Model Hawaii's claim of right deduction and credit (section 1341 as operative in Hawaii from 2022)

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).

changelog.d/hi-claim-of-right.added.md

@@ -0,0 +1 @@
+Model Hawaii's claim of right relief: from 2022 the section 1341 lesser-of computed on Hawaii tax with the Form N-364 refundable credit, and repayments as 2% miscellaneous itemized deductions otherwise (through 2025).

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.

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.

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

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

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

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

policyengine_us/parameters/gov/states/hi/tax/income/claim_of_right/section_1341_operative.yaml

@@ -0,0 +1,15 @@
+description: Hawaii applies the claim of right computation of section 1341 of the Internal Revenue Code, using Hawaii tax, if this is true.
+values:
+  2018-01-01: false
+  2022-01-01: true
+metadata:
+  unit: bool
+  period: year
+  label: Hawaii section 1341 claim of right computation operative
+  reference:
+    - title: "Act 56, SLH 2023, sections 2 and 7(1) (HRS 235-2.3(b)(40); taxable years beginning after December 31, 2021) #page 3,5"
+      href: https://data.capitol.hawaii.gov/sessions/sessionlaws/Years/SLH2023/SLH2023_Act56.pdf#page=3
+    - title: "Act 35, SLH 2026 (HB2329 CD1), HRS 235-2.3(b)(45) #page 11"
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=11
+    - title: 2025 Form N-364, Claim of Right Tax Credit
+      href: https://files.hawaii.gov/tax/forms/2025/n364_i.pdf

policyengine_us/parameters/gov/states/hi/tax/income/credits/refundable.yaml

@@ -10,12 +10,14 @@ values:
     - hi_food_excise_credit
     - hi_cdcc
     - hi_tax_credit_for_low_income_household_renters
+    - hi_claim_of_right_credit
 
   2023-01-01:
     - hi_food_excise_credit
     - hi_cdcc
     - hi_tax_credit_for_low_income_household_renters
     - hi_eitc
+    - hi_claim_of_right_credit
 
 metadata:
   unit: list

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/miscellaneous_deductions_allowed.yaml

@@ -0,0 +1,17 @@
+description: Hawaii allows miscellaneous itemized deductions above two percent of Hawaii adjusted gross income, if this is true.
+values:
+  2018-01-01: true
+  2026-01-01: false
+metadata:
+  unit: bool
+  period: year
+  label: Hawaii miscellaneous itemized deductions allowed
+  reference:
+    - title: HRS 235-2.4(b) before 2026 (section 67 operative; the suspension in section 67(g) not operative)
+      href: https://files.hawaii.gov/tax/legal/hrs/hrs_235.pdf#page=11
+    - title: "Act 35, SLH 2026 (HB2329 CD1), deleting that sentence, so section 67(h) applies; taxable years beginning after December 31, 2025 #page 17-18,34"
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=17
+    - title: Hawaii Department of Taxation Announcement 2026-06 (conformity to IRC section 67(h), which disallows miscellaneous itemized deductions)
+      href: https://files.hawaii.gov/tax/news/announce/ann26-06.pdf#page=2
+    - title: "2025 Form N-11 instructions, line 21f and Worksheet A-6 #page 19,34"
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=19

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/sources.yaml

@@ -6,6 +6,7 @@ values:
     - hi_interest_deduction
     - hi_casualty_loss_deduction
     - hi_salt_deduction
+    - hi_claim_of_right_deduction
 metadata:
   unit: list
   period: year

policyengine_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

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.

policyengine_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

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

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

policyengine_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

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
 

policyengine_us/reforms/states/nc/eitc/nc_eitc_reform.py

@@ -23,35 +23,28 @@ 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):
-            return tax_unit("nc_eitc", period)
-
-    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):
-            # Mirror baseline nc_income_tax, which uses
-            # nc_income_tax_before_credits and does NOT add nc_use_tax. This
-            # reform's only change is subtracting the new refundable EITC;
-            # adding use tax here would raise tax for every filer (even those
-            # with no EITC). See #8775.
-            tax_before_credits = tax_unit("nc_income_tax_before_credits", period)
-            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
+            # Preserve the baseline refundable credits and ADD the new
+            # EITC. Baseline nc_income_tax subtracts nc_refundable_credits
+            # and excludes nc_use_tax, so no override of it is needed.
+            # See #8775.
+            baseline_credits = parameters(
+                period
+            ).gov.states.nc.tax.income.credits.refundable
+            return add(tax_unit, period, list(baseline_credits)) + tax_unit(
+                "nc_eitc", period
+            )
 
     class reform(Reform):
         def apply(self):
             self.update_variable(nc_eitc)
             self.update_variable(nc_refundable_credits)
-            self.update_variable(nc_income_tax)
 
     return reform
 

policyengine_us/tests/core/test_override_branches.py

@@ -29,7 +29,10 @@
    on the seeded sample and on random households (Hypothesis).
 3. Each comparison branch equals a fresh simulation that sets the overridden
    input before anything is calculated (a differential test of the branch
-   against the reference path).
+   against the reference path). These households repay no claim of right
+   income; with a qualifying repayment the itemizing branches also fix the
+   claim of right method, so a reference must fix it too
+   (``test_claim_of_right_section_1341_properties.py`` covers that case).
 4. The same holds when the parent has already calculated the overridden
    input, and when an earlier year was calculated first.
 5. When the branch drops what it copied, it keeps exactly the values set as