Keep dependents' above-the-line deductions off the filer's AGI

changelog.d/fix-dependent-ald-filer-agi.fixed.md

@@ -0,0 +1 @@
+Keep tax unit dependents' above-the-line deductions (the deductible part of self-employment tax, self-employed health insurance and retirement plans, IRA contributions, early withdrawal penalties, educator expenses and alimony paid) off the filer's AGI, Social Security and unemployment MAGIs, per-person AGI and student loan interest MAGI, and off the Missouri, Massachusetts, Minnesota property tax refund and Medicaid incomes built from them. Employer adoption assistance and education savings bond interest stay on the filer's return wherever they are recorded. A dependent's own deductions now reduce the dependent's Medicaid AGI, Massachusetts gross income no longer subtracts dependents' business losses, and Mississippi subtracts each person's own self-employed health insurance and retirement plan deductions instead of the tax unit's total for every member.

policyengine_us/parameters/gov/irs/ald/filer_amounts_recorded_on_dependents.yaml

@@ -0,0 +1,26 @@
+description: Above-the-line amounts that belong to the filer even when they are recorded on a tax unit dependent, so they are summed over every tax unit member rather than over the head and spouse only.
+values:
+  2010-01-01:
+    # Employer adoption assistance is excluded for the adopting employee
+    # (26 USC 137(a)); households record it on the adopted child, as the Ohio
+    # adoption credit reads it.
+    - qualified_adoption_assistance_expense
+    # Savings bond interest used for education is excluded for the bond's
+    # owner, who must have been at least 24 when the bond was issued, and the
+    # expenses may be a dependent's. "A bond bought by a parent and issued in
+    # the name of his or her child under age 24 does not qualify for the
+    # exclusion by the parent or child" (Form 8815). By convention, an amount
+    # recorded on a dependent is the parent-owned bond's exclusion recorded on
+    # the student whose expenses it paid.
+    - us_bonds_for_higher_ed
+metadata:
+  unit: list
+  period: year
+  label: Above-the-line amounts summed over dependents
+  reference:
+    - title: 26 U.S. Code § 137 - Adoption assistance programs
+      href: https://www.law.cornell.edu/uscode/text/26/137
+    - title: 26 U.S. Code § 135 - Income from United States savings bonds used to pay higher education tuition and fees
+      href: https://www.law.cornell.edu/uscode/text/26/135
+    - title: Form 8815 (2025), Who Can Take the Exclusion
+      href: https://www.irs.gov/pub/irs-prior/f8815--2025.pdf#page=3

policyengine_us/parameters/gov/states/al/tax/income/agi/deductions.yaml

@@ -6,8 +6,11 @@ values:
     - alimony_expense # Line 4
     - early_withdrawal_penalty # Line 5
     - self_employed_health_insurance_ald # Line 7
+    # Alabama AGI counts dependents' income, so their deductions too.
+    - dependents_self_employed_health_insurance_ald
     - health_savings_account_ald # Line 8
     - self_employed_pension_contribution_ald # Line 9
+    - dependents_self_employed_pension_contribution_ald
     - us_govt_interest
     - taxable_public_pension_income
   2023-01-01:
@@ -16,8 +19,11 @@ values:
     - alimony_expense # Line 4
     - early_withdrawal_penalty # Line 5
     - self_employed_health_insurance_ald # Line 7
+    # Alabama AGI counts dependents' income, so their deductions too.
+    - dependents_self_employed_health_insurance_ald
     - health_savings_account_ald # Line 8
     - self_employed_pension_contribution_ald # Line 9
+    - dependents_self_employed_pension_contribution_ald
     - us_govt_interest
     - al_retirement_exemption #Schedule RS Line 10
     - taxable_public_pension_income

policyengine_us/parameters/gov/states/ms/tax/income/adjustments/adjustments.yaml

@@ -5,9 +5,9 @@ values:
     - ms_self_employment_adjustment # Line 61
     - ms_national_guard_or_reserve_pay_adjustment # Line 55
     - alimony_expense # Line 53
-    - self_employed_pension_contribution_ald # Line 51
+    - ms_self_employed_retirement_adjustment # Line 51
     - early_withdrawal_penalty # Line 52
-    - self_employed_health_insurance_ald # Line 56
+    - ms_self_employed_health_insurance_adjustment # Line 56
     - health_savings_account_ald # Line 57
     - ms_retirement_income_exemption
     - us_govt_interest_person

policyengine_us/tests/core/test_ald_determinism.py

@@ -63,6 +63,7 @@ def test_tax_unit_deductions_are_ordered_unique_and_exclude_person_alds(
                 gross_income=SimpleNamespace(sources=[]),
                 ald=SimpleNamespace(
                     deductions=deductions,
+                    filer_amounts_recorded_on_dependents=[],
                     student_loan_interest=SimpleNamespace(magi=magi),
                 ),
             )
@@ -85,13 +86,19 @@ class ReachedTaxUnitSum(Exception):
     person = Person()
 
     def capture_add(entity, period, variables):
-        if entity is person.tax_unit:
-            captured.extend(variables)
-            raise ReachedTaxUnitSum
+        # Tax-unit deductions must be summed over non-dependents only, through
+        # tax_unit_non_dep_add, never with a plain add over every member.
+        assert entity is person
         assert variables == [f"{name}_person" for name in PERSON_ALDS]
         return np.array([0], dtype=np.float32)
 
+    def capture_tax_unit_add(entity, period, variables, include_dependents=()):
+        assert entity is person.tax_unit
+        captured.extend(variables)
+        raise ReachedTaxUnitSum
+
     monkeypatch.setattr(module, "add", capture_add)
+    monkeypatch.setattr(module, "tax_unit_non_dep_add", capture_tax_unit_add)
     with pytest.raises(ReachedTaxUnitSum):
         getattr(module, variable_name).formula(person, 2026, lambda period: parameters)