Use EIC earned income in the Minnesota child and working family credits

changelog.d/mn-cwfc-eic-earned-income.fixed.md

@@ -0,0 +1 @@
+Use federal EIC earned income (both spouses combined, net of a self-employment loss) in the Minnesota child and working family credits.

policyengine_us/tests/policy/baseline/gov/states/mn/tax/income/credits/mn_child_and_working_families_credits.yaml

@@ -16,7 +16,7 @@
         members: [person1, person2, person3]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -51,7 +51,7 @@
         members: [person1, person2, person3, person4]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 6_000
+        eitc_earned_income: 6_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -86,7 +86,7 @@
         members: [person1, person2, person3, person4]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 100_000
+        eitc_earned_income: 100_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -121,7 +121,7 @@
         members: [person1, person2, person3, person4]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 45_000
         filing_status: JOINT
     households:
@@ -156,7 +156,7 @@
         members: [person1, person2, person3, person4]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 45_000
         filing_status: SEPARATE
     households:
@@ -183,7 +183,7 @@
         members: [person1, person2]
         ctc_qualifying_children: 0
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 12_000
         filing_status: JOINT
     households:
@@ -210,7 +210,7 @@
         members: [person1, person2]
         ctc_qualifying_children: 0
         mn_wfc_eligible: false
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 12_000
         filing_status: JOINT
     households:
@@ -310,7 +310,7 @@
         members: [person1, person2, person3]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -352,7 +352,7 @@
         members: [person1, person2, person3, person4]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -414,7 +414,7 @@
         members: [person1, person2]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 40_000
+        eitc_earned_income: 40_000
         adjusted_gross_income: 40_000
         filing_status: SINGLE
     households:
@@ -445,7 +445,7 @@
         members: [person1, disabled_adult]
         ctc_qualifying_children: 0
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -479,7 +479,7 @@
         members: [person1, adult]
         ctc_qualifying_children: 0
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -517,7 +517,7 @@
         members: [person1, person2, person3]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -557,7 +557,7 @@
         members: [person1, person2, person3]
         ctc_qualifying_children: 1
         mn_wfc_eligible: true
-        filer_adjusted_earnings: 10_000
+        eitc_earned_income: 10_000
         adjusted_gross_income: 10_000
         filing_status: JOINT
     households:
@@ -566,3 +566,61 @@
         state_code: MN
   output:
     mn_child_and_working_families_credits: 2_129.2
+
+# Schedule M1CWFC, line 2 takes earned income from federal EIC Worksheet B:
+# both spouses combined, a net self-employment loss subtracted, not less than
+# zero. Line 10 is the greater of AGI (line 1) and line 2.
+- name: 2024 joint, one spouse's self-employment loss exceeds the other's wages
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 37
+        self_employment_income: -200_000
+      spouse:
+        age: 37
+        employment_income: 117_548
+      child1:
+        age: 8
+      child2:
+        age: 4
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+    households:
+      household:
+        members: [head, spouse, child1, child2]
+        state_code: MN
+  output:
+    # Line 2 is 0 and line 1 is negative, so there is no phaseout:
+    # 2 x $1,750 CTC + 4% x 0 WFC. NBER TAXSIM-35 also gives $3,500.
+    eitc_earned_income: 0
+    mn_child_and_working_families_credits: 3_500
+
+- name: 2024 joint, a self-employment loss reduces the earned income used for the phaseout
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 37
+        self_employment_income: -20_000
+      spouse:
+        age: 37
+        employment_income: 60_000
+      child1:
+        age: 8
+      child2:
+        age: 4
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+    households:
+      household:
+        members: [head, spouse, child1, child2]
+        state_code: MN
+  output:
+    eitc_earned_income: 40_000
+    # 4% x $9,220 + 2 x $1,750 = $3,868.80; less 12% x ($40,000 - $36,880) = $374.40
+    mn_child_and_working_families_credits: 3_494.40

policyengine_us/tests/policy/baseline/gov/states/mn/tax/income/credits/mn_wfc.yaml

@@ -5,7 +5,7 @@
     mn_wfc_eligible: true
     filing_status: JOINT
     eitc_child_count: 2
-    filer_adjusted_earnings: 20_050
+    eitc_earned_income: 20_050
     adjusted_gross_income: 20_050
     state_code: MN
   output:  # expected output from lookup table in Form M1 instructions
@@ -18,7 +18,7 @@
     mn_wfc_eligible: true
     filing_status: HEAD_OF_HOUSEHOLD
     eitc_child_count: 1
-    filer_adjusted_earnings: 30_050
+    eitc_earned_income: 30_050
     adjusted_gross_income: 30_050
     state_code: MN
   output:  # expected output from lookup table in Form M1 instructions
@@ -31,7 +31,7 @@
     mn_wfc_eligible: true
     filing_status: JOINT
     eitc_child_count: 2
-    filer_adjusted_earnings: 20_050
+    eitc_earned_income: 20_050
     adjusted_gross_income: 20_050
     state_code: MN
   output:  # expected output from lookup table in Form M1 instructions
@@ -44,7 +44,7 @@
     mn_wfc_eligible: true
     filing_status: HEAD_OF_HOUSEHOLD
     eitc_child_count: 1
-    filer_adjusted_earnings: 30_050
+    eitc_earned_income: 30_050
     adjusted_gross_income: 30_050
     state_code: MN
   output:  # expected output from lookup table in Form M1 instructions

policyengine_us/tests/policy/contrib/states/mn/walz/mn_walz_hf1938.yaml

@@ -52,7 +52,7 @@
         filing_status: SEPARATE
         mn_wfc_eligible: true
         eitc_child_count: 2
-        filer_adjusted_earnings: 20_050
+        eitc_earned_income: 20_050
         adjusted_gross_income: 20_050
     households:
       household:
@@ -87,7 +87,7 @@
         filing_status: SEPARATE
         mn_wfc_eligible: true
         eitc_child_count: 2
-        filer_adjusted_earnings: 20_050
+        eitc_earned_income: 20_050
         adjusted_gross_income: 20_050
     households:
       household:

policyengine_us/variables/gov/states/mn/tax/income/credits/mn_child_and_working_families_credits.py

@@ -29,8 +29,11 @@ def formula(tax_unit, period, parameters):
         base_ctc_amount = qualifying_children * p.ctc.amount
         # Working Family Credit computation:
         wfc_eligible = tax_unit("mn_wfc_eligible", period)
-        # The credit is phased in based on earnings
-        earnings = tax_unit("filer_adjusted_earnings", period)
+        # The credit is phased in based on earned income. Schedule M1CWFC,
+        # line 2 takes it from federal EIC Worksheet B: both spouses'
+        # earnings combined, with a net self-employment loss subtracted,
+        # and not less than zero.
+        earnings = tax_unit("eitc_earned_income", period)
         base_wfc_credit = p.wfc.phase_in.calc(earnings)
         person = tax_unit.members
         # Minn. Stat. 290.0671, subd. 1a defines a qualifying older child as

policyengine_us/variables/gov/states/mn/tax/income/credits/mn_wfc.py

@@ -17,8 +17,9 @@ def formula(tax_unit, period, parameters):
         p = parameters(period).gov.states.mn.tax.income.credits.cwfc
         # determine count of eligible dependents using EITC rules
         count = tax_unit("eitc_child_count", period)
-        # determine pre-phaseout credit amount using EITC earnings
-        earnings = tax_unit("filer_adjusted_earnings", period)
+        # determine pre-phaseout credit amount using EITC earned income
+        # (both spouses combined, net of a self-employment loss)
+        earnings = tax_unit("eitc_earned_income", period)
         capped_earn = min_(
             earnings,
             p.wfc.pre_cwfc_legislation.phase_in.earnings_maximum.calc(count),