Add shared self-employment expenses and derive gross self-employment income

changelog.d/liheap-shared-inputs.added.md

@@ -0,0 +1 @@
+Add a shared person-level self-employment expense input and derive gross self-employment income from existing net income and reported business expenses other than cost of goods sold.

policyengine_us/tests/policy/baseline/household/income/person/self_employment/self_employment_gross_income.yaml

@@ -0,0 +1,175 @@
+- name: Case 1, reconstruct business income without including wages or changing net profit.
+  period: 2026
+  input:
+    employment_income: 36_000
+    self_employment_income: 18_000
+    self_employment_expense: 6_000
+  output:
+    self_employment_gross_income: 24_000
+    self_employment_income: 18_000
+
+- name: Case 2, business expenses cover regular, SSTB, and farm self-employment together.
+  period: 2026
+  input:
+    self_employment_income: 6_000
+    sstb_self_employment_income: 3_000
+    farm_operations_income: 5_000
+    self_employment_expense: 4_000
+  output:
+    self_employment_gross_income: 18_000
+
+- name: Case 3, preserve a business loss when adding back its expenses.
+  period: 2026
+  input:
+    self_employment_income: -3_000
+    self_employment_expense: 12_000
+  output:
+    self_employment_gross_income: 9_000
+    self_employment_income: -3_000
+
+- name: Case 4, omitted expenses use the ordinary zero default.
+  period: 2026
+  input:
+    self_employment_income: 12_000
+  output:
+    self_employment_gross_income: 12_000
+    self_employment_expense: 0
+
+- name: Case 5, a loss without reported expenses cannot create negative gross income.
+  period: 2026
+  input:
+    self_employment_income: -3_000
+  output:
+    self_employment_gross_income: 0
+
+- name: Case 6, a farm loss does not offset non-farm profit when expenses are omitted.
+  period: 2026
+  input:
+    self_employment_income: 6_000
+    farm_operations_income: -10_000
+  output:
+    # Non-farm floor 6,000 + farm floor 0; the reconstruction is -4,000.
+    self_employment_gross_income: 6_000
+    farm_operations_income: -10_000
+
+- name: Case 7, employee work expenses do not belong in this business-cost input, which is added back unconditionally.
+  period: 2026
+  input:
+    employment_income: 36_000
+    self_employment_expense: 6_000
+  output:
+    self_employment_gross_income: 6_000
+
+- name: Case 8, cost of goods sold stays out of the add-back, so the result is gross income after it.
+  period: 2026
+  input:
+    # Receipts 100,000 - cost of goods sold 60,000 = gross income 40,000.
+    # Gross income 40,000 - other expenses 25,000 = net profit 15,000.
+    self_employment_income: 15_000
+    self_employment_expense: 25_000
+  output:
+    self_employment_gross_income: 40_000
+
+- name: Case 9, fully reported expenses reconstruct a farm loss alongside non-farm profit.
+  period: 2026
+  input:
+    self_employment_income: 6_000
+    farm_operations_income: -10_000
+    self_employment_expense: 12_000
+  output:
+    # 6,000 - 10,000 + 12,000 = 8,000, above the 6,000 per-source floor.
+    self_employment_gross_income: 8_000
+
+- name: Case 10, partially reported expenses fall back to the per-source floor.
+  period: 2026
+  input:
+    self_employment_income: 6_000
+    farm_operations_income: -10_000
+    self_employment_expense: 3_000
+  output:
+    # The reconstruction is -1,000, below the 6,000 per-source floor.
+    self_employment_gross_income: 6_000
+
+- name: Case 11, a regular business loss does not offset SSTB profit when expenses are omitted.
+  period: 2026
+  input:
+    self_employment_income: -4_000
+    sstb_self_employment_income: 9_000
+  output:
+    # Regular floor 0 + SSTB floor 9,000; the reconstruction is 5,000.
+    self_employment_gross_income: 9_000
+
+- name: Case 12, reconstruct gross from the existing net-income chain without changing wages or the SE tax base.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    employment_income: 36_000
+    self_employment_income_before_lsr: 15_000
+    self_employment_expense: 25_000
+  output:
+    self_employment_gross_income: 40_000
+    self_employment_income: 15_000
+    employment_income: 36_000
+    # The tax base still uses net profit: 15,000 * 0.9235.
+    taxable_self_employment_income: 13_852.50
+
+- name: Case 13, directly supplied gross income does not infer net profit or expenses.
+  period: 2026
+  input:
+    self_employment_gross_income: 40_000
+  output:
+    self_employment_gross_income: 40_000
+    self_employment_income: 0
+    sstb_self_employment_income: 0
+    farm_operations_income: 0
+    self_employment_expense: 0
+    taxable_self_employment_income: 0
+
+- name: Case 14, partnership earnings remain separate from reconstructed sole-proprietor gross income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income_before_lsr: 10_000
+    partnership_self_employment_net_earnings: 5_000
+    self_employment_expense: 3_000
+  output:
+    self_employment_gross_income: 13_000
+    partnership_self_employment_net_earnings: 5_000
+    # Partnership SE earnings remain in the tax base, not in the add-back.
+    taxable_self_employment_income: 13_852.50
+
+- name: Case 15, expense reconstruction and loss floors operate independently for each person.
+  period: 2026
+  input:
+    people:
+      person1:
+        self_employment_income_before_lsr: 15_000
+        self_employment_expense: 25_000
+      person2:
+        sstb_self_employment_income_before_lsr: -3_000
+        self_employment_expense: 12_000
+      person3:
+        self_employment_income_before_lsr: 6_000
+        farm_operations_income: -10_000
+        self_employment_expense: 3_000
+      person4:
+        employment_income: 36_000
+  output:
+    self_employment_gross_income: [40_000, 9_000, 6_000, 0]
+    self_employment_income: [15_000, 0, 6_000, 0]
+    sstb_self_employment_income: [0, -3_000, 0, 0]
+    farm_operations_income: [0, 0, -10_000, 0]
+    employment_income: [0, 0, 0, 36_000]
+
+- name: Case 16, annual net income and expenses convert consistently for monthly consumers.
+  period: 2026-07
+  input:
+    self_employment_income_before_lsr:
+      2026: 15_000
+    self_employment_expense:
+      2026: 21_000
+  output:
+    # Annual gross is 15,000 + 21,000 = 36,000; July receives one twelfth.
+    self_employment_gross_income: 3_000
+    self_employment_income: 1_250
+    self_employment_expense: 1_750

policyengine_us/variables/household/expense/person/self_employment_expense.py

@@ -0,0 +1,22 @@
+from policyengine_us.model_api import *
+
+
+class self_employment_expense(Variable):
+    value_type = float
+    entity = Person
+    definition_period = YEAR
+    unit = USD
+    label = "Self-employment business expenses"
+    documentation = (
+        "Business expenses already deducted from regular, SSTB, and farm net "
+        "self-employment income, excluding cost of goods sold: tax year 2025 "
+        "Schedule C lines 28 and 30, and Schedule F line 33. Excludes employee "
+        "work expenses and personal income and self-employment taxes. Defaults "
+        "to zero when not reported. Used to reconstruct gross income, not to "
+        "reduce reported net income again or determine program-allowable costs."
+    )
+    reference = (
+        "https://www.irs.gov/pub/irs-prior/f1040sc--2025.pdf#page=1",
+        "https://www.irs.gov/pub/irs-prior/f1040sf--2025.pdf#page=1",
+        "https://www.irs.gov/pub/irs-prior/f1040sf--2025.pdf#page=2",
+    )

policyengine_us/variables/household/income/person/self_employment/self_employment_gross_income.py

@@ -0,0 +1,41 @@
+from policyengine_us.model_api import *
+
+
+class self_employment_gross_income(Variable):
+    value_type = float
+    entity = Person
+    definition_period = YEAR
+    unit = USD
+    label = "Gross self-employment income"
+    documentation = (
+        "Gross income after cost of goods sold and before other business "
+        "expenses (tax year 2025 Schedule C line 7 and Schedule F line 9), "
+        "reconstructed from regular, SSTB, and farm net income plus "
+        "self_employment_expense. Excludes separately reported partnership "
+        "earnings. The result is floored at the sum of the three net sources "
+        "individually floored at zero; this modeling fallback can differ from "
+        "tax-reported gross income and is not an IRS rule. Non-farm net income "
+        "includes labor-supply responses."
+    )
+    reference = (
+        "https://www.irs.gov/pub/irs-prior/f1040sc--2025.pdf#page=1",
+        "https://www.irs.gov/pub/irs-prior/f1040sf--2025.pdf#page=1",
+        "https://www.irs.gov/pub/irs-prior/f1040sf--2025.pdf#page=2",
+    )
+
+    def formula(person, period, parameters):
+        net_income_sources = [
+            "self_employment_income",
+            "sstb_self_employment_income",
+            "farm_operations_income",
+        ]
+        # Add back the expenses deducted from net profit, preserving losses
+        # until after the add-back.
+        net_income = add(person, period, net_income_sources)
+        expenses = person("self_employment_expense", period)
+        reconstructed = net_income + expenses
+        # Apply the modeling fallback separately to each net-income source.
+        source_floor = 0
+        for source in net_income_sources:
+            source_floor = source_floor + max_(person(source, period), 0)
+        return max_(reconstructed, source_floor)