Apply the California YCTC wage and net loss limits correctly

changelog.d/ca-yctc-wage-and-loss-tests.fixed.md

@@ -0,0 +1 @@
+California Young Child Tax Credit for filers with zero or negative earned income now applies the wage limit to wages and measures net losses without the capital loss limitation.

policyengine_us/parameters/gov/states/ca/tax/income/credits/young_child/loss_threshold.yaml

@@ -1,4 +1,4 @@
-description: California limits its Young Child Tax Credit to filers with losses not exceeding this value.
+description: California limits its Young Child Tax Credit for filers with zero or negative earned income to those whose net losses, and whose wages, do not exceed this value.
 values:
   2021-01-01: 0
   2022-01-01: 32_490

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

@@ -148,7 +148,7 @@
     people:
       parent:
         age: 30
-        irs_gross_income: -20_000  # modest capital losses
+        short_term_capital_gains: -20_000  # modest capital losses
       child:
         age: 5
         ca_is_qualifying_child_for_caleitc: true
@@ -169,7 +169,7 @@
     people:
       parent:
         age: 30
-        irs_gross_income: -40_000  # large capital losses
+        short_term_capital_gains: -40_000  # large capital losses
       child:
         age: 5
         ca_is_qualifying_child_for_caleitc: true
@@ -183,3 +183,147 @@
   output:
     # ca_eitc: 0  # because of zero earnings
     ca_yctc: 0  # not eligible for YCTC in 2022 because of large losses
+
+# R&TC 17052.1(b)(1)(B) and the 2022 FTB 3514 instructions, Step 8 (lines 23a
+# and 23b): a filer with zero or negative earned income qualifies only if net
+# losses (Form 540 line 17 without utilization limitations) and wages are each
+# $32,490 or less in 2022.
+- name: Self-employment loss above wages, modest net loss, so eligible in 2022.
+  period: 2022
+  input:
+    people:
+      parent:
+        age: 30
+        employment_income: 20_000
+        self_employment_income: -30_000
+      child:
+        age: 3
+        ca_is_qualifying_child_for_caleitc: true
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: CA
+  output:
+    # Earned income -10,000; net loss 10,000; wages 20,000.
+    ca_yctc: 1_083
+
+- name: Wages above $32,490 with negative earned income, so not eligible in 2022.
+  period: 2022
+  input:
+    people:
+      parent:
+        age: 30
+        employment_income: 71_846
+        self_employment_income: -92_009
+      child:
+        age: 3
+        ca_is_qualifying_child_for_caleitc: true
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: CA
+  output:
+    # Line 23a: wages of $71,846 exceed $32,490.
+    ca_yctc: 0
+
+- name: Self-employment net loss above $32,490, so not eligible in 2022.
+  period: 2022
+  input:
+    people:
+      parent:
+        age: 30
+        employment_income: 20_000
+        self_employment_income: -80_000
+      child:
+        age: 3
+        ca_is_qualifying_child_for_caleitc: true
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: CA
+  output:
+    # Line 23b: net loss of $60,000 exceeds $32,490.
+    ca_yctc: 0
+
+- name: Capital gain distributions reduce a self-employment loss to within $32,490, so eligible in 2022.
+  period: 2022
+  input:
+    people:
+      parent:
+        age: 30
+        self_employment_income: -35_000
+        non_sch_d_capital_gains: 3_000
+      child:
+        age: 3
+        ca_is_qualifying_child_for_caleitc: true
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: CA
+  output:
+    # Line 23b: Form 540 line 17 is -35,000 + 3,000 = -32,000, a net loss of
+    # $32,000, within $32,490. Investment income of $3,000 is within $4,389.
+    ca_yctc: 1_083
+
+- name: A dependent's wages do not count toward the $32,490 wage limit in 2022.
+  period: 2022
+  input:
+    people:
+      parent:
+        age: 30
+        self_employment_income: -10_000
+      child:
+        age: 3
+        ca_is_qualifying_child_for_caleitc: true
+      teen:
+        age: 17
+        employment_income: 40_000
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [parent, child, teen]
+    households:
+      household:
+        members: [parent, child, teen]
+        state_code: CA
+  output:
+    # Line 23a carries the filer's wages (line 13), which are $0; the
+    # dependent's $40,000 is on the dependent's own return.
+    ca_yctc: 1_083
+
+- name: Wages offset by a farm loss give zero CalEITC earned income, 2022
+  period: 2022
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 30
+        employment_income: 10_000
+        farm_operations_income: -15_000
+      child:
+        age: 3
+    tax_units:
+      tax_unit:
+        members: [head, child]
+    households:
+      household:
+        members: [head, child]
+        state_code: CA
+  output:
+    # FTB 3514 line 19: 10,000 wages - 15,000 farm loss, floored at 0.
+    ca_eitc_earned_income: 0
+    # Step 8: earned income of zero or less; the 5,000 net loss and the
+    # 10,000 wages are within the 2022 $32,490 limits, so the full $1,083.
+    ca_yctc: 1_083

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

@@ -34,17 +34,36 @@ def formula(tax_unit, period, parameters):
         gets_caleitc = tax_unit("ca_eitc", period) > 0
         # ... determine (b) part two
         is_caleitc_eligible = tax_unit("ca_eitc_eligible", period)
-        # ... ... determine if losses are limited to modest amount
-        federal_gross_income = add(tax_unit, period, ["irs_gross_income"])
-        total_federal_net_loss = max_(0, -federal_gross_income)
-        has_limited_losses = total_federal_net_loss <= p.loss_threshold
-        # ... ... determine if earnings are limited to modest amount
-        total_earnings = tax_unit("tax_unit_earned_income", period)
-        has_limited_earnings = total_earnings <= p.loss_threshold
+        # ... ... R&TC 17052.1(b)(1)(B)(i): earned income of zero or less,
+        # measured as the CalEITC earned income on FTB 3514 line 19, so a
+        # business loss that offsets wages counts (Step 8).
+        has_no_earned_income = tax_unit("ca_eitc_earned_income", period) <= 0
+        # ... ... (B)(ii): net losses within the threshold. FTB 3514 line 23b
+        # measures the net loss from Form 540 line 17 without utilization
+        # limitations, so the capital loss limit does not apply. AGI carries
+        # loss_limited_net_capital_gains, which already includes capital gain
+        # distributions (they net against losses on Schedule D line 13), so the
+        # unlimited amount adds them back to net_capital_gains as well.
+        limited_capital_gains = tax_unit("loss_limited_net_capital_gains", period)
+        distributions = tax_unit.sum(max_(0, person("non_sch_d_capital_gains", period)))
+        unlimited_capital_gains = tax_unit("net_capital_gains", period) + distributions
+        total_income = (
+            tax_unit("ca_agi", period) - limited_capital_gains + unlimited_capital_gains
+        )
+        total_net_loss = max_(0, -total_income)
+        has_limited_losses = total_net_loss <= p.loss_threshold
+        # ... ... (B)(iii): wages, salaries, tips, and other employee
+        # compensation within the same threshold (FTB 3514 line 23a, which
+        # carries the filers' wages from line 13)
+        wages = tax_unit_non_dep_sum("employment_income", tax_unit, period)
+        has_limited_wages = wages <= p.loss_threshold
         # ... ... combine all the (b) elements where appropriate
         is_loss_eligible = where(
             p.loss_threshold > 0,
-            is_caleitc_eligible & has_limited_losses & has_limited_earnings,
+            is_caleitc_eligible
+            & has_no_earned_income
+            & has_limited_losses
+            & has_limited_wages,
             False,
         )
         # ... combine (a) and (b) parts to determine eligibility