Net self-employment losses across spouses in CalEITC and YCTC earned income

changelog.d/ca-eitc-earned-income-netting.fixed.md

@@ -0,0 +1 @@
+Use FTB 3514 line 19 for CalEITC, YCTC and FYTC earned income: net a spouse's self-employment loss against the other spouse's wages, and include farm income and partnership self-employment earnings.

policyengine_us/tests/policy/baseline/gov/states/ca/tax/income/credits/earned_income/ca_eitc_earned_income.yaml

@@ -0,0 +1,135 @@
+- name: A spouse's self-employment loss offsets the other spouse's wages (FTB 3514 line 19)
+  period: 2023
+  # Line 19 = 9,975.50 - 6,000 = 3,975.50, the midpoint of the 2023 EITC
+  # Table row 3,951-4,000, which lists $259 with no qualifying children.
+  absolute_error_margin: 1
+  input:
+    people:
+      head:
+        age: 30
+        employment_income: 9_975.5
+      spouse:
+        age: 30
+        self_employment_income: -6_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: CA
+  output:
+    ca_eitc_earned_income: 3_975.5
+    ca_eitc: 259
+
+- name: No CalEITC when the net of wages and self-employment loss is zero or less
+  period: 2023
+  # Worksheet Part I line 1: "If the amount is zero or less, stop here."
+  input:
+    people:
+      head:
+        age: 30
+        employment_income: 10_000
+      spouse:
+        age: 30
+        self_employment_income: -12_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: CA
+  output:
+    ca_eitc_earned_income: 0
+    ca_eitc: 0
+
+- name: YCTC phase-out uses the netted line 19 earned income
+  period: 2023
+  # Line 23 = line 19 = 30,000 - 10,000 = 20,000, below the $25,775
+  # threshold, so the full 2023 YCTC of $1,117 applies.
+  input:
+    people:
+      head:
+        age: 30
+        employment_income: 30_000
+      spouse:
+        age: 30
+        self_employment_income: -10_000
+      child:
+        age: 3
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child]
+    households:
+      household:
+        members: [head, spouse, child]
+        state_code: CA
+  output:
+    ca_eitc_earned_income: 20_000
+    ca_yctc: 1_117
+
+- name: Farm income counts in line 19, less the deductible part of SE tax
+  period: 2023
+  # Worksheet 3 line 2 (Schedule 1 line 6) = 20,000. Schedule SE net earnings
+  # = 20,000 x 0.9235 = 18,470; SE tax = 18,470 x 15.3% = 2,825.91; line 4
+  # (Schedule 1 line 15) = 2,825.91 / 2 = 1,412.955. Line 18 = line 19
+  # = 20,000 - 1,412.955 = 18,587.045.
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 30
+        farm_operations_income: 20_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: CA
+  output:
+    ca_eitc_earned_income: 18_587.045
+
+- name: A spouse's farm loss offsets the other spouse's wages (FTB 3514 line 19)
+  period: 2023
+  # Line 16 = 20,000. Worksheet 3 line 2 = -10,000; a loss has no SE tax, so
+  # line 4 = 0 and line 18 = -10,000. Line 19 = 20,000 - 10,000 = 10,000.
+  input:
+    people:
+      head:
+        age: 30
+        employment_income: 20_000
+      spouse:
+        age: 30
+        farm_operations_income: -10_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: CA
+  output:
+    ca_eitc_earned_income: 10_000
+
+- name: Partnership self-employment earnings count in line 19
+  period: 2023
+  # Worksheet 3 line 3 (K-1 box 14, code A) = 20,000. Line 4 = 1,412.955 as in
+  # the farm case above. Line 19 = 20,000 - 1,412.955 = 18,587.045.
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 30
+        partnership_income: 20_000
+        partnership_self_employment_net_earnings: 20_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: CA
+  output:
+    ca_eitc_earned_income: 18_587.045

policyengine_us/tests/policy/baseline/gov/states/ca/tax/income/credits/earned_income/ca_eitc_integration.yaml

@@ -5,7 +5,7 @@
   input:
     state_code: CA
     eitc_child_count: 3
-    earned_income: 8_000
+    employment_income: 8_000
     # AGI equals earned income so the worksheet's earned-income/AGI credit
     # comparison isolates the table value.
     adjusted_gross_income: 8_000
@@ -19,7 +19,7 @@
   input:
     state_code: CA
     eitc_child_count: 1
-    earned_income: 6_400
+    employment_income: 6_400
     adjusted_gross_income: 6_400
   output:
     ca_eitc: 1_843
@@ -31,7 +31,7 @@
   input:
     state_code: CA
     eitc_child_count: 0
-    earned_income: 9_951
+    employment_income: 9_951
     adjusted_gross_income: 9_951
   output:
     #ca_eitc_second_phase_out_start: 8_201 # First bracket.

policyengine_us/tests/policy/baseline/gov/states/ca/tax/income/credits/foster_youth/ca_foster_youth_tax_credit_person.yaml

@@ -4,7 +4,7 @@
     age: 20
     ca_foster_youth_tax_credit_eligible_person: true
     ca_eitc_eligible: true
-    tax_unit_earned_income: 20_000
+    ca_eitc_earned_income: 20_000
   output:
     ca_foster_youth_tax_credit_person: 1_083
 
@@ -14,7 +14,7 @@
     age: 26
     ca_foster_youth_tax_credit_eligible_person: true
     ca_eitc_eligible: true
-    tax_unit_earned_income: 20_000
+    ca_eitc_earned_income: 20_000
   output:
     ca_foster_youth_tax_credit_person: 0
 
@@ -24,7 +24,7 @@
     age: 25
     ca_foster_youth_tax_credit_eligible_person: true
     ca_eitc_eligible: true
-    tax_unit_earned_income: 30_000
+    ca_eitc_earned_income: 30_000
   output:
    #1083-5000*0.2166 = 0
     ca_foster_youth_tax_credit_person: 0 
@@ -35,7 +35,7 @@
     age: 25
     ca_foster_youth_tax_credit_eligible_person: true
     ca_eitc_eligible: true
-    tax_unit_earned_income: 29_000
+    ca_eitc_earned_income: 29_000
   output:
     #1083-4000*0.2166 = 216.6
     ca_foster_youth_tax_credit_person: 216.6
@@ -46,6 +46,6 @@
     age: 23
     ca_foster_youth_tax_credit_eligible_person: false
     ca_eitc_eligible: true
-    tax_unit_earned_income: 20_000
+    ca_eitc_earned_income: 20_000
   output:
     ca_foster_youth_tax_credit_person: 0

policyengine_us/tests/policy/baseline/gov/states/ca/tax/income/credits/young_child/ca_yctc.yaml

@@ -9,7 +9,7 @@
     tax_units:
       tax_unit:
         members: [parent, child]
-        filer_adjusted_earnings: 25_000
+        ca_eitc_earned_income: 25_000
         ca_eitc: 1
     households:
       household:
@@ -29,7 +29,7 @@
     tax_units:
       tax_unit:
         members: [parent, child]
-        filer_adjusted_earnings: 25_100
+        ca_eitc_earned_income: 25_100
         ca_eitc: 1
     households:
       household:
@@ -49,7 +49,7 @@
     tax_units:
       tax_unit:
         members: [parent, child]
-        filer_adjusted_earnings: 25_100
+        ca_eitc_earned_income: 25_100
         ca_eitc: 1
     households:
       household:
@@ -90,7 +90,7 @@
     tax_units:
       tax_unit:
         members: [parent, child]
-        filer_adjusted_earnings: 30_000
+        ca_eitc_earned_income: 30_000
         ca_eitc: 1
     households:
       household:
@@ -113,7 +113,7 @@
     tax_units:
       tax_unit:
         members: [parent, child1, child2]
-        filer_adjusted_earnings: 25_100
+        ca_eitc_earned_income: 25_100
         ca_eitc: 1
     households:
       household:

policyengine_us/variables/gov/states/ca/tax/income/credits/earned_income/ca_eitc.py

@@ -60,7 +60,7 @@ def credit_for(income):
                 amount_after_first_phase_out,
             )
 
-        earned_income = tax_unit("filer_adjusted_earnings", period)
+        earned_income = tax_unit("ca_eitc_earned_income", period)
         agi = tax_unit("adjusted_gross_income", period)
         # The California Earned Income Tax Credit Worksheet (FTB 3514
         # instructions) figures the credit on California earned income (line 2)

policyengine_us/variables/gov/states/ca/tax/income/credits/earned_income/ca_eitc_earned_income.py

@@ -0,0 +1,27 @@
+from policyengine_us.model_api import *
+
+
+class ca_eitc_earned_income(Variable):
+    value_type = float
+    entity = TaxUnit
+    label = "California earned income for the CalEITC, YCTC and FYTC"
+    unit = USD
+    definition_period = YEAR
+    reference = (
+        "https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=17052",  # (c)(4)
+        "https://www.ftb.ca.gov/forms/2023/2023-3514-instructions.html",  # Lines 13-19, Worksheet 3
+        "https://www.ftb.ca.gov/forms/2025/2025-3514-booklet.html",
+    )
+    defined_for = StateCode.CA
+
+    def formula(tax_unit, period, parameters):
+        # FTB 3514 line 19 adds wages (line 16), nontaxable combat pay (line 17)
+        # and business income or (loss) (line 18) for the whole return.
+        # Worksheet 3 adds Schedule C income (Schedule 1 line 3), farm income
+        # (Schedule 1 line 6) and partnership self-employment earnings (K-1
+        # box 14, code A), and subtracts the deductible part of SE tax
+        # (Schedule 1 line 15). A loss of one spouse therefore offsets the
+        # other spouse's wages before the result is floored at zero. R&TC
+        # 17052(c)(4) applies IRC 32(c)(2)(A), which the federal EITC earned
+        # income computes from these same sources.
+        return tax_unit("eitc_earned_income", period)

policyengine_us/variables/gov/states/ca/tax/income/credits/foster_youth/ca_foster_youth_tax_credit_person.py

@@ -14,7 +14,8 @@ def formula(person, period, parameters):
         p = parameters(period).gov.states.ca.tax.income.credits.foster_youth
         age = person("age", period)
         base_credit = p.amount.calc(age)
-        earned_income = person.tax_unit("tax_unit_earned_income", period)
+        # FTB 3514 line 34: FYTC earned income is the CalEITC line 19 amount.
+        earned_income = person.tax_unit("ca_eitc_earned_income", period)
         excess_earned_income = max_(earned_income - p.phase_out.start, 0)
         reduction_increments = excess_earned_income / p.phase_out.increment
         reduction_amount = max_(0, reduction_increments * p.phase_out.amount)

policyengine_us/variables/gov/states/ca/tax/income/credits/young_child/ca_yctc.py

@@ -51,7 +51,8 @@ def formula(tax_unit, period, parameters):
         eligible = has_eligible_child & (gets_caleitc | is_loss_eligible)
 
         # phase out credit amount
-        eitc_earnings = tax_unit("filer_adjusted_earnings", period)
+        # FTB 3514 line 23: YCTC earned income is the CalEITC line 19 amount.
+        eitc_earnings = tax_unit("ca_eitc_earned_income", period)
         excess_earnings = max_(0, eitc_earnings - p.phase_out.start)
         increments = excess_earnings / p.phase_out.increment
         reduction = increments * p.phase_out.amount