Improve federal CDCC conformance with IRC § 21 (disabled dependents, deemed income, filing status)

changelog.d/cdcc-disabled-dependent-expenses.fixed.md

@@ -0,0 +1 @@
+Fix the Child and Dependent Care Credit (and its state mirrors) for households whose qualifying individual is a disabled adult: attribute childcare expenses to disabled dependents and spouses of any age, count a disabled spouse who is modeled as the tax unit head, and apply the IRC section 21(d)(2) deemed earned income for a student or incapacitated spouse. Also scope the DC Keep Child Care Affordable Tax Credit to child-only care expenses, so a disabled adult dependent sharing a household with an eligible child does not inflate this under-4 child credit.

policyengine_us/parameters/gov/irs/credits/cdcc/deemed_earned_income.yaml

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+description: The IRS deems a spouse who is a full-time student or incapable of self-care to have at least this earned income for the Child and Dependent Care Credit, based on the number of qualifying individuals.
+brackets:
+  - threshold:
+      2013-01-01: 0
+    amount:
+      2013-01-01: 3_000
+  - threshold:
+      2013-01-01: 2
+    amount:
+      2013-01-01: 6_000
+metadata:
+  type: single_amount
+  threshold_unit: person
+  amount_unit: currency-USD
+  period: year
+  label: CDCC deemed earned income for student or disabled spouse
+  reference:
+    - title: 26 U.S. Code § 21(d)(2)
+      href: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section21&num=0&edition=prelim

policyengine_us/tests/policy/baseline/gov/irs/credits/cdcc/cdcc.yaml

@@ -31,3 +31,41 @@
     cdcc_potential: 1_000
   output:
     cdcc: 0
+
+# IRC 21(e)(2): a married taxpayer may only claim the credit on a joint return.
+- name: Married filing separately does not receive the credit
+  period: 2024
+  input:
+    cdcc_credit_limit: 1_000
+    cdcc_potential: 1_000
+    filing_status: SEPARATE
+  output:
+    cdcc: 0
+
+- name: Head of household receives the credit
+  period: 2024
+  input:
+    cdcc_credit_limit: 1_000
+    cdcc_potential: 1_000
+    filing_status: HEAD_OF_HOUSEHOLD
+  output:
+    cdcc: 1_000
+
+- name: Married filing separately with a child and care expenses gets zero
+  absolute_error_margin: 0.01
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 35
+        employment_income: 40_000
+        is_tax_unit_head: true
+      person2:
+        age: 5
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        filing_status: SEPARATE
+        tax_unit_childcare_expenses: 3_000
+  output:
+    cdcc: 0

policyengine_us/tests/policy/baseline/gov/irs/credits/cdcc/cdcc_income_floor_eligible.yaml

@@ -0,0 +1,40 @@
+- name: Case 1, disabled spouse assigned as tax unit head is eligible for the income floor.
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 70
+        is_incapable_of_self_care: true
+      person2:
+        age: 50
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+  output:
+    is_tax_unit_head: [true, false]
+    is_tax_unit_spouse: [false, true]
+    cdcc_income_floor_eligible: [true, false]
+
+- name: Case 2, disabled single tax unit head is not eligible for the spouse income floor.
+  period: 2024
+  input:
+    age: 40
+    is_incapable_of_self_care: true
+    is_tax_unit_head: true
+  output:
+    cdcc_income_floor_eligible: false
+
+- name: Case 3, full-time student spouse is eligible for the income floor.
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 50
+      person2:
+        age: 45
+        is_full_time_student: true
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+  output:
+    cdcc_income_floor_eligible: [false, true]

policyengine_us/tests/policy/baseline/gov/irs/credits/cdcc/count_cdcc_eligible.yaml

@@ -0,0 +1,97 @@
+- name: Both spouses incapable of self-care count as one qualifying individual
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 45
+        is_incapable_of_self_care: true
+      person2:
+        age: 43
+        is_incapable_of_self_care: true
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        filing_status: JOINT
+  output:
+    # Both are is_cdcc_eligible, but only one spouse is a qualifying individual
+    # (the other is the taxpayer) per IRC 21(b)(1)(C).
+    is_cdcc_eligible: [true, true]
+    count_cdcc_eligible: 1
+
+- name: Disabled spouse plus a young child count as two qualifying individuals
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 45
+        is_incapable_of_self_care: true
+      person2:
+        age: 43
+      person3:
+        age: 5
+    tax_units:
+      tax_unit:
+        members: [person1, person2, person3]
+        filing_status: JOINT
+  output:
+    count_cdcc_eligible: 2
+
+- name: Both disabled spouses plus a child count as two qualifying individuals
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 45
+        is_incapable_of_self_care: true
+      person2:
+        age: 43
+        is_incapable_of_self_care: true
+      person3:
+        age: 5
+    tax_units:
+      tax_unit:
+        members: [person1, person2, person3]
+        filing_status: JOINT
+  output:
+    count_cdcc_eligible: 2
+
+- name: Two disabled adult dependents count as two qualifying individuals
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 45
+      person2:
+        age: 20
+        is_incapable_of_self_care: true
+        is_tax_unit_head: false
+        is_tax_unit_spouse: false
+      person3:
+        age: 22
+        is_incapable_of_self_care: true
+        is_tax_unit_head: false
+        is_tax_unit_spouse: false
+    tax_units:
+      tax_unit:
+        members: [person1, person2, person3]
+  output:
+    count_cdcc_eligible: 2
+
+- name: Healthy couple with two young children count as two qualifying individuals
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 45
+      person2:
+        age: 43
+      person3:
+        age: 5
+      person4:
+        age: 8
+    tax_units:
+      tax_unit:
+        members: [person1, person2, person3, person4]
+        filing_status: JOINT
+  output:
+    count_cdcc_eligible: 2

policyengine_us/tests/policy/baseline/gov/irs/credits/cdcc/integration.yaml

@@ -95,3 +95,72 @@
   output:  # expected results from patched TAXSIM35 2023-01-13 version
     taxsim_tfica: 11_130.24
     income_tax: 24_507.2
+
+- name: Disabled adult dependent's care expenses reach the CDCC expense base
+  absolute_error_margin: 0.01
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 40
+        employment_income: 40_000
+        is_tax_unit_head: true
+      person2:
+        age: 38
+        employment_income: 30_000
+      person3:  # disabled adult dependent, the only qualifying individual
+        age: 40
+        is_incapable_of_self_care: true
+        is_tax_unit_head: false
+    spm_units:
+      spm_unit:
+        members: [person1, person2, person3]
+        spm_unit_pre_subsidy_childcare_expenses: 6_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2, person3]
+    households:
+      household:
+        members: [person1, person2, person3]
+        state_code: KS
+  output:
+    # Only the disabled non-head adult is a dependent care recipient.
+    is_dependent_care_recipient: [false, false, true]
+    # The $6,000 SPM expense now flows to the tax unit (was $0 before the fix
+    # because the dependent is no longer a child under 18). This becomes the
+    # CDCC expense base via cdcc_relevant_expenses.
+    tax_unit_childcare_expenses: 6_000
+    cdcc_relevant_expenses: 3_000
+    cdcc: 660
+
+- name: Both spouses incapable of self-care are one qualifying individual
+  absolute_error_margin: 0.01
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 45
+        employment_income: 50_000
+        is_incapable_of_self_care: true
+      person2:
+        age: 43
+        is_incapable_of_self_care: true
+    spm_units:
+      spm_unit:
+        members: [person1, person2]
+        spm_unit_pre_subsidy_childcare_expenses: 6_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        filing_status: JOINT
+    households:
+      household:
+        members: [person1, person2]
+        state_code: TX
+  output:
+    # Two incapacitated spouses = one qualifying individual (the taxpayer is
+    # not their own), so the cap and the deemed floor are $3,000, not $6,000.
+    # cdcc = 20% x $3,000 = $600 (was $1,200 before the fix double-counted).
+    count_cdcc_eligible: 1
+    cdcc_limit: 3_000
+    cdcc: 600

policyengine_us/tests/policy/baseline/gov/irs/credits/cdcc/is_cdcc_eligible.yaml

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+- name: Case 1, dependent child under age 13 qualifies.
+  period: 2024
+  input:
+    age: 12
+    is_tax_unit_head: false
+    is_tax_unit_spouse: false
+  output:
+    is_cdcc_eligible: true
+
+- name: Case 2, dependent child age 13 does not qualify by age.
+  period: 2024
+  input:
+    age: 13
+    is_tax_unit_head: false
+    is_tax_unit_spouse: false
+  output:
+    is_cdcc_eligible: false
+
+- name: Case 3, disabled single tax unit head is not their own qualifying individual.
+  period: 2024
+  input:
+    age: 40
+    is_incapable_of_self_care: true
+    is_tax_unit_head: true
+  output:
+    is_cdcc_eligible: false
+
+- name: Case 4, disabled spouse assigned as tax unit head qualifies.
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 70
+        is_incapable_of_self_care: true
+      person2:
+        age: 50
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+  output:
+    is_tax_unit_head: [true, false]
+    is_tax_unit_spouse: [false, true]
+    is_cdcc_eligible: [true, false]