Count only the claimant and spouse in Michigan household resources (MI-1040CR lines 14-27, 30 and 31)

changelog.d/filer-schedule-d-line16-rounding.fixed.md

@@ -0,0 +1 @@
+Use the filers' shared Schedule D lines for Form 1040 capital gains, preserving supplied aggregate inputs without letting dependents' large gains introduce rounding errors.

changelog.d/mi-dependent-retirement-ssi-invariant.changed.md

@@ -0,0 +1 @@
+Recognize the intended Michigan dependent-retirement SSI interaction in state tax invariants and add a regression for the resulting heating credit increase.

changelog.d/mi-household-resources-claimant-spouse.fixed.md

@@ -0,0 +1 @@
+Michigan household resources count only the claimant's and spouse's own income, capital gains and Schedule 1 adjustments (MCL 206.508(3)), keeping the Social Security, SSI, railroad retirement, child support and public assistance received for dependents (MI-1040CR lines 21, 22 and 27) and premiums paid for the family (line 31). The filer's Form 1040 line 7a amount, read by Michigan and by federal net investment income, now keeps a net capital gains amount supplied for the tax unit, less only the dependents' own gains and losses.

policyengine_us/parameters/gov/states/mi/tax/income/household_resources.yaml

@@ -1,8 +1,12 @@
 description: Michigan accounts for the following income sources as the household resources.
 values:
   2021-01-01:
+    # Each source counts for the claimant and spouse only (MCL 206.508(3)),
+    # except those in household_resources_all_members (lines 21, 22 and 27).
+    # MI-1040CR line 14, wages, including strike pay.
     - irs_employment_income
     - strike_benefits
+    # MI-1040CR line 15, interest and dividends.
     - dividend_income
     - interest_income
     # MI-1040CR line 16, net business income: U.S. Schedule C, Form 4797
@@ -18,22 +22,35 @@ values:
     # as a total.
     - rental_income
     - farm_rent_income
+    # MI-1040CR line 18, pensions and annuities.
     - pension_income
     - retirement_benefits_from_ss_exempt_employment
-    - loss_limited_net_capital_gains
+    # MI-1040CR line 19, net capital gains and losses from the filer's U.S.
+    # Schedule D, a loss limited to $3,000 ($1,500 married filing separately).
+    - filer_loss_limited_net_capital_gains
+    # MI-1040CR line 20, alimony and other taxable income.
     - alimony_income
     - gambling_winnings
+    # MI-1040CR line 21, Social Security, SSI and railroad retirement
+    # benefits, including amounts received for dependents.
     - social_security
-    - ssi 
+    - ssi
     - railroad_benefits
+    # MI-1040CR line 22, child support.
     - child_support_received
+    # MI-1040CR line 23, unemployment compensation.
     - unemployment_compensation
-    # Gifts received or expenses paid on your behalf
+    # MI-1040CR line 24, gifts received or expenses paid on your behalf.
     - miscellaneous_income
+    # MI-1040CR line 26, veterans' benefits and workers' compensation.
     - veterans_benefits
     - workers_compensation
+    # MI-1040CR line 14, long-term disability benefits.
     - disability_benefits
+    # Guaranteed income pilot payments, the recipient's own.
     - gi_cash_assistance
+    # MI-1040CR line 27, payments to the household by MDHHS and other public
+    # assistance.
     - tanf
     - general_assistance
 metadata:

policyengine_us/parameters/gov/states/mi/tax/income/household_resources_all_members.yaml

@@ -0,0 +1,30 @@
+description: Michigan counts these household resources sources for every tax unit member, not only the claimant and spouse, as amounts the claimant receives for others in the household.
+values:
+  2021-01-01:
+    # MI-1040CR line 21: Social Security, SSI and railroad retirement
+    # benefits, including "amounts received for minor children or other
+    # dependent adults who live with you".
+    - social_security
+    - ssi
+    - railroad_benefits
+    # MI-1040CR line 22: "child support and all payments received as a foster
+    # parent".
+    - child_support_received
+    # MI-1040CR line 27: "the total payments made to your household by MDHHS
+    # and all other public assistance payments". A Family Independence
+    # Program grant covers the children in the case.
+    - tanf
+    - general_assistance
+metadata:
+  unit: list
+  period: year
+  label: Michigan household resources sources counted for every member
+  reference:
+    - title: MCL 206.508(3) and (4), household and total household resources
+      href: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-206-508
+    - title: Michigan 2025 Individual Income Tax Instructions, MI-1040CR lines 21, 22 and 27
+      href: https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/IIT/TY2025/MI-1040-Book.pdf#page=32
+    - title: Michigan 2024 Home Heating Credit Instructions, MI-1040CR-7 lines 26, 27 and 32
+      href: https://web.archive.org/web/20250202150154/https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/IIT/TY2024/BOOK_MI-1040CR-7.pdf#page=8
+    - title: Michigan 2025 Home Heating Credit Instructions, MI-1040CR-7 lines 24, 25 and 30
+      href: https://web.archive.org/web/20260218211009/https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/IIT/TY2025/MI-1040CR-7-Book.pdf?rev=e4ba4fedc63942e48442037517312d4a&hash=AF396E577B1932DF55BFD7F22D7EF06A#page=9

policyengine_us/tests/core/test_dependent_retirement_income_state_invariants.py

@@ -28,12 +28,15 @@
 1. `tax_unit_non_dep_add` equals a numpy reference: the head's and spouse's
    amounts of person-level variables plus tax-unit-level variables. For tax
    units without dependents it equals `add`.
-2. In every state with an income tax, giving the dependents retirement income
-   never lowers the filer's state income tax. Outside
+2. Outside STATES_WITH_INTENDED_RETIREMENT_TAX_DECREASES, giving the
+   dependents retirement income never lowers the filer's state income tax.
+   Michigan is an intended exception: a dependent adult's pension can lower
+   their SSI and increase the claimant's refundable credit. Outside
    STATES_COUNTING_DEPENDENT_INCOME it changes neither the state AGI nor the
    state taxable income. (State income tax itself may still rise: credits
    keyed to household income, such as Oklahoma's sales tax relief credit,
-   count every household member's income.)
+   count every household member's income.) Michigan's pension benefits,
+   subtractions and tax before refundable credits must remain unchanged.
 3. A unit whose dependents have no income has the same inputs in both
    populations, so its state income tax, AGI and taxable income are the same
    in both: no unit's results depend on another unit's inputs.
@@ -368,6 +371,14 @@ def test_tax_unit_non_dep_add_edge_cases():
 # subtracting income that never entered AGI; property 2 checks only that it
 # never lowers tax there.
 STATES_COUNTING_DEPENDENT_INCOME = {"AL", "AR", "IA", "MS", "NJ"}
+# Intended exception per ruling d1143 (2026-10-09): follow MI-1040CR lines
+# 18 and 21 (2025 MI-1040 booklet, PDF page 28 / printed page 32):
+# https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/IIT/TY2025/MI-1040-Book.pdf#page=28
+# Line 18 counts pensions only for the claimant and spouse; line 21 counts
+# SSI received for dependent adults who live with them. A dependent adult's
+# pension can reduce SSI, lower household resources and raise refundable
+# credits, while the claimant's pension subtractions and tax base stay fixed.
+STATES_WITH_INTENDED_RETIREMENT_TAX_DECREASES = {"MI"}
 YEARS = [2025, 2026]
 
 
@@ -402,11 +413,32 @@ def test_dependents_retirement_income_never_reduces_state_income_tax(year):
     assert not leaked.any(), sorted(set(states[leaked]))
 
     lowered = tax_with < tax_without - TOLERANCE
-    assert not lowered.any(), sorted(set(states[lowered]))
+    intended_exception = np.isin(
+        states, list(STATES_WITH_INTENDED_RETIREMENT_TAX_DECREASES)
+    )
+    unexpectedly_lowered = lowered & ~intended_exception
+    assert not unexpectedly_lowered.any(), sorted(set(states[unexpectedly_lowered]))
 
     counts_dependents = np.isin(states, list(STATES_COUNTING_DEPENDENT_INCOME))
     changed &= ~counts_dependents
     assert not changed.any(), sorted(set(states[changed]))
+
+    # Michigan's intended exception concerns refundable credits only; a
+    # dependent's pension must never enter the claimant's pension subtraction.
+    mi = states == "MI"
+    for variable in [
+        "mi_pension_benefit",
+        "mi_subtractions",
+        "mi_income_tax_before_refundable_credits",
+    ]:
+        np.testing.assert_allclose(
+            with_income.calculate(variable, year)[mi],
+            without_income.calculate(variable, year)[mi],
+            rtol=0,
+            atol=TOLERANCE,
+            err_msg=f"Michigan {variable} changed with dependent retirement income",
+        )
+
     # The population must exercise the property, including the paths gated on
     # the filers' Social Security and on ages of 73 or more.
     assert has_dependent_income.sum() >= len(INCOME_TAX_STATES)

policyengine_us/tests/policy/baseline/gov/irs/tax/federal_income/capital_gains/net_capital_gain.yaml

@@ -287,3 +287,186 @@
     capital_gains_tax: 1_500
     # The same filer income and HOH tax calculation as the child-dividends case.
     regular_tax_before_credits: 22_938
+
+
+- name: A dependent's very large gain cannot round a dollar off the filer's Schedule D
+  period: 2025
+  input:
+    people:
+      head:
+        age: 30
+        employment_income: 20_000
+        long_term_capital_gains: 977
+      child:
+        age: 8
+        is_tax_unit_dependent: true
+        long_term_capital_gains: 16_776_240
+    tax_units:
+      tax_unit:
+        members: [head, child]
+    households:
+      household:
+        members: [head, child]
+        state_code: TX
+  output:
+    # The float32 all-member aggregate rounds 16,777,217 to 16,777,216.
+    # Subtracting the child's 16,776,240 would give 976, rather than 977.
+    # Schedule D line 16 and Form 1040 line 7a use the filer's own gain.
+    filer_loss_limited_net_capital_gains: 977
+    net_capital_gain: 977
+    dwks09: 977
+    dwks10: 977
+    adjusted_gross_income: 20_977
+
+- name: Each spouse's distributions are floored before they enter the shared Schedule D
+  period: 2025
+  input:
+    people:
+      head:
+        age: 35
+        is_tax_unit_head: true
+        long_term_capital_gains: 6_000
+        non_sch_d_capital_gains: -2_000
+      spouse:
+        age: 34
+        is_tax_unit_spouse: true
+        short_term_capital_gains: -3_000
+        non_sch_d_capital_gains: 1_500
+      child:
+        age: 8
+        is_tax_unit_dependent: true
+        long_term_capital_gains: 10_000
+        non_sch_d_capital_gains: 9_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child]
+    marital_units:
+      couple:
+        members: [head, spouse]
+      child_unit:
+        members: [child]
+    households:
+      household:
+        members: [head, spouse, child]
+        state_code: TX
+  output:
+    # Line 13 is max(0, -2,000) + max(0, 1,500) = 1,500, with no child
+    # distributions. Line 15 is 7,500; line 7 is -3,000; line 16 is 4,500.
+    filing_status: JOINT
+    filer_loss_limited_net_capital_gains: 4_500
+    net_capital_gain: 4_500
+    dwks09: 4_500
+    dwks10: 4_500
+
+- name: A supplied aggregate still excludes the dependent in Form 1040 line 7a
+  period: 2025
+  input:
+    people:
+      head:
+        age: 35
+        long_term_capital_gains: 6_000
+        short_term_capital_gains: -1_000
+        non_sch_d_capital_gains: 1_500
+      child:
+        age: 8
+        is_tax_unit_dependent: true
+        long_term_capital_gains: 10_000
+        short_term_capital_gains: -2_000
+        non_sch_d_capital_gains: 9_000
+    tax_units:
+      tax_unit:
+        members: [head, child]
+        net_capital_gains: 15_000
+    households:
+      household:
+        members: [head, child]
+        state_code: TX
+  output:
+    # The supplied 15,000 covers all members. Remove the child's 8,000 and
+    # add the head's 1,500 distributions: Schedule D line 16 is 8,500.
+    filer_loss_limited_net_capital_gains: 8_500
+    # Preserve the documented aggregate/component split: line 15 is 7,500,
+    # so worksheet line 9 is min(7,500, 8,500), while the statutory amount
+    # uses component-derived lines 15 and 7: 7,500 - 1,000 = 6,500.
+    dwks09: 7_500
+    dwks10: 7_500
+    net_capital_gain: 6_500
+
+
+- name: A large supplied aggregate keeps the dollar in its component adjustment
+  period: 2025
+  input:
+    people:
+      head:
+        age: 35
+        long_term_capital_gains: -1
+    tax_units:
+      tax_unit:
+        members: [head]
+        net_capital_gains: 16_777_216
+    households:
+      household:
+        members: [head]
+        state_code: TX
+  output:
+    # The aggregate is supplied, rather than the component-derived -1.
+    # Reconciling through a float32 difference from -1 rounds 16,777,217
+    # down by a dollar. Read the differing supplied aggregate directly.
+    filer_loss_limited_net_capital_gains: 16_777_216
+    # The component-derived line 15 remains a loss, so the preexisting
+    # aggregate/component split gives no statutory gain or worksheet gain.
+    net_capital_gain: 0
+    dwks09: 0
+    dwks10: 0
+
+- name: A supplied aggregate removes a large dependent gain without borrowing its rounding error
+  period: 2025
+  input:
+    people:
+      head:
+        age: 35
+        long_term_capital_gains: 977
+      child:
+        age: 8
+        is_tax_unit_dependent: true
+        long_term_capital_gains: 16_776_240
+    tax_units:
+      tax_unit:
+        members: [head, child]
+        net_capital_gains: 20_000_000
+    households:
+      household:
+        members: [head, child]
+        state_code: TX
+  output:
+    # The supplied all-member gain is 20,000,000. Removing the child's
+    # own 16,776,240 gives 3,223,760. A residual against the rounded
+    # computed aggregate (16,777,216) incorrectly adds a dollar to this.
+    filer_loss_limited_net_capital_gains: 3_223_760
+    # Component-derived line 15 remains 977, so the preexisting
+    # aggregate/component split gives that gain to the worksheet and
+    # statutory net-capital-gain calculation.
+    net_capital_gain: 977
+    dwks09: 977
+    dwks10: 977
+
+- name: A supplied capital gain survives a much larger filer component
+  period: 2025
+  input:
+    people:
+      head:
+        age: 35
+        long_term_capital_gains: 1_152_921_504_606_846_976
+    tax_units:
+      tax_unit:
+        members: [head]
+        net_capital_gains: 1
+    households:
+      household:
+        members: [head]
+        state_code: TX
+  output:
+    # The component gain is 2**60, exactly representable in float32.
+    # Even a float64 residual of 1 - 2**60 loses the supplied dollar when
+    # added back to the component gain. No dependent gains need removal.
+    filer_loss_limited_net_capital_gains: 1

policyengine_us/tests/policy/baseline/gov/irs/tax/federal_income/dependent_net_investment_income.yaml

@@ -401,3 +401,15 @@
     net_investment_income: 6_000
     # 3.8% x 6,000
     net_investment_income_tax: 228
+
+- name: A supplied net capital gains amount is net investment income
+  period: 2025
+  input:
+    employment_income: 300_000
+    net_capital_gains: 100_000
+    state_code: TX
+  output:
+    # Form 8960 line 5a: the filer's Form 1040 line 7a, 100,000.
+    filer_loss_limited_net_capital_gains: 100_000
+    net_investment_income: 100_000
+