Deny the refundable CTC and the EITC to section 911 filers (26 U.S.C. 24(d)(3), 32(c)(1)(C), 6012(c))

.gitignore

@@ -25,6 +25,7 @@ venv/
 # Python caches
 
 .pytest_cache
+.hypothesis
 **/__pycache__
 
 # Data

changelog.d/ctc-refundable-foreign-earned-income-exclusion.fixed.md

@@ -0,0 +1 @@
+Deny the refundable Child Tax Credit to filers who elect to exclude foreign earned income or housing amounts under section 911 (26 U.S.C. 24(d)(3)) for tax years from 2015 except fully refundable 2021, including the Puerto Rico refundable Child Tax Credit, Colorado's replica of the refundable credit, the Wyden-Smith CTC expansion reform and the American Family Act reform before 2025; deny the EITC to filers who claim the benefits of section 911 (26 U.S.C. 32(c)(1)(C)), including in New Jersey's childless EITC age exception and the Colorado, DC, Illinois, Indiana and Washington credits that recompute the federal EITC; count the section 911 exclusion in gross income for the filing requirement (26 U.S.C. 6012(c)); and treat a section 911 claimant below the filing threshold as a filer when the tax unit would file if eligible for a refundable credit (would_file_if_eligible_for_refundable_credit). Under the American Family Act, waive the shared section 911 refundable CTC bar from 2025 onward, including the Puerto Rico refund after 2039.

policyengine_us/reforms/congress/afa/afa_other_dependent_credit.py

@@ -5,6 +5,21 @@
 
 
 def create_afa_other_dependent_credit() -> Reform:
+    class refundable_ctc_barred_by_section_911_exclusion(Variable):
+        reference = "https://www.bennet.senate.gov/wp-content/uploads/2025/04/American-Family-Act-2025.pdf"
+        documentation = (
+            "The American Family Act replaces section 24 from 2025 with "
+            "section 24A, which does not bar refundability for section 911 "
+            "claimants, including in Puerto Rico. Earlier years retain "
+            "the current-law bar."
+        )
+
+        def formula_2025(tax_unit, period, parameters):
+            # Section 2(c) ends old section 24 after 2024; sections 24A(d)
+            # and 2(f)(1) provide refundability from 2025 without a sunset.
+            # Keep this rule after the fully_refundable parameter expires.
+            return False
+
     class other_dependent_credit(Variable):
         value_type = float
         entity = TaxUnit
@@ -152,7 +167,9 @@ def formula(tax_unit, period, parameters):
             ctc_capped_by_tax = min_(total_ctc, limiting_tax)
             ctc_capped_by_increased_tax = min_(total_ctc, limiting_tax + phase_in)
             amount_ctc_would_increase = ctc_capped_by_increased_tax - ctc_capped_by_tax
-            return min_(maximum_refundable_ctc, amount_ctc_would_increase)
+            refundable_amount = min_(maximum_refundable_ctc, amount_ctc_would_increase)
+            barred = tax_unit("refundable_ctc_barred_by_section_911_exclusion", period)
+            return where(barred, 0, refundable_amount)
 
     class ctc(Variable):
         value_type = float
@@ -256,6 +273,7 @@ def apply(self):
             self.update_variable(ctc_lower_phase_out)
             self.update_variable(ctc_higher_phase_out)
             self.update_variable(ctc)
+            self.update_variable(refundable_ctc_barred_by_section_911_exclusion)
             self.update_variable(refundable_ctc)
             self.update_variable(ctc_child_individual_maximum_arpa)
             self.modify_parameters(modify_parameters)

policyengine_us/reforms/congress/wyden_smith/ctc_expansion.py

@@ -74,8 +74,13 @@ def formula(tax_unit, period, parameters):
             ctc_capped_by_tax = min_(total_ctc, limiting_tax)
             ctc_capped_by_increased_tax = min_(total_ctc, limiting_tax + tax_increase)
             amount_ctc_would_increase = ctc_capped_by_increased_tax - ctc_capped_by_tax
+            refundable_amount = min_(maximum_refundable_ctc, amount_ctc_would_increase)
 
-            return min_(maximum_refundable_ctc, amount_ctc_would_increase)
+            # The bill's CTC changes amend section 24(h) and leave section
+            # 24(d)(3) in place: no refundable CTC for filers electing a
+            # section 911 exclusion.
+            barred = tax_unit("refundable_ctc_barred_by_section_911_exclusion", period)
+            return where(barred, 0, refundable_amount)
 
     class reform(Reform):
         def apply(self):

policyengine_us/tests/policy/baseline/gov/irs/credits/ctc/integration.yaml

@@ -531,3 +531,92 @@
   output:
     ctc: 3_500  # 3000 for 10-year-old + 500 for 18-year-old (ODC)
     ctc_adult_individual_maximum: [0, 0, 500]  # ODC for 18-year-old under ARPA
+
+# Both cases below have zero taxable income and $0 of tax before credits. For
+# the Form 2555 filer, the Foreign Earned Income Tax Worksheet (Form 1040 line
+# 16), which applies section 911(f), is skipped when taxable income is zero;
+# the first case in this file has a Form 2555 filer with positive taxable
+# income.
+# non_refundable_ctc is the credit before the section 26(a) limit; the limited
+# amount is income_tax_capped_non_refundable_credits, which equals Schedule
+# 8812 line 14 here because the CTC is the only non-refundable credit ($0).
+- name: Head of household with two children and a section 911 exclusion gets no additional child tax credit in 2025.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 40
+        # Wages included in gross income; the excluded foreign wages are
+        # reported separately below.
+        employment_income: 8_000
+        # Over the $11,950 investment income limit, so no EITC either way.
+        taxable_interest_income: 12_500
+      child1:
+        age: 5
+      child2:
+        age: 8
+    tax_units:
+      tax_unit:
+        members: [parent, child1, child2]
+        # Form 2555 exclusion.
+        foreign_earned_income_exclusion: 40_000
+    households:
+      household:
+        members: [parent, child1, child2]
+        state_code: TX
+  output:
+    filing_status: HEAD_OF_HOUSEHOLD
+    adjusted_gross_income: 20_500
+    # $20,500 is below the $23,625 head of household standard deduction.
+    taxable_income: 0
+    income_tax_before_credits: 0
+    eitc: 0
+    # Schedule 8812 line 12: 2 x $2,200.
+    ctc: 4_400
+    # Line 13 (Credit Limit Worksheet A): no tax to offset.
+    ctc_limiting_tax_liability: 0
+    refundable_ctc_barred_by_section_911_exclusion: true
+    # Part II-A: "If you file Form 2555, you cannot claim the additional
+    # child tax credit." A household with the same included income and no
+    # foreign earnings gets $825 (next case).
+    refundable_ctc: 0
+    non_refundable_ctc: 4_400
+    income_tax_capped_non_refundable_credits: 0
+    income_tax_before_refundable_credits: 0
+    income_tax: 0
+
+- name: A household with the same included income and no foreign earnings gets an $825 additional child tax credit in 2025.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 8_000
+        taxable_interest_income: 12_500
+      child1:
+        age: 5
+      child2:
+        age: 8
+    tax_units:
+      tax_unit:
+        members: [parent, child1, child2]
+        foreign_earned_income_exclusion: 0
+    households:
+      household:
+        members: [parent, child1, child2]
+        state_code: TX
+  output:
+    income_tax_before_credits: 0
+    eitc: 0
+    ctc: 4_400
+    refundable_ctc_barred_by_section_911_exclusion: false
+    # Part II-A: line 16a = $4,400 - $0 = $4,400; line 16b = 2 x $1,700
+    # = $3,400; line 17 = $3,400; line 20 = 15% x ($8,000 - $2,500) = $825;
+    # line 27 = smaller of lines 17 and 20 = $825.
+    refundable_ctc: 825
+    non_refundable_ctc: 3_575
+    income_tax_capped_non_refundable_credits: 0
+    income_tax_before_refundable_credits: 0
+    income_tax: -825

policyengine_us/tests/policy/baseline/gov/irs/credits/ctc/refundable/ctc_credit_limit_worksheet_b_applies.yaml

@@ -41,3 +41,23 @@
     foreign_earned_income_exclusion: 10_000
   output:
     ctc_credit_limit_worksheet_b_applies: true
+
+# Worksheet B reads the section 24(d)(3) bar rather than repeating its test, so
+# a bar set as an input decides both the refund and the worksheet.
+- name: Does not apply when the section 24(d)(3) bar is set as an input, even without an exclusion.
+  period: 2025
+  input:
+    ctc_qualifying_children: 2
+    foreign_earned_income_exclusion: 0
+    refundable_ctc_barred_by_section_911_exclusion: true
+  output:
+    ctc_credit_limit_worksheet_b_applies: false
+
+- name: Applies to a Form 2555 filer when the section 24(d)(3) bar is set to false as an input.
+  period: 2025
+  input:
+    ctc_qualifying_children: 2
+    foreign_earned_income_exclusion: 10_000
+    refundable_ctc_barred_by_section_911_exclusion: false
+  output:
+    ctc_credit_limit_worksheet_b_applies: true

policyengine_us/tests/policy/baseline/gov/irs/credits/ctc/refundable/refundable_ctc.yaml

@@ -81,3 +81,111 @@
     ctc_limiting_tax_liability: 4_000
   output:
     refundable_ctc: 0
+
+# Section 24(d)(3): no refundable CTC for a filer who elects to exclude any
+# amount from gross income under section 911 (2025 Schedule 8812
+# instructions, Part II-A: "If you file Form 2555, you cannot claim the
+# additional child tax credit.").
+- name: Section 911 exclusion denies the refundable credit
+  period: 2025
+  input:
+    ctc_refundable_maximum: 3_400
+    ctc: 4_400
+    ctc_phase_out: 0
+    ctc_phase_in: 10_000
+    ctc_limiting_tax_liability: 0
+    foreign_earned_income_exclusion: 1
+  output:
+    # Without the exclusion: min(3,400, min(4,400, 0 + 10,000) - 0) = 3,400.
+    refundable_ctc: 0
+
+- name: Section 911 exclusion denies the refundable credit from social security taxes
+  period: 2025
+  input:
+    # Three children and no earnings over the threshold: the phase-in amount
+    # is social security taxes less the EITC (section 24(d)(1)(B)(ii)), which
+    # section 24(d)(3) also switches off.
+    ctc_qualifying_children: 3
+    ctc_phase_in_relevant_earnings: 0
+    ctc_social_security_tax: 4_000
+    eitc: 0
+    ctc_refundable_maximum: 5_100
+    ctc: 6_600
+    ctc_phase_out: 0
+    ctc_limiting_tax_liability: 1_000
+    foreign_earned_income_exclusion: 30_000
+  output:
+    ctc_phase_in: 4_000
+    refundable_ctc: 0
+
+- name: No section 911 exclusion keeps the refundable credit from social security taxes
+  period: 2025
+  input:
+    ctc_qualifying_children: 3
+    ctc_phase_in_relevant_earnings: 0
+    ctc_social_security_tax: 4_000
+    eitc: 0
+    ctc_refundable_maximum: 5_100
+    ctc: 6_600
+    ctc_phase_out: 0
+    ctc_limiting_tax_liability: 1_000
+    foreign_earned_income_exclusion: 0
+  output:
+    ctc_phase_in: 4_000
+    # min(5,100, min(6,600, 1,000 + 4,000) - min(6,600, 1,000)) = 4,000.
+    refundable_ctc: 4_000
+
+- name: Section 911 exclusion bar can be switched off
+  period: 2025
+  input:
+    gov.irs.credits.ctc.refundable.foreign_earned_income_exclusion_bar_applies: false
+    ctc_refundable_maximum: 5_100
+    ctc: 6_600
+    ctc_phase_out: 0
+    ctc_phase_in: 4_000
+    ctc_limiting_tax_liability: 1_000
+    foreign_earned_income_exclusion: 30_000
+  output:
+    refundable_ctc: 4_000
+
+- name: Section 911 exclusion did not deny the refundable credit before 2015
+  period: 2014
+  input:
+    # Public Law 114-27, section 807, applies to taxable years beginning
+    # after December 31, 2014.
+    ctc_refundable_maximum: 2_000
+    ctc: 2_000
+    ctc_phase_out: 0
+    ctc_phase_in: 1_500
+    ctc_limiting_tax_liability: 0
+    foreign_earned_income_exclusion: 30_000
+  output:
+    refundable_ctc: 1_500
+
+- name: Section 911 exclusion denies the refundable credit from 2015
+  period: 2015
+  input:
+    ctc_refundable_maximum: 2_000
+    ctc: 2_000
+    ctc_phase_out: 0
+    ctc_phase_in: 1_500
+    ctc_limiting_tax_liability: 0
+    foreign_earned_income_exclusion: 30_000
+  output:
+    refundable_ctc: 0
+
+- name: In 2021, the fully refundable credit ignores the section 911 exclusion
+  period: 2021
+  input:
+    # Section 24(i)(1)(A): subsection (d), including the section 911 bar,
+    # does not apply to a filer whose principal place of abode was in the
+    # United States for more than half of 2021 (Schedule 8812 Part I-B,
+    # which has no Form 2555 condition). The model assumes that test is met.
+    ctc_refundable_maximum: 6_000
+    ctc: 6_000
+    ctc_phase_out: 0
+    ctc_phase_in: 0
+    ctc_limiting_tax_liability: 0
+    foreign_earned_income_exclusion: 30_000
+  output:
+    refundable_ctc: 6_000

policyengine_us/tests/policy/baseline/gov/irs/credits/ctc/refundable/refundable_ctc_barred_by_section_911_exclusion.yaml

@@ -0,0 +1,49 @@
+# Section 24(d)(3): "Paragraph (1) shall not apply to any taxpayer for any
+# taxable year if such taxpayer elects to exclude any amount from gross
+# income under section 911 for such taxable year."
+- name: Any section 911 exclusion bars the refundable credit
+  period: 2025
+  input:
+    foreign_earned_income_exclusion: 1
+  output:
+    refundable_ctc_barred_by_section_911_exclusion: true
+
+- name: No section 911 exclusion, no bar
+  period: 2025
+  input:
+    foreign_earned_income_exclusion: 0
+  output:
+    refundable_ctc_barred_by_section_911_exclusion: false
+
+- name: The bar did not exist before 2015
+  period: 2014
+  input:
+    # Public Law 114-27, section 807, applies to taxable years beginning
+    # after December 31, 2014.
+    foreign_earned_income_exclusion: 30_000
+  output:
+    refundable_ctc_barred_by_section_911_exclusion: false
+
+- name: The bar applies from 2015
+  period: 2015
+  input:
+    foreign_earned_income_exclusion: 30_000
+  output:
+    refundable_ctc_barred_by_section_911_exclusion: true
+
+- name: No bar in the fully refundable year
+  period: 2021
+  input:
+    # Section 24(i)(1)(A): subsection (d) does not apply to filers living in
+    # the United States or Puerto Rico, which the model assumes.
+    foreign_earned_income_exclusion: 30_000
+  output:
+    refundable_ctc_barred_by_section_911_exclusion: false
+
+- name: The bar can be switched off
+  period: 2025
+  input:
+    gov.irs.credits.ctc.refundable.foreign_earned_income_exclusion_bar_applies: false
+    foreign_earned_income_exclusion: 30_000
+  output:
+    refundable_ctc_barred_by_section_911_exclusion: false

policyengine_us/tests/policy/baseline/gov/irs/credits/earned_income/eitc_eligible.yaml

@@ -37,3 +37,40 @@
     filing_status: JOINT
   output:
     eitc_eligible: true
+
+# 26 U.S.C. 32(c)(1)(C): "The term 'eligible individual' does not include any
+# individual who claims the benefits of section 911 (relating to citizens or
+# residents living abroad) for the taxable year."
+- name: Section 911 claimant is not eligible.
+  period: 2025
+  input:
+    eitc_investment_income_eligible: true
+    eitc_demographic_eligible: true
+    filer_meets_eitc_identification_requirements: true
+    filing_status: JOINT
+    foreign_earned_income_exclusion: 1
+  output:
+    eitc_eligible: false
+
+- name: Without a section 911 exclusion the same filer is eligible.
+  period: 2025
+  input:
+    eitc_investment_income_eligible: true
+    eitc_demographic_eligible: true
+    filer_meets_eitc_identification_requirements: true
+    filing_status: JOINT
+    foreign_earned_income_exclusion: 0
+  output:
+    eitc_eligible: true
+
+- name: Section 911 claimant is not eligible in 2021 either.
+  period: 2021
+  input:
+    # Unlike the CTC bar, section 32(c)(1)(C) has no 2021 exception.
+    eitc_investment_income_eligible: true
+    eitc_demographic_eligible: true
+    filer_meets_eitc_identification_requirements: true
+    filing_status: SINGLE
+    foreign_earned_income_exclusion: 30_000
+  output:
+    eitc_eligible: false