Apply New York's pre-TCJA 10% medical expense floor (IT-196 line 3)

[MaxGhenis]

Summary

New York itemized deductions used the federal medical expense deduction, whose floor gov.irs.deductions.itemized.medical.floor has been 7.5% since 2017. New York keeps the pre-TCJA 10% floor. This PR adds ny_medical_expense_deduction: itemized medical expenses above 10% of federal AGI, set by a new NY parameter. ny_itemized_deductions_max and the IT-196 Line 40 limitation both use it.

Law and forms (verified 2026-10-06)

• NY Tax Law § 615(a) (nysenate.gov; Open Legislation API text, active date 2026-06-05): "The New York itemized deduction of a resident individual means the total amount of his or her deductions from federal adjusted gross income allowed … as provided in the laws of the United States for the taxable year, as such deductions existed immediately prior to the enactment of Public Law 115-97 with the modifications specified in this section".
• Pre-TCJA 26 U.S.C. 213(a) (2016 edition, govinfo): "to the extent that such expenses exceed 10 percent of adjusted gross income". Pre-TCJA § 213(f) substituted 7.5% only for filers 65 and over, and only for tax years "ending before January 1, 2017", so 10% applies to everyone from 2018.
• Pub. L. 115-97 § 11027 (govinfo) rewrote § 213(f) to substitute 7.5% for tax years beginning after December 31, 2016 and ending before January 1, 2019. That is where the federal 7.5% comes from; NY does not follow it.
• Form IT-196 line 3 reads "Multiply line 2 by 10% (0.10)" on every fill-in form from 2018 through 2025. I checked each one: https://www.tax.ny.gov/pdf/<year>/inc/it196_<year>_fill_in.pdf#page=1 for 2018, 2019, 2020, 2021, 2022, 2023, 2024 and 2025. Line 2 is "Enter amount from Form IT-201 or IT-203, line 19" (federal AGI), except 2020–2022, where it is line 19a. Line 19a is recomputed federal AGI: line 19 plus Form IT-558 adjustments (2021 IT-201-I, PDF p. 14), which PolicyEngine does not model, so federal AGI is used for every year.
• IT-196-I line 1 (2025, p. 2): enter the amount from federal Schedule A line 1, so the expense base is the federal one (itemized_medical_expenses).

Changes

• parameters/gov/states/ny/tax/income/deductions/itemized/medical/floor.yaml: 0.1 from 2018-01-01, the first year of § 615(a)'s pre-TCJA reference and of Form IT-196. It cites § 615(a), pre-TCJA § 213(a), and IT-196 line 3 for 2018 and 2025.
• variables/.../itemized/pre_tcja/ny_medical_expense_deduction.py: max_(0, itemized_medical_expenses - floor * positive_agi), NY only. This mirrors the federal formula and the sibling ny_misc_deduction and ny_casualty_loss_deduction.
• ny_itemized_deductions_max: adds ny_medical_expense_deduction instead of medical_expense_deduction.
• ny_itemized_deductions_phase_out: worksheet line 2 (deductions not subject to the limitation) uses ny_medical_expense_deduction. Medical enters lines 1 and 2 equally, so it still cancels out of line 3. If line 2 had kept the federal amount, line 3 would come out understated by the floor difference.

Other NY consumers: I grepped all of policyengine_us/ for medical_expense_deduction and itemized_medical_expenses. The only NY consumers were these two variables, and no NY reform, contrib module, parameter list, NYC or Yonkers code reads them.

Tests

• ny_pre_tcja_deductions.yaml, "NY itemized deductions max includes all pre-TCJA components": medical 10,000 at AGI 100,000 was 10,000 − 7,500 = 2,500. Under IT-196 it is 10,000 − 10,000 = 0, so max goes from 26,500 to 24,000.
• ny_itemized_deductions_phase_out.yaml: the medical_expense_deduction inputs are renamed to ny_medical_expense_deduction. Expected values are unchanged.
• New ny_medical_expense_deduction.yaml (10 cases), every expected value computed from IT-196 lines 1–4:
  • the floor in 2018, 2025 and 2026, side by side with the federal amount;
  • the 7.5%–10% band (NY 0, federal positive);
  • exactly 10% (0) and 10% plus $1 (1);
  • negative AGI (floor 0);
  • a non-NY filer;
  • two integration cases: ny_itemized_deductions 13,000, and the Line 40 worksheet with medical in both lines (reduction 120,000).
• These tests fail on main. I swapped only the model code back to upstream/main:
  • ny_itemized_deductions_max came out 15,000 against 13,000, and 375,000 against 250,000;
  • the components case came out 26,500 against 24,000.
• Mutation check: with only the phase-out reverted to the federal deduction, the Line 40 case gives 20,000 against 120,000.

Invariants (tests/core/test_ny_medical_expense_deduction_invariants.py, Hypothesis plus a seeded 200-unit population, 2018/2021/2024/2025)

These hold for every tax unit, single or joint, in NY or elsewhere, with AGI from −200k to 6M:

1. Bound: 0 ≤ ny_medical_expense_deduction ≤ itemized_medical_expenses, and the deduction is 0 outside NY.
2. Differential: the deduction equals a numpy max(0, E − 0.10 × max(AGI, 0)), with 0.10 taken from IT-196 line 3, not from the model's parameter.
3. Order: it is never more than the federal medical_expense_deduction.
4. Monotone: raising expenses by d raises the deduction by between 0 and d.
5. Composition: ny_itemized_deductions_max − ny_medical_expense_deduction doesn't depend on medical expenses.
6. Line 40 invariance: ny_itemized_deductions_phase_out doesn't depend on medical expenses.

Comparisons allow 1e-6 relative error, because the model stores float32. Mutation check: a 0.075 floor breaks invariant 2, and a phase-out left on the federal deduction breaks invariant 6.

Ran locally by the author, targeted files only: the three YAML files and the invariants file passed. At this head the YAML files hold 12 (ny_medical_expense_deduction.yaml), 6 (ny_pre_tcja_deductions.yaml) and 7 (ny_itemized_deductions_phase_out.yaml) cases; the independent review counted six collected tests in the invariants file. CI runs all of them at this head. These code-health and metadata files also pass: test_known_dead_reference_urls, test_no_concatenated_reference_urls, test_reference_urls, test_rest_python_groups, test_parameter_files and test_build_metadata.

Hub microsimulation impact (current head)

A real microsimulation on the default dataset, main at the merge base 6b80a8e447 against this PR's head b1cad7c17e, for 2026. The runs went one at a time under the shared heavy-job lock. Sums are weighted.

Output	2026 change	2026 records changed (weighted)
ny_itemized_deductions	-2.46bn	733 (2,430,412)
ny_taxable_income	+807.52M	156 (357,703)
ny_income_tax	+46.23M	155 (357,703)
state_income_tax	+46.23M	155 (357,703)
income_tax	-1.29M	39 (71,157)
household_net_income	-57.96M	154 (357,703)
household_benefits	+0	0 (0)

ny_medical_expense_deduction is new in this PR, so it has no base-side value to compare; its effect shows in ny_itemized_deductions.

Comparison files are in fixes/9931-impact/ on the hub host.

Impact

From 2018, for NY itemizers with medical expenses above 7.5% of federal AGI, the deduction falls by min(expenses − 7.5% × A, 2.5% × A), where A = max(federal AGI, 0); when A is 0 nothing changes. The floor parameter is 10% from 2013, 7.5% for 2017 (the federal Schedule A floor NY then followed) and 10% from 2018 (pre-TCJA 26 U.S.C. 213(a), Form IT-196 line 3). This corrects the model to the statute and the form.

Overlap with other branches

#9912 edits the same case in ny_pre_tcja_deductions.yaml: casualty becomes (15,000 − 100) − 10,000 = 4,900, and max goes from 26,500 to 26,400. Whichever PR merges second needs a rebase. With both applied the case is 5,000 + 0 + 12,000 + 2,000 + 4,900 = 23,900, with comment lines # NY Medical (Form IT-196 lines 1-4): 10,000 - (100,000 * 0.10) = 0 and # NY Casualty: (15,000 - 100) - (100,000 * 0.10) = 4,900.

The hub's Form 4952 branch wip/hub-fix-163d-r2 (no PR yet) edits lines next to this PR in three files: ny_itemized_deductions_phase_out.py, ny_itemized_deductions_phase_out.yaml and ny_pre_tcja_deductions.yaml (git merge-tree reports conflicts). Each resolution keeps both sides:

• the medical lines become ny_medical_expense_deduction, and the investment interest lines become investment_interest_expense_deduction;
• that branch's new miscellaneous-pool case is appended after the corrected 24,000 case.

The NY-itemizing branch fix-ny-itemizes-federal-gate touches none of these files.

axiom: TheAxiomFoundation/rulespec-us#1525 queued (N.Y. Tax Law § 615(a) medical component; blocked on corpus ingestion of pre-TCJA 26 U.S.C. 213 and Form IT-196, and on a signed-encoder run)

🤖 Generated with Claude Code

[codecov]

Codecov Report

✅ All modified and coverable lines are covered by tests.
✅ Project coverage is 100.00%. Comparing base (909176a) to head (b1cad7c).
⚠️ Report is 266 commits behind head on main.

Additional details and impacted files

@@            Coverage Diff            @@
##              main     #9931   +/-   ##
=========================================
  Coverage   100.00%   100.00%           
=========================================
  Files            4         3    -1     
  Lines           76        53   -23     
  Branches         2         0    -2     
=========================================
- Hits            76        53   -23     

Flag	Coverage Δ
unittests	100.00% <100.00%> (ø)

Flags with carried forward coverage won't be shown. Click here to find out more.

☔ View full report in Codecov by Harness.
📢 Have feedback on the report? Share it here.

🚀 New features to boost your workflow:

• ❄️ Test Analytics: Detect flaky tests, report on failures, and find test suite problems.

[MaxGhenis]

US + core hub merge audit, us#9931 at b1cad7c17e661ce048642e5aad4a445e4bb65765 (squash): Apply New York's pre-TCJA 10% medical expense floor (Form IT-196 line 3).

• Review: independent GPT-6.1 Sol review approves this exact head, with no P1 or P2 (reviews-gen/us-9931/review-r1.md). Its methodology flag is an approximation main already makes and this PR keeps; the body discloses it, and the PR does not change it relative to main.
• Inherited approximation: federal AGI stands in for IT-201 line 19a's recomputed AGI in 2020-2022 (IT-558 adjustments are not modeled), as on main.
• Body: the hub corrected the historical-floor and impact-formula lines and the case counts the review flagged (P3).
• Follow-up (P3): downstream NY consumers (additional reductions, ny_itemizes, NYC, Yonkers) lack direct assertions for the new deduction.
• Order: Apply the Form 4684 $100 per-casualty reduction and drop dependents' losses in the federal, NY, AL and HI casualty deductions #9912 edits the same ny_pre_tcja_deductions.yaml case; whichever lands second rebases (the body gives the combined value, 23,900).
• Impact: a hub microsimulation on the default dataset for 2026, merge base against this head; see the body's "Hub microsimulation impact (current head)" section.
• Gates checked live at merge:
  • gh pr checks exits 0;
  • the latest Pull request run at the head concluded success;
  • MERGEABLE, not a draft, no CHANGES_REQUESTED;
  • the semantic-overlap guard;
  • head pinned.
• Axiom: the body's axiom: line.
• --admin: used only because a required approving review is the sole block.