Fix pre-2018 AMT child exemption and income base

changelog.d/amt-child-pre-2018.fixed.md

@@ -0,0 +1 @@
+Correct pre-2018 AMT for child filers by applying the limited exemption to AMT income and excluding joint returns from the child exemption cap.

policyengine_us/tests/policy/baseline/gov/irs/tax/federal_income/alternative_minimum_tax/exemption/amt_exemption.yaml

@@ -140,7 +140,7 @@
     employment_income: 0
     filing_status: JOINT
   output:
-    amt_kiddie_tax_applies: true
+    amt_kiddie_tax_applies: false
     # 2025 Form 6251 Exemption Worksheet line 1: 137,000 for joint filers.
     amt_exemption: 137_000
 
@@ -176,7 +176,7 @@
     employment_income: 0
     filing_status: JOINT
   output:
-    amt_kiddie_tax_applies: true
+    amt_kiddie_tax_applies: false
     amt_exemption: 140_200
 
 - name: 2026 single 18-year-old in the phase-out range
@@ -191,3 +191,124 @@
     # exemption_phase_out = 0.5 * 100,000 = 50,000
     # amt_exemption = max(0, 90,100 - 50,000) = 40,100
     amt_exemption: 40_100
+
+# IRC 1(g)(2)(C), 59(j); 2017 Form 6251 lines 28-35, instructions p. 11:
+# https://www.irs.gov/pub/irs-prior/i6251--2017.pdf#page=11
+# The model backdates some 2018 parameters into 2017. Supply the historical
+# upstream return amounts to isolate the AMT formulas; wages still compute
+# adjusted_earnings and the erroneous child cap, rather than supplying the cap.
+# 2017 regular rates: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf#page=7
+# Standard deduction: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf#page=15
+# Personal exemptions: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf#page=18
+- name: A joint return by young spouses receives the ordinary 2017 AMT exemption
+  absolute_error_margin: 0.01
+  period: 2017
+  input:
+    people:
+      head:
+        age: 18
+        is_tax_unit_head: true
+        is_tax_unit_spouse: false
+        is_tax_unit_dependent: false
+        employment_income: 12_000
+        taxable_interest_income: 121_000
+      spouse:
+        age: 17
+        is_tax_unit_head: false
+        is_tax_unit_spouse: true
+        is_tax_unit_dependent: false
+        employment_income: 17_000
+    tax_units:
+      unit:
+        members: [head, spouse]
+        filing_status: JOINT
+        tax_unit_itemizes: false
+        adjusted_gross_income: 150_000
+        standard_deduction: 12_700
+        taxable_income_deductions: 12_700
+        exemptions: 8_100
+        regular_tax_before_credits: 23_777.50
+    households:
+      household:
+        members: [head, spouse]
+        state_code: TX
+  output:
+    # AGI = 12,000 + 17,000 + 121,000 = 150,000.
+    # Regular taxable income = 150,000 - 12,700 - 2 * 4,050 = 129,200.
+    # AMTI = 150,000; below joint phase-out threshold 160,900.
+    # IRC 1(g)(2)(C) excludes joint returns, so the 59(j) cap cannot apply.
+    # AMT base = 150,000 - 84,500 = 65,500; tentative tax = 17,030.
+    # Regular tax = 1,865 + 8,587.50 + 13,325 = 23,777.50; AMT = 0.
+    taxable_income: 129_200
+    amt_income: 150_000
+    amt_exemption: 84_500
+    amt_income_less_exemptions: 65_500
+    amt_base_tax: 17_030
+    alternative_minimum_tax: 0
+    amt_kiddie_tax_applies: false
+
+# Post-2017 confirmation controls: the SECURE Act override makes the
+# historical predicate defect irrelevant to the federal exemption.
+- name: Young joint filers receive the full exemption in 2021
+  absolute_error_margin: 0.01
+  period: 2021
+  input:
+    people:
+      head:
+        age: 18
+        is_tax_unit_head: true
+        is_tax_unit_dependent: false
+        employment_income: 12_000
+      spouse:
+        age: 17
+        is_tax_unit_spouse: true
+        is_tax_unit_dependent: false
+        employment_income: 17_000
+    tax_units:
+      unit:
+        members: [head, spouse]
+        filing_status: JOINT
+        tax_unit_itemizes: false
+    households:
+      household:
+        members: [head, spouse]
+        state_code: TX
+  output:
+    adjusted_gross_income: 29_000
+    taxable_income: 3_900
+    amt_income: 29_000
+    amt_exemption: 114_600
+    amt_income_less_exemptions: 0
+    alternative_minimum_tax: 0
+
+- name: Young joint filers receive the full exemption in 2022
+  absolute_error_margin: 0.01
+  period: 2022
+  input:
+    people:
+      head:
+        age: 18
+        is_tax_unit_head: true
+        is_tax_unit_dependent: false
+        employment_income: 12_000
+      spouse:
+        age: 17
+        is_tax_unit_spouse: true
+        is_tax_unit_dependent: false
+        employment_income: 17_000
+    tax_units:
+      unit:
+        members: [head, spouse]
+        filing_status: JOINT
+        tax_unit_itemizes: false
+    households:
+      household:
+        members: [head, spouse]
+        state_code: TX
+  output:
+    adjusted_gross_income: 29_000
+    taxable_income: 3_100
+    amt_income: 29_000
+    amt_exemption: 118_100
+    amt_income_less_exemptions: 0
+    alternative_minimum_tax: 0

policyengine_us/tests/policy/baseline/gov/irs/tax/federal_income/alternative_minimum_tax/income/amt_income_less_exemptions.yaml

@@ -44,7 +44,7 @@
   output:
     amt_income_less_exemptions: 1_000_000
 
-- name: Kiddie tax filer before 2018 uses regular taxable income and the child limitation
+- name: Kiddie tax filer before 2018 uses AMTI and the child limitation
   period: 2017
   input:
     amt_income: 200_000
@@ -55,8 +55,8 @@
   output:
     # amt_exemption = min(54,300 - 0.25 * (200,000 - 120,700), 10,000 + 7,500)
     #               = min(34,475, 17,500) = 17,500
-    # 190,000 - 17,500 = 172,500
-    amt_income_less_exemptions: 172_500
+    # 200,000 - 17,500 = 182,500
+    amt_income_less_exemptions: 182_500
 
 - name: 2025 single 18-year-old with no earnings uses AMTI and the full exemption
   period: 2025
@@ -70,7 +70,7 @@
     amt_kiddie_tax_applies: true
     amt_exemption: 88_100
     # 2025 Form 6251 line 6 = line 4 - line 5 = 200,000 - 88,100.
-    # The pre-2018 child treatment would give 190,000 - 9,550 = 180,450.
+    # Applying a child cap would give 200,000 - 9,550 = 190,450.
     amt_income_less_exemptions: 111_900
 
 - name: 2026 single 18-year-old with no earnings uses AMTI and the full exemption
@@ -95,6 +95,80 @@
     employment_income: 0
     filing_status: JOINT
   output:
-    amt_kiddie_tax_applies: true
+    amt_kiddie_tax_applies: false
     # 100,000 is below the 137,000 joint exemption.
     amt_income_less_exemptions: 0
+
+# IRC 55(b), 56(b)(1)(D), 59(j); 2017 Form 6251 lines 28-31:
+# https://www.irs.gov/pub/irs-prior/f6251--2017.pdf#page=1
+# Supply sourced 2017 upstream deductions because the model backdates its
+# 2018 standard-deduction parameter. The filer is not claimable elsewhere.
+# Standard deduction: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf#page=15
+# Personal exemption: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf#page=18
+- name: A child filer uses AMTI rather than regular taxable income before 2018
+  absolute_error_margin: 0.01
+  period: 2017
+  input:
+    people:
+      head:
+        age: 17
+        is_tax_unit_head: true
+        is_tax_unit_spouse: false
+        is_tax_unit_dependent: false
+        taxable_interest_income: 50_000
+    tax_units:
+      unit:
+        members: [head]
+        filing_status: SINGLE
+        tax_unit_itemizes: false
+        adjusted_gross_income: 50_000
+        standard_deduction: 6_350
+        taxable_income_deductions: 6_350
+        exemptions: 4_050
+    households:
+      household:
+        members: [head]
+        state_code: TX
+  output:
+    # Assume at least one living parent, as required by IRC 1(g)(2)(B).
+    # Earned income = 0; ordinary single exemption = 54,300.
+    # Section 59(j) limits ONLY the exemption: min(54,300, 0 + 7,500).
+    # No AMT deductions: AMTI = 50,000; base = 50,000 - 7,500 = 42,500.
+    # 26% * 42,500 = 11,050, irrespective of regular-tax deductions.
+    taxable_income: 39_600
+    amt_income: 50_000
+    amt_exemption: 7_500
+    amt_income_less_exemptions: 42_500
+    amt_base_tax: 11_050
+
+# Positive-base control distinguishes AMTI from regular taxable income;
+# a below-exemption child alone would not detect the wrong base.
+- name: A 2025 child filer uses AMTI with the full ordinary exemption
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    people:
+      head:
+        age: 17
+        is_tax_unit_head: true
+        is_tax_unit_spouse: false
+        is_tax_unit_dependent: false
+        taxable_interest_income: 200_000
+    tax_units:
+      unit:
+        members: [head]
+        filing_status: SINGLE
+        tax_unit_itemizes: false
+    households:
+      household:
+        members: [head]
+        state_code: TX
+  output:
+    # 2025 single exemption 88,100; no child cap under IRC 55(d)(4)(A)(iii).
+    # AMTI 200,000 - 88,100 = 111,900; 26% * 111,900 = 29,094.
+    # Using regular taxable income would wrongly give 184,250 - 88,100.
+    taxable_income: 184_250
+    amt_income: 200_000
+    amt_exemption: 88_100
+    amt_income_less_exemptions: 111_900
+    amt_base_tax: 29_094

policyengine_us/tests/policy/baseline/gov/irs/tax/federal_income/alternative_minimum_tax/kiddie_tax/amt_kiddie_tax_applies.yaml

@@ -3,6 +3,7 @@
   period: 2022
   input:
     age_head: 18
+    filing_status: SINGLE
   output:
     amt_kiddie_tax_applies: true
 
@@ -14,13 +15,14 @@
   output:
     amt_kiddie_tax_applies: false
 
-- name: Kiddie tax applies when both head and spouse under 19
+- name: Kiddie tax does not apply to a joint return when both spouses are under 19
   period: 2022
   input:
     age_head: 18
     age_spouse: 18
+    filing_status: JOINT
   output:
-    amt_kiddie_tax_applies: true
+    amt_kiddie_tax_applies: false
 
 - name: Kiddie tax does not apply when head is 19+ (non-student)
   period: 2022
@@ -104,3 +106,30 @@
         members: [person1, person2]
   output:
     amt_kiddie_tax_applies: false
+
+- name: A young separate filer remains subject to the child limitation before 2018
+  period: 2017
+  input:
+    age_head: 18
+    filing_status: SEPARATE
+  output:
+    amt_kiddie_tax_applies: true
+
+- name: Young full-time students filing jointly are excluded before 2018
+  period: 2017
+  input:
+    people:
+      head:
+        age: 22
+        is_full_time_college_student: true
+        is_tax_unit_head: true
+      spouse:
+        age: 23
+        is_full_time_college_student: true
+        is_tax_unit_spouse: true
+    tax_units:
+      unit:
+        members: [head, spouse]
+        filing_status: JOINT
+  output:
+    amt_kiddie_tax_applies: false