov/states/nj/tax/income/gross_income/claim_of_right_category_sources/alimony.yaml
@@ -0,0 +1,17 @@
+description: New Jersey offsets a claim of right repayment of category (n) income against these sources of the same category in the year of repayment.
+values:
+  2021-01-01:
+    - alimony_income  # Line 25
+metadata:
+  unit: list
+  period: year
+  label: New Jersey claim of right repayment offset, category (n) sources
+  reference:
+    - title: N.J.S.A. 54A:5-1(n)
+      href: https://law.justia.com/codes/new-jersey/title-54a/section-54a-5-1/
+    - title: N.J.S.A. 54A:5-2
+      href: https://lis.njleg.state.nj.us/nxt/gateway.dll/statutes/1/53569/53634
+    - title: New Jersey Division of Taxation, TAM 2011-7, Claim of Right Repayment Refunds (IRC 1341)
+      href: https://www.nj.gov/treasury/taxation/pdf/pubs/tams/tam7.pdf
+    - title: 2025 NJ-1040, Line 25
+      href: https://www.nj.gov/treasury/taxation/pdf/current/1040.pdf
diff --git a/...ters/gov/states/nj/tax/income/gross_income/claim_of_right_category_sources/dividends.yaml b/...ters/gov/states/nj/tax/income/gross_income/claim_of_right_category_sources/dividends.yaml
@@ -0,0 +1,17 @@
+description: New Jersey offsets a claim of right repayment of category (f) income against these sources of the same category in the year of repayment.
+values:
+  2021-01-01:
+    - dividend_income  # Line 17
+metadata:
+  unit: list
+  period: year
+  label: New Jersey claim of right repayment offset, category (f) sources
+  reference:
+    - title: N.J.S.A. 54A:5-1(f)
+      href: https://law.justia.com/codes/new-jersey/title-54a/section-54a-5-1/
+    - title: N.J.S.A. 54A:5-2
+      href: https://lis.njleg.state.nj.us/nxt/gateway.dll/statutes/1/53569/53634
+    - title: New Jersey Division of Taxation, TAM 2011-7, Claim of Right Repayment Refunds (IRC 1341)
+      href: https://www.nj.gov/treasury/taxation/pdf/pubs/tams/tam7.pdf
+    - title: 2025 NJ-1040, Line 17
+      href: https://www.nj.gov/treasury/taxation/pdf/current/1040.pdf
diff --git a/.../states/nj/tax/income/gross_income/claim_of_right_category_sources/gambling_winnings.yaml b/.../states/nj/tax/income/gross_income/claim_of_right_category_sources/gambling_winnings.yaml
@@ -0,0 +1,17 @@
+description: New Jersey offsets a claim of right repayment of category (g) income against these sources of the same category in the year of repayment.
+values:
+  2021-01-01:
+    - gambling_winnings  # Line 24
+metadata:
+  unit: list
+  period: year
+  label: New Jersey claim of right repayment offset, category (g) sources
+  reference:
+    - title: N.J.S.A. 54A:5-1(g)
+      href: https://law.justia.com/codes/new-jersey/title-54a/section-54a-5-1/
+    - title: N.J.S.A. 54A:5-2
+      href: https://lis.njleg.state.nj.us/nxt/gateway.dll/statutes/1/53569/53634
+    - title: New Jersey Division of Taxation, TAM 2011-7, Claim of Right Repayment Refunds (IRC 1341)
+      href: https://www.nj.gov/treasury/taxation/pdf/pubs/tams/tam7.pdf
+    - title: 2025 NJ-1040, Line 24
+      href: https://www.nj.gov/treasury/taxation/pdf/current/1040.pdf
diff --git a/...eters/gov/states/nj/tax/income/gross_income/claim_of_right_category_sources/interest.yaml b/...eters/gov/states/nj/tax/income/gross_income/claim_of_right_category_sources/interest.yaml
@@ -0,0 +1,17 @@
+description: New Jersey offsets a claim of right repayment of category (e) income against these sources of the same category in the year of repayment.
+values:
+  2021-01-01:
+    - taxable_interest_income  # Line 16a
+metadata:
+  unit: list
+  period: year
+  label: New Jersey claim of right repayment offset, category (e) sources
+  reference:
+    - title: N.J.S.A. 54A:5-1(e)
+      href: https://law.justia.com/codes/new-jersey/title-54a/section-54a-5-1/
+    - title: N.J.S.A. 54A:5-2
+      href: https://lis.njleg.state.nj.us/nxt/gateway.dll/statutes/1/53569/53634
+    - title: New Jersey Division of Taxation, TAM 2011-7, Claim of Right Repayment Refunds (IRC 1341)
+      href: https://www.nj.gov/treasury/taxation/pdf/pubs/tams/tam7.pdf
+    - title: 2025 NJ-1040, Line 16a
+      href: https://www.nj.gov/treasury/taxation/pdf/current/1040.pdf
diff --git a/...es/nj/tax/income/gross_income/claim_of_right_category_sources/pensions_and_annuities.yaml b/...es/nj/tax/income/gross_income/claim_of_right_category_sources/pensions_and_annuities.yaml
@@ -0,0 +1,23 @@
+description: New Jersey offsets a claim of right repayment of category (j) income against these sources of the same category in the year of repayment.
+values:
+  2021-01-01:
+    - taxable_pension_income  # Line 20a
+    - taxable_ira_distributions
+    - taxable_roth_conversions
+    - taxable_401k_distributions
+    - taxable_403b_distributions
+    - taxable_sep_distributions
+    - keogh_distributions
+metadata:
+  unit: list
+  period: year
+  label: New Jersey claim of right repayment offset, category (j) sources
+  reference:
+    - title: N.J.S.A. 54A:5-1(j)
+      href: https://law.justia.com/codes/new-jersey/title-54a/section-54a-5-1/
+    - title: N.J.S.A. 54A:5-2
+      href: https://lis.njleg.state.nj.us/nxt/gateway.dll/statutes/1/53569/53634
+    - title: New Jersey Division of Taxation, TAM 2011-7, Claim of Right Repayment Refunds (IRC 1341)
+      href: https://www.nj.gov/treasury/taxation/pdf/pubs/tams/tam7.pdf
+    - title: 2025 NJ-1040, Line 20a
+      href: https://www.nj.gov/treasury/taxation/pdf/current/1040.pdf
diff --git a/...rameters/gov/states/nj/tax/income/gross_income/claim_of_right_category_sources/wages.yaml b/...rameters/gov/states/nj/tax/income/gross_income/claim_of_right_category_sources/wages.yaml
@@ -0,0 +1,17 @@
+description: New Jersey offsets a claim of right repayment of category (a) income against these sources of the same category in the year of repayment.
+values:
+  2021-01-01:
+    - employment_income  # Line 15
+metadata:
+  unit: list
+  period: year
+  label: New Jersey claim of right repayment offset, category (a) sources
+  reference:
+    - title: N.J.S.A. 54A:5-1(a)
+      href: https://law.justia.com/codes/new-jersey/title-54a/section-54a-5-1/
+    - title: N.J.S.A. 54A:5-2
+      href: https://lis.njleg.state.nj.us/nxt/gateway.dll/statutes/1/53569/53634
+    - title: New Jersey Division of Taxation, TAM 2011-7, Claim of Right Repayment Refunds (IRC 1341)
+      href: https://www.nj.gov/treasury/taxation/pdf/pubs/tams/tam7.pdf
+    - title: 2025 NJ-1040, Line 15
+      href: https://www.nj.gov/treasury/taxation/pdf/current/1040.pdf
diff --git a/...gine_us/parameters/gov/states/va/tax/income/deductions/itemized/reduction/applicable.yaml b/...gine_us/parameters/gov/states/va/tax/income/deductions/itemized/reduction/applicable.yaml
@@ -7,11 +7,15 @@ values:
     - real_estate_taxes
     - casualty_loss_deduction
     - va_capped_state_and_local_sales_or_income_tax
+    # Schedule A line 16b, other itemized deductions.
+    - claim_of_right_deduction
 metadata:
   unit: list
   period: year
   label: Virginia itemized deductions reduction applicable deduction sources
   reference:
+    - title: "2025 Virginia Schedule A Itemized Deductions, line 16b and Limited Itemized Deduction Worksheet line 1 #page 1-2"
+      href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2025/schedule-2025.pdf#page=1
     - title: 2024 Virginia Schedule A Itemized Deductions
       href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2024/schedule-2024.pdf#page=2
     - title: 2023 Virginia Schedule A Itemized Deductions

diff --git a/policyengine_us/reforms/states/nc/cdcc/nc_cdcc_reform.py b/policyengine_us/reforms/states/nc/cdcc/nc_cdcc_reform.py
@@ -23,41 +23,35 @@ class nc_refundable_credits(Variable):
         unit = USD
         definition_period = YEAR
         defined_for = StateCode.NC
+        # Baseline computes this via `adds`; replacing it with a
+        # formula requires clearing the inherited computation mode
+        # (the core engine rejects `formula` + `adds`/`subtracts`).
+        adds = None
+        subtracts = None
 
         def formula(tax_unit, period, parameters):
+            # Preserve the baseline refundable credits and ADD the new
+            # CDCC (see #8775). Baseline nc_income_tax subtracts
+            # nc_refundable_credits and excludes nc_use_tax, which
+            # state_use_tax already counts, so no override of it is needed.
+            baseline_credits = parameters(
+                period
+            ).gov.states.nc.tax.income.credits.refundable
+            total = add(tax_unit, period, list(baseline_credits)) + tax_unit(
+                "nc_cdcc", period
+            )
             # Stack with nc_eitc when the NC EITC contrib reform is also
             # active, so enabling both NC contrib credits sums rather than
             # overwrites.
-            total = tax_unit("nc_cdcc", period)
             variables = tax_unit.simulation.tax_benefit_system.variables
             if "nc_eitc" in variables:
                 total = total + tax_unit("nc_eitc", period)
             return total
 
-    class nc_income_tax(Variable):
-        value_type = float
-        entity = TaxUnit
-        label = "North Carolina income tax"
-        unit = USD
-        definition_period = YEAR
-        defined_for = StateCode.NC
-
-        def formula(tax_unit, period, parameters):
-            tax_before_credits = add(
-                tax_unit, period, ["nc_income_tax_before_credits", "nc_use_tax"]
-            )
-            non_refundable_credits = tax_unit("nc_non_refundable_credits", period)
-            tax_before_refundable = max_(0, tax_before_credits - non_refundable_credits)
-
-            refundable_credits = tax_unit("nc_refundable_credits", period)
-
-            return tax_before_refundable - refundable_credits
-
     class reform(Reform):
         def apply(self):
             self.update_variable(nc_cdcc)
             self.update_variable(nc_refundable_credits)
-            self.update_variable(nc_income_tax)
 
     return reform
Original file line number	Diff line number	Diff line change
		@@ -0,0 +1 @@
		Add the federal claim of right repayment deduction and section 1341 credit (26 U.S.C. 1341), North Carolina's bar on its claim of right deduction when federal tax is computed under section 1341(a)(5), and North Carolina's tax payment for restored income (G.S. 105-266.2).
Original file line number	Diff line number	Diff line change
		@@ -0,0 +1 @@
		Offset New Jersey claim of right repayments against income of the same category in the year of repayment (N.J.S.A. 54A:5-2, TAM 2011-7), including in the pension exclusion's base and Worksheet D's earnings test.