Count only filers' tips and overtime toward the deductions, and require only the recipient's SSN

changelog.d/fix-tips-overtime-dependents-ssn.fixed.md

@@ -0,0 +1 @@
+Count only tips and overtime received by a filer (a tax unit member who is not a dependent) with a valid SSN toward the qualified tips and overtime deductions (26 U.S.C. 224(e)(1) and 225(d)(1)). A dependent's tips and overtime no longer raise the filer's deductions, and a joint return on which one spouse lacks a valid SSN now deducts the other spouse's tips and overtime instead of nothing.

policyengine_us/parameters/gov/irs/deductions/overtime_income/eligible_ssn_card_type.yaml

@@ -1,4 +1,4 @@
-description: The IRS limits the overtime income deduction to filers with one of these SSN Card types.
+description: The IRS counts overtime toward the overtime income deduction only when the filer (not a dependent) who received it has one of these SSN card types.
 values:
   2018-01-01:
     - CITIZEN
@@ -9,5 +9,11 @@ metadata:
   period: year
   unit: list
   reference:
+    - title: 26 U.S.C. 225(d)
+      href: https://www.law.cornell.edu/uscode/text/26/225#d
+    - title: 26 U.S.C. 24(h)(7)
+      href: https://www.law.cornell.edu/uscode/text/26/24#h_7
+    - title: 2025 Form 1040 instructions, Schedule 1-A, Part III
+      href: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=106
     - title: H.R.1 - One Big Beautiful Bill Act
       href: https://www.congress.gov/bill/119th-congress/house-bill/1/text

policyengine_us/parameters/gov/irs/deductions/tip_income/eligible_ssn_card_type.yaml

@@ -1,4 +1,4 @@
-description: The IRS limits the tip income deduction to filers with one of these SSN Card types.
+description: The IRS counts tips toward the tip income deduction only when the filer (not a dependent) who received them has one of these SSN card types.
 values:
   2018-01-01:
     - CITIZEN
@@ -9,5 +9,11 @@ metadata:
   period: year
   unit: list
   reference:
+    - title: 26 U.S.C. 224(e)
+      href: https://www.law.cornell.edu/uscode/text/26/224#e
+    - title: 26 U.S.C. 24(h)(7)
+      href: https://www.law.cornell.edu/uscode/text/26/24#h_7
+    - title: 2025 Form 1040 instructions, Schedule 1-A, Part II
+      href: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=101
     - title: H.R.1 - One Big Beautiful Bill Act
       href: https://www.congress.gov/bill/119th-congress/house-bill/1/text

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/overtime_income/overtime_income_deduction.yaml

@@ -318,3 +318,211 @@
     # 26 U.S.C. 7703(b): considered unmarried, so 225(e) does not apply.
     filing_status: [HEAD_OF_HOUSEHOLD, SEPARATE]
     overtime_income_deduction: [12_500, 0]
+
+- name: A joint return claims the overtime of a spouse with a valid SSN when the other spouse has none
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        ssn_card_type: CITIZEN
+        fsla_overtime_premium: 5_000
+      spouse:
+        age: 38
+        ssn_card_type: OTHER_NON_CITIZEN
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        adjusted_gross_income: 80_000
+    households:
+      household:
+        members: [head, spouse]
+        state_code: TX
+  output:
+    # 26 U.S.C. 225(d)(1): only the spouse who received the overtime needs an SSN.
+    filing_status: JOINT
+    overtime_income_deduction_ssn_requirement_met: true
+    overtime_income_deduction: 5_000
+
+- name: Overtime received by a spouse without a valid SSN does not count
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        ssn_card_type: CITIZEN
+      spouse:
+        age: 38
+        ssn_card_type: OTHER_NON_CITIZEN
+        fsla_overtime_premium: 10_000
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        adjusted_gross_income: 80_000
+    households:
+      household:
+        members: [head, spouse]
+        state_code: TX
+  output:
+    # 26 U.S.C. 225(d)(1): the spouse who received the overtime needs the SSN.
+    filing_status: JOINT
+    overtime_income_deduction_ssn_requirement_met: true
+    overtime_income_deduction: 0
+
+- name: On a joint return with overtime on both sides, only the spouse with a valid SSN counts
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        ssn_card_type: CITIZEN
+        fsla_overtime_premium: 15_000
+      spouse:
+        age: 38
+        ssn_card_type: OTHER_NON_CITIZEN
+        fsla_overtime_premium: 20_000
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        adjusted_gross_income: 80_000
+    households:
+      household:
+        members: [head, spouse]
+        state_code: TX
+  output:
+    # The $25,000 joint cap applies to the $15,000 that counts, not to $35,000.
+    filing_status: JOINT
+    overtime_income_deduction_ssn_requirement_met: true
+    overtime_income_deduction: 15_000
+
+- name: A dependent's overtime does not count toward the filer's deduction
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 45
+        ssn_card_type: CITIZEN
+        employment_income: 60_000
+      teen:
+        age: 17
+        ssn_card_type: CITIZEN
+        employment_income: 8_000
+        tip_income: 6_000
+        treasury_tipped_occupation_code: 102
+        fsla_overtime_premium: 1_000
+    marital_units:
+      parent_marital_unit:
+        members: [parent]
+      teen_marital_unit:
+        members: [teen]
+    tax_units:
+      tax_unit:
+        members: [parent, teen]
+    households:
+      household:
+        members: [parent, teen]
+        state_code: TX
+  output:
+    # The teen's overtime and wages are the teen's own income (26 U.S.C. 73(a)), outside the parent's AGI.
+    filing_status: HEAD_OF_HOUSEHOLD
+    is_tax_unit_dependent: [false, true]
+    adjusted_gross_income: 60_000
+    overtime_income_deduction: 0
+
+- name: A filer's own overtime counts while a dependent's does not
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 45
+        ssn_card_type: CITIZEN
+        employment_income: 60_000
+        fsla_overtime_premium: 3_000
+      teen:
+        age: 17
+        ssn_card_type: CITIZEN
+        employment_income: 8_000
+        tip_income: 6_000
+        treasury_tipped_occupation_code: 102
+        fsla_overtime_premium: 1_000
+    marital_units:
+      parent_marital_unit:
+        members: [parent]
+      teen_marital_unit:
+        members: [teen]
+    tax_units:
+      tax_unit:
+        members: [parent, teen]
+    households:
+      household:
+        members: [parent, teen]
+        state_code: TX
+  output:
+    # Only the parent's $3,000 counts; the teen's $1,000 does not.
+    filing_status: HEAD_OF_HOUSEHOLD
+    is_tax_unit_dependent: [false, true]
+    adjusted_gross_income: 60_000
+    overtime_income_deduction: 3_000
+
+- name: An adult input as a dependent deducts nothing even as the only adult in the unit
+  period: 2025
+  input:
+    people:
+      adult:
+        age: 40
+        ssn_card_type: CITIZEN
+        is_tax_unit_dependent: true
+        fsla_overtime_premium: 1_000
+    tax_units:
+      tax_unit:
+        members: [adult]
+        filing_status: SINGLE
+        adjusted_gross_income: 80_000
+    households:
+      household:
+        members: [adult]
+        state_code: TX
+  output:
+    # A dependent's overtime stays off the unit's return, like the rest of the
+    # dependent's income (irs_gross_income).
+    overtime_income_deduction: 0
+
+- name: A filer under 18 deducts their own overtime, not an adult dependent's
+  period: 2025
+  input:
+    people:
+      filer:
+        age: 17
+        ssn_card_type: CITIZEN
+        is_tax_unit_dependent: false
+        fsla_overtime_premium: 3_000
+      parent:
+        age: 45
+        ssn_card_type: CITIZEN
+        is_tax_unit_dependent: true
+        fsla_overtime_premium: 500
+    marital_units:
+      filer_marital_unit:
+        members: [filer]
+      parent_marital_unit:
+        members: [parent]
+    tax_units:
+      tax_unit:
+        members: [filer, parent]
+        filing_status: HEAD_OF_HOUSEHOLD
+        adjusted_gross_income: 80_000
+    households:
+      household:
+        members: [filer, parent]
+        state_code: TX
+  output:
+    overtime_income_deduction: 3_000

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/overtime_income/overtime_income_deduction_eligible_person.yaml

@@ -0,0 +1,131 @@
+- name: Head and spouse with valid SSNs count; a dependent and an ITIN spouse do not
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        ssn_card_type: CITIZEN
+      spouse:
+        age: 38
+        ssn_card_type: NON_CITIZEN_VALID_EAD
+      child:
+        age: 17
+        ssn_card_type: CITIZEN
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+      child_marital_unit:
+        members: [child]
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child]
+  output:
+    is_tax_unit_head_or_spouse: [true, true, false]
+    # A dependent's overtime is the dependent's own income (26 U.S.C. 73(a)).
+    overtime_income_deduction_eligible_person: [true, true, false]
+
+- name: A spouse without a valid SSN does not count, whatever the card type
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        ssn_card_type: CITIZEN
+      spouse:
+        age: 38
+        ssn_card_type: OTHER_NON_CITIZEN
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+  output:
+    overtime_income_deduction_eligible_person: [true, false]
+
+- name: A head with no SSN card does not count
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        ssn_card_type: NONE
+      child:
+        age: 10
+        ssn_card_type: CITIZEN
+    marital_units:
+      marital_unit:
+        members: [head]
+      child_marital_unit:
+        members: [child]
+    tax_units:
+      tax_unit:
+        members: [head, child]
+  output:
+    overtime_income_deduction_eligible_person: [false, false]
+
+- name: An adult input as a dependent does not count
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        ssn_card_type: CITIZEN
+        is_tax_unit_dependent: false
+      parent:
+        age: 70
+        ssn_card_type: CITIZEN
+        is_tax_unit_dependent: true
+    marital_units:
+      marital_unit:
+        members: [head]
+      parent_marital_unit:
+        members: [parent]
+    tax_units:
+      tax_unit:
+        members: [head, parent]
+  output:
+    is_tax_unit_head: [true, false]
+    overtime_income_deduction_eligible_person: [true, false]
+
+- name: An adult input as a dependent does not count even when no other adult is a filer
+  period: 2025
+  input:
+    people:
+      adult:
+        age: 40
+        ssn_card_type: CITIZEN
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [adult]
+  output:
+    # The head-or-spouse inference keeps an input dependent as head when no
+    # adult filer is left, but the person's income is still left out of the
+    # unit (irs_gross_income).
+    is_tax_unit_head: true
+    overtime_income_deduction_eligible_person: false
+
+- name: A filer under 18 counts and an adult input as a dependent does not
+  period: 2025
+  input:
+    people:
+      filer:
+        age: 17
+        ssn_card_type: CITIZEN
+        is_tax_unit_dependent: false
+      parent:
+        age: 45
+        ssn_card_type: CITIZEN
+        is_tax_unit_dependent: true
+    marital_units:
+      filer_marital_unit:
+        members: [filer]
+      parent_marital_unit:
+        members: [parent]
+    tax_units:
+      tax_unit:
+        members: [filer, parent]
+  output:
+    is_tax_unit_head: [false, true]
+    overtime_income_deduction_eligible_person: [true, false]