Cap the educator expense deduction per eligible educator (26 U.S.C. 62(a)(2)(D))

changelog.d/fix-educator-expense-cap.fixed.md

@@ -0,0 +1 @@
+Cap the federal educator expense deduction at each eligible educator's limit under 26 U.S.C. 62(a)(2)(D) and (d)(3): $250 through 2021, $300 for 2022 through 2025 and $350 for 2026, indexed after that. On a joint return each spouse is capped separately, and a tax unit dependent's expenses stay off the filer's return. Previously the raw expense input was deducted in full.

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

@@ -6,7 +6,7 @@ values:
     - student_loan_interest_ald
     - early_withdrawal_penalty
     - alimony_expense_ald
-    - educator_expense
+    - educator_expense_ald
     - capped_qualified_tuition_expenses_ald
     - domestic_production_ald
     - health_savings_account_ald
@@ -23,7 +23,7 @@ values:
     - student_loan_interest_ald
     - early_withdrawal_penalty
     - alimony_expense_ald
-    - educator_expense
+    - educator_expense_ald
     - capped_qualified_tuition_expenses_ald
     - health_savings_account_ald
     - self_employed_health_insurance_ald
@@ -39,7 +39,7 @@ values:
     - student_loan_interest_ald
     - early_withdrawal_penalty
     - alimony_expense_ald
-    - educator_expense
+    - educator_expense_ald
     - health_savings_account_ald
     - self_employed_health_insurance_ald
     - self_employed_pension_contribution_ald
@@ -54,7 +54,7 @@ values:
     - student_loan_interest_ald
     - early_withdrawal_penalty
     - alimony_expense_ald
-    - educator_expense
+    - educator_expense_ald
     - health_savings_account_ald
     - self_employed_health_insurance_ald
     - self_employed_pension_contribution_ald

policyengine_us/parameters/gov/irs/ald/educator_expense/cap.yaml

@@ -0,0 +1,61 @@
+description: The IRS caps the educator expense deduction at this amount for each eligible educator.
+values:
+  # 26 USC 62(a)(2)(D), added for 2002 by Pub. L. 107-147 and extended
+  # retroactively through 2015, when Pub. L. 114-113 made it permanent and
+  # indexed it from 2016 (26 USC 62(d)(3)).
+  2002-01-01: 250
+  2016-01-01: 250
+  2017-01-01: 250
+  2018-01-01: 250
+  2019-01-01: 250
+  2020-01-01: 250
+  2021-01-01: 250
+  2022-01-01: 300
+  2023-01-01: 300
+  2024-01-01: 300
+  2025-01-01: 300
+  2026-01-01: 350
+metadata:
+  unit: currency-USD
+  period: year
+  label: Educator expense deduction cap
+  # Values after the last IRS publication are computed in
+  # parameters/uprating_extensions.py per 26 U.S.C. 62(d)(3): the statutory
+  # $250 increased by the 1(f)(3) cost-of-living adjustment with calendar
+  # year 2014 as the base year, each increase rounded to the nearest multiple
+  # of $50. Computing from the $250 base rather than chaining from the
+  # rounded $350 puts each projected $50 step in the year the statute does on
+  # the model's CPI projection; those values supersede this uprating rule,
+  # which describes the index and rounding.
+  uprating:
+    parameter: gov.irs.uprating
+    rounding:
+      type: nearest
+      interval: 50
+  reference:
+    - title: 26 U.S. Code § 62(a)(2)(D) - Educator expenses
+      href: https://www.law.cornell.edu/uscode/text/26/62#a_2_D
+    - title: 26 U.S. Code § 62(d)(3) - Inflation adjustment
+      href: https://www.law.cornell.edu/uscode/text/26/62#d_3
+    - title: 2016 Form 1040 instructions, line 23, educator expenses (2016)
+      href: https://www.irs.gov/pub/irs-prior/i1040gi--2016.pdf#page=31
+    - title: Rev. Proc. 2016-55, section 3.12 (2017)
+      href: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf#page=14
+    - title: Rev. Proc. 2017-58, section 3.12 (2018)
+      href: https://www.irs.gov/pub/irs-drop/rp-17-58.pdf#page=12
+    - title: Rev. Proc. 2018-57, section 3.14 (2019)
+      href: https://www.irs.gov/pub/irs-drop/rp-18-57.pdf#page=15
+    - title: Rev. Proc. 2019-44, section 3.14 (2020)
+      href: https://www.irs.gov/pub/irs-drop/rp-19-44.pdf#page=12
+    - title: Rev. Proc. 2020-45, section 3.14 (2021)
+      href: https://www.irs.gov/pub/irs-drop/rp-20-45.pdf#page=12
+    - title: Rev. Proc. 2021-45, section 3.13 (2022)
+      href: https://www.irs.gov/pub/irs-drop/rp-21-45.pdf#page=13
+    - title: Rev. Proc. 2022-38, section 3.13 (2023)
+      href: https://www.irs.gov/pub/irs-drop/rp-22-38.pdf#page=12
+    - title: Rev. Proc. 2023-34, section 3.13 (2024)
+      href: https://www.irs.gov/pub/irs-drop/rp-23-34.pdf#page=11
+    - title: Rev. Proc. 2024-40, section 2.13 (2025)
+      href: https://www.irs.gov/pub/irs-drop/rp-24-40.pdf#page=11
+    - title: Rev. Proc. 2025-32, section 4.12 (2026)
+      href: https://www.irs.gov/pub/irs-drop/rp-25-32.pdf#page=17

policyengine_us/parameters/uprating_extensions.py

@@ -171,6 +171,38 @@ def extend_dependent_standard_deduction_parameters(
         )
 
 
+# 26 U.S.C. 62(d)(3) indexing of the 62(a)(2)(D) educator expense cap:
+# statutory dollar amount and 1(f)(3) base year.
+EDUCATOR_EXPENSE_CAP_STATUTORY_BASE = (250, 2014)
+
+
+def extend_educator_expense_cap(parameters: ParameterNode, end_year: int) -> None:
+    """Project the per-educator cap on the educator expense deduction.
+
+    26 U.S.C. 62(d)(3) increases the $250 amount in 62(a)(2)(D) by the
+    1(f)(3) cost-of-living adjustment, substituting calendar year 2014 for
+    2016, and rounds the increase to the nearest multiple of $50. Each year
+    is computed from the statutory base rather than chained from the last
+    rounded value, which can put a $50 step a year or more early or late;
+    IRS values encoded in the YAML take precedence for their own years.
+    """
+    ROUNDING_INTERVAL = 50
+    base, base_year = EDUCATOR_EXPENSE_CAP_STATUTORY_BASE
+    cap = parameters.gov.irs.ald.educator_expense.cap
+    first_projected_year = 1 + max(
+        int(value.instant_str[:4]) for value in cap.values_list
+    )
+    for year in range(first_projected_year, end_year + 1):
+        cola = get_irs_cola(parameters, year, base_year)
+        # Nearest multiple of $50; an exact half rounds up.
+        increase = math.floor(base * cola / ROUNDING_INTERVAL + 0.5) * ROUNDING_INTERVAL
+        cap.update(period=f"year:{year}-01-01:1", value=float(base + increase))
+    cap.update(
+        start=instant(f"{end_year}-01-01"),
+        value=cap(f"{end_year}-01-01"),
+    )
+
+
 def extend_or_ctc_parameters(parameters: ParameterNode, end_year: int) -> None:
     """Project the Oregon Kids' Credit amount and phase-out start.
 
@@ -810,4 +842,9 @@ def set_all_uprating_parameters(parameters: ParameterNode) -> ParameterNode:
     # projected windows are available.
     extend_dependent_standard_deduction_parameters(parameters, end_year=END_YEAR)
 
+    # The educator expense cap follows 26 U.S.C. 62(d)(3)'s chained CPI-U
+    # schedule, computed from the statutory $250 and 2014 base year. Must run
+    # after the Chained CPI-U extension above.
+    extend_educator_expense_cap(parameters, end_year=END_YEAR)
+
     return parameters

policyengine_us/tests/core/test_dependent_above_the_line_deductions_invariants.py

@@ -69,7 +69,7 @@
     "alimony_expense_ald_person",
     "student_loan_interest_ald",
     "early_withdrawal_penalty",
-    "educator_expense",
+    "educator_expense_ald_person",
     "traditional_ira_contributions",
 ]
 # Person-level amounts that are the filer's wherever they are recorded.
@@ -82,6 +82,7 @@
     "self_employed_health_insurance_ald": "self_employed_health_insurance_ald_person",
     "self_employed_pension_contribution_ald": "self_employed_pension_contribution_ald_person",
     "alimony_expense_ald": "alimony_expense_ald_person",
+    "educator_expense_ald": "educator_expense_ald_person",
 }
 TAX_UNIT_OUTPUTS = [
     "adjusted_gross_income",