Fix Virginia Spouse Tax Adjustment wrongly applied to Social Security recipients

changelog.d/fix-va-sta-social-security.changed.md

@@ -0,0 +1 @@
+Restructured Virginia income tax subtractions to attribute each subtraction to the recipient spouse through a shared person-level subtractions list used by both the tax-unit and per-person totals, leaving all calculated values unchanged.

changelog.d/fix-va-sta-social-security.fixed.md

@@ -0,0 +1 @@
+Corrected the Virginia per-person adjusted gross income used by the Spouse Tax Adjustment to attribute each Virginia subtraction (Social Security, railroad retirement, unemployment, US government interest, military and disability subtractions, and the age deduction) to the spouse who received the income, preventing the adjustment from being wrongly granted to couples where one spouse only has Virginia-exempt income.

policyengine_us/parameters/gov/states/va/tax/income/subtractions/subtractions.yaml

@@ -1,16 +1,18 @@
 description: Virginia subtracts these sources from federal adjusted gross income.
+# Each entry is a person-level variable so the same list drives both the tax-unit
+# total (va_subtractions) and the per-spouse split (va_subtractions_person).
 values:
   2021-01-01:
-    - us_govt_interest
-    - va_military_basic_pay_subtraction # Special instructions for members of the military
-    - va_disability_income_subtraction # Certification Number 5
+    - us_govt_interest_person
+    - va_military_basic_pay_subtraction_person # Special instructions for members of the military
+    - va_disability_income_subtraction_person # Certification Number 5
     - railroad_benefits # Certification Number 22
-    - va_national_guard_subtraction # Certification Number 28
+    - va_national_guard_subtraction_person # Certification Number 28
     - unemployment_compensation # Certification Number 37
-    - va_federal_state_employees_subtraction # Certification Number 39
-    - va_military_benefit_subtraction # Certification Number 60
-    - va_529_plan_deduction # Certification Number 34
-    - va_age_deduction # Certification Number 4
+    - va_federal_state_employees_subtraction_person # Certification Number 39
+    - va_military_benefit_subtraction_person # Certification Number 60
+    - va_529_plan_deduction_person # Certification Number 34
+    - va_age_deduction_person # Certification Number 4
     - taxable_social_security # Certification Number 5
 
 
@@ -19,15 +21,15 @@ metadata:
   period: year
   label: Virginia adjusted gross income subtractions
   reference:
-    - title: 2024 Form 760 Instructions, What's New 
+    - title: 2024 Form 760 Instructions, What's New
       href: https://www.tax.virginia.gov/sites/default/files/vatax-pdf/2024-760-instructions.pdf#page=7
     - title: 2024 Form 760 Instructions, Subtractions from Income # latest list of subtractions as of 2025-02-14
       href: https://www.tax.virginia.gov/sites/default/files/vatax-pdf/2024-760-instructions.pdf#page=24
     - title: 2023 Virginia Schedule ADJ (Form 760-ADJ)
       href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2023/schedule-adj-2023.pdf#page=1
     - title: 2022 Virginia Schedule ADJ (Form 760-ADJ)
       href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2022/schedule-adj-2022.pdf#page=1
-    - title: 2021 Virginia Schedule ADJ (Form 760-ADJ) 
+    - title: 2021 Virginia Schedule ADJ (Form 760-ADJ)
       href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2021/schedule-adj-2021.pdf#page=1
     - title: 2022 Form 760 Resident Individual Income Tax Booklet
       href: https://www.tax.virginia.gov/sites/default/files/vatax-pdf/2022-760-instructions.pdf#page=25

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/integration.yaml

@@ -140,6 +140,89 @@
     va_itemized_deductions: 37_049.81
     va_income_tax: 18175.545
 
+- name: MFJ both age 70 - Social Security recipient spouse does not trigger Spouse Tax Adjustment
+  # Regression test for https://github.com/PolicyEngine/policyengine-us/issues/8743.
+  # Virginia exempts Social Security, so a spouse whose only income is Social
+  # Security has no separate Virginia taxable income and the couple does not
+  # qualify for the Spouse Tax Adjustment. Confirmed against the Virginia Form
+  # 760 Spouse Tax Adjustment worksheet, TaxAct, and TAXSIM-35.
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 70
+        employment_income: 125_714
+        taxable_interest_income: 255.5
+        social_security_retirement: 14_391.5
+      person2:
+        age: 70
+        taxable_interest_income: 255.5
+        social_security_retirement: 14_391.5
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        va_rebate: 0
+    households:
+      household:
+        members: [person1, person2]
+        state_code: VA
+  output:
+    va_spouse_tax_adjustment_eligible: false
+    va_spouse_tax_adjustment: 0
+    va_income_tax: 5_795.24
+
+- name: MFJ - spouse with only Virginia-exempt unemployment does not trigger Spouse Tax Adjustment
+  # Virginia subtracts unemployment compensation (separate-VAGI worksheet, Line
+  # 17), so a spouse whose only income is unemployment has no separate Virginia
+  # taxable income and the couple does not qualify for the Spouse Tax Adjustment.
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 45
+        employment_income: 125_714
+      person2:
+        age: 45
+        unemployment_compensation: 25_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        va_rebate: 0
+    households:
+      household:
+        members: [person1, person2]
+        state_code: VA
+  output:
+    va_spouse_tax_adjustment_eligible: false
+    va_spouse_tax_adjustment: 0
+
+- name: MFJ - two earners still receive the Spouse Tax Adjustment (no over-correction)
+  # Guard against over-correcting: a genuinely two-earner couple (no exempt
+  # income) must still qualify for and receive the Spouse Tax Adjustment.
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 45
+        employment_income: 100_000
+      person2:
+        age: 45
+        employment_income: 40_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        va_rebate: 0
+    households:
+      household:
+        members: [person1, person2]
+        state_code: VA
+  output:
+    va_spouse_tax_adjustment_eligible: true
+    va_spouse_tax_adjustment: 257.5
+
 - name: Joint couple with one child, 81k income each
   absolute_error_margin: 2
   period: 2023

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/va_agi_person.yaml

@@ -1,15 +1,16 @@
-- name: Attributing the state adjusted gross income based on federal AGI
+- name: Each person's VAGI is their federal AGI less their own Virginia subtractions
   period: 2021
   input:
     people:
       person1:
         adjusted_gross_income_person: 10_000
+        va_subtractions_person: 2_500
       person2:
         adjusted_gross_income_person: 30_000
+        va_subtractions_person: 7_500
     tax_units:
       tax_unit:
         members: [person1, person2]
-        va_subtractions: 10_000
     households:
       household:
         members: [person1, person2]
@@ -23,19 +24,66 @@
     people:
       person1:
         adjusted_gross_income_person: 10_000
+        va_subtractions_person: 2_000
       person2:
         adjusted_gross_income_person: 0
+        va_subtractions_person: 0
     tax_units:
       tax_unit:
         members: [person1, person2]
-        va_subtractions: 2_000
     households:
       household:
         members: [person1, person2]
         state_code: VA
   output:
     va_agi_person: [8_000, 0]
 
+- name: Social Security subtraction applied directly to the recipient, not prorated
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 70
+        employment_income: 100_000
+      person2:
+        age: 70
+        social_security_retirement: 20_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+        state_code: VA
+  output:
+    # person2's $17,000 taxable Social Security is exempt in Virginia and is
+    # subtracted from her own Virginia AGI (not prorated to person1), so her
+    # separate VAGI is 0. The two columns still sum to the tax unit's VAGI.
+    va_agi_person: [100_000, 0]
+
+- name: Unemployment subtraction applied directly to the recipient, not prorated
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 45
+        employment_income: 100_000
+      person2:
+        age: 45
+        unemployment_compensation: 15_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+        state_code: VA
+  output:
+    # Virginia subtracts unemployment compensation; person2's $15,000 is
+    # attributed to her, so her separate VAGI is 0 rather than a prorated
+    # share of the subtraction. The columns still sum to the tax unit's VAGI.
+    va_agi_person: [100_000, 0]
+
 - name: Age deduction applied directly to eligible person, not prorated
   period: 2021
   input:

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/va_subtractions_person.yaml

@@ -0,0 +1,60 @@
+- name: Unemployment compensation is attributed to the recipient spouse
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 45
+        employment_income: 100_000
+      person2:
+        age: 45
+        unemployment_compensation: 15_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+        state_code: VA
+  output:
+    va_subtractions_person: [0, 15_000]
+
+- name: Disability income subtraction is attributed to the recipient spouse
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 45
+        employment_income: 100_000
+      person2:
+        age: 45
+        disability_benefits: 15_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+        state_code: VA
+  output:
+    va_subtractions_person: [0, 15_000]
+
+- name: Military basic pay subtraction is attributed to the service member
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 45
+        military_basic_pay: 15_000
+        employment_income: 15_000
+      person2:
+        age: 45
+        employment_income: 50_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+        state_code: VA
+  output:
+    va_subtractions_person: [15_000, 0]

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/va_us_govt_bond_interest.yaml

@@ -2,6 +2,6 @@
   period: 2024
   input:
     state_code: VA
-    us_govt_interest: 5_000
+    us_govt_interest_person: 5_000
   output:
     va_subtractions: 5_000

policyengine_us/variables/gov/states/va/tax/income/subtractions/va_529_plan_deduction_person.py

@@ -0,0 +1,26 @@
+from policyengine_us.model_api import *
+
+
+class va_529_plan_deduction_person(Variable):
+    value_type = float
+    entity = Person
+    label = "Virginia 529 plan deduction allocated to each person"
+    defined_for = StateCode.VA
+    unit = USD
+    definition_period = YEAR
+    reference = "https://law.lis.virginia.gov/vacodefull/title58.1/chapter3/article2/"
+
+    def formula(person, period, parameters):
+        # The 529 deduction is a household contribution, not a person's income,
+        # so prorate it by federal AGI share. When the household has no positive
+        # federal AGI, assign it to the head so the per-person amounts still sum
+        # to the household deduction.
+        total = person.tax_unit("va_529_plan_deduction", period)
+        person_fagi = person("adjusted_gross_income_person", period)
+        total_federal_agi = person.tax_unit.sum(person_fagi)
+        share = where(
+            total_federal_agi > 0,
+            person_fagi / total_federal_agi,
+            person("is_tax_unit_head", period),
+        )
+        return total * share

policyengine_us/variables/gov/states/va/tax/income/subtractions/va_disability_income_subtraction.py

@@ -9,15 +9,4 @@ class va_disability_income_subtraction(Variable):
     unit = USD
     definition_period = YEAR
     reference = "https://law.lis.virginia.gov/vacodefull/title58.1/chapter3/article2/"
-
-    def formula(tax_unit, period, parameters):
-        person = tax_unit.members
-        p = parameters(period).gov.states.va.tax.income.subtractions.disability_income
-        # Subtraction phases in and then out dollar for dollar with respect to disability income, at a given threshold.
-        subtractable_disability_income = min_(
-            person("disability_benefits", period), p.amount
-        )
-        head = person("is_tax_unit_head", period)
-        spouse = person("is_tax_unit_spouse", period)
-        is_head_or_spouse = head | spouse
-        return tax_unit.sum(subtractable_disability_income * is_head_or_spouse)
+    adds = ["va_disability_income_subtraction_person"]

policyengine_us/variables/gov/states/va/tax/income/subtractions/va_disability_income_subtraction_person.py

@@ -0,0 +1,16 @@
+from policyengine_us.model_api import *
+
+
+class va_disability_income_subtraction_person(Variable):
+    value_type = float
+    entity = Person
+    label = "Virginia disability income subtraction for each person"
+    defined_for = StateCode.VA
+    unit = USD
+    definition_period = YEAR
+    reference = "https://law.lis.virginia.gov/vacodefull/title58.1/chapter3/article2/"
+
+    def formula(person, period, parameters):
+        p = parameters(period).gov.states.va.tax.income.subtractions.disability_income
+        subtractable = min_(person("disability_benefits", period), p.amount)
+        return subtractable * person("is_tax_unit_head_or_spouse", period)

policyengine_us/variables/gov/states/va/tax/income/subtractions/va_federal_state_employees_subtraction.py

@@ -9,17 +9,4 @@ class va_federal_state_employees_subtraction(Variable):
     unit = USD
     definition_period = YEAR
     reference = "https://law.lis.virginia.gov/vacodefull/title58.1/chapter3/article2/"
-
-    def formula(tax_unit, period, parameters):
-        person = tax_unit.members
-        p = parameters(period).gov.states.va.tax.income.subtractions.disability_income
-
-        employment_income = person("irs_employment_income", period)
-        state_or_federal_salary = person("state_or_federal_salary", period)
-        subtractable_federal_state_salary = where(
-            employment_income > p.amount, 0, state_or_federal_salary
-        )
-        head = person("is_tax_unit_head", period)
-        spouse = person("is_tax_unit_spouse", period)
-        is_head_or_spouse = head | spouse
-        return tax_unit.sum(subtractable_federal_state_salary * is_head_or_spouse)
+    adds = ["va_federal_state_employees_subtraction_person"]

policyengine_us/variables/gov/states/va/tax/income/subtractions/va_federal_state_employees_subtraction_person.py

@@ -0,0 +1,21 @@
+from policyengine_us.model_api import *
+
+
+class va_federal_state_employees_subtraction_person(Variable):
+    value_type = float
+    entity = Person
+    label = "Virginia federal and state employees subtraction for each person"
+    defined_for = StateCode.VA
+    unit = USD
+    definition_period = YEAR
+    reference = "https://law.lis.virginia.gov/vacodefull/title58.1/chapter3/article2/"
+
+    def formula(person, period, parameters):
+        p = parameters(period).gov.states.va.tax.income.subtractions.disability_income
+        employment_income = person("irs_employment_income", period)
+        subtractable = where(
+            employment_income > p.amount,
+            0,
+            person("state_or_federal_salary", period),
+        )
+        return subtractable * person("is_tax_unit_head_or_spouse", period)