[PavelMakarchuk]

Summary

ca_amt_exemption reduced the California AMT exemption at the federal phase-out rate, gov.irs.income.amt.exemption.phase_out.rate. That rate is 50% from 2026, because P.L. 119-21, sec. 70107(c), added IRC 55(d)(4)(A)(ii)(IV): paragraph (2) "shall be applied— ... by substituting “50 percent” for “25 percent”" for taxable years beginning after December 31, 2025.

California does not follow that change. Cal. Rev. & Tax. Code 17062.1 (added by Stats. 2025, Ch. 231, Sec. 6 (SB 711), effective October 1, 2025):

For the purposes of this chapter, Part VI of Subchapter A of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to alternative minimum tax, as it read on January 1, 2015, shall apply, except as otherwise provided.

R&TC 17062(b)(6) replaces only the threshold amounts:

For taxable years beginning on or after January 1, 1998, Section 55(d)(3) of the Internal Revenue Code, relating to phaseout of exemption amount, is modified, for purposes of this part, to provide the following phaseout of exemption amounts in lieu of those contained therein: (A) Two hundred fourteen thousand seven hundred twenty-five dollars ($214,725) ... (B) One hundred sixty-one thousand forty-four dollars ($161,044) ... (C) One hundred seven thousand three hundred sixty-two dollars ($107,362) ...

The other percentages in 17062 are the tentative minimum tax rates, the nonresident proration rate and the CPI factor, so the rate comes from IRC 55(d)(3) as it read on January 1, 2015 (2014 edition):

The exemption amount of any taxpayer shall be reduced (but not below zero) by an amount equal to 25 percent of the amount by which the alternative minimum taxable income of the taxpayer exceeds— ...

In the case of a taxpayer described in paragraph (1)(C), alternative minimum taxable income shall be increased by the lesser of (i) 25 percent of the excess of alternative minimum taxable income (determined without regard to this sentence) over the minimum amount of such income (as so determined) for which the exemption amount under paragraph (1)(C) is zero, or (ii) such exemption amount (determined without regard to this paragraph).

The 2025 Instructions for Schedule P (540) say "California law conforms to IRC Sections 55 through 59, relating to alternative minimum tax (AMT), as of January 1, 2015", and use 25% in both steps: the Line 21 worksheet for separate filers ("Multiply line 3 by 25% (.25)") and the Line 22 Exemption Worksheet ("Multiply line 4 by 25% (.25)"). The 2021 instructions have the same two lines.

This PR adds gov.states.ca.tax.income.amt.exemption.phase_out_rate (0.25 from 2021, the first year of the other California AMT parameters) and uses it in ca_amt_exemption. It also uses it in ca_amti for the separate-filer add-back, which read gov.irs.income.amt.capital_gains.capital_gain_excess_tax_rate, a federal capital gains rate that is also 0.25. That second change does not change any value; it only makes the add-back read the California rate that the same sentence of IRC 55(d)(3) sets.

Results through 2025 do not change, because the federal rate was also 25%. From 2026, the California exemption is larger for filers with AMTI above the phase-out threshold.

Issue reproduction (single filer, age 45; California 2026 amounts are PE's CPI-uprated values, because the FTB has not published 2026 Schedule P amounts):

Household	Year	Variable	main	branch
Wages $500,000, real estate taxes $150,000	2026	ca_amt_exemption	22,696.13	58,773.55
		ca_amt	3,152.53	627.11
		ca_income_tax	33,411.27	30,885.85
Wages $450,000	2026	ca_amt_exemption	47,696.13	71,273.55
		ca_amt	0	0
Wages $500,000, real estate taxes $150,000	2025	ca_amt_exemption	54,701	54,701
		ca_amt	799.59	799.59

For the first household, ca_amti (500,000) and ca_income_tax_before_credits (30,258.74) are the same on both. The branch's ca_amt is 7% × (500,000 − 58,773.55) − 30,258.74 = 627.11.

Tests

Added to ca_amt_exemption.yaml (Schedule P (540) Exemption Worksheet arithmetic in each case):

• 2026 single, AMTI $500,000: line 1 94,850.96; line 4 500,000 − 355,690.34 = 144,309.66; line 5 25% × 144,309.66 = 36,077.41; line 6 58,773.55 (main gives 22,696.13 at 50%). Fails on main, passes here.
• 2026 joint, AMTI $700,000: line 1 126,469.65; line 4 700,000 − 474,254.81 = 225,745.19; line 5 56,436.30; line 6 70,033.36 (main gives 13,597.06). Fails on main, passes here.
• 2025 single, AMTI $500,000, published amounts: 92,749 − 25% × (500,000 − 347,808) = 54,701. Control.

The 2026 expectations use PE's CPI-uprated 2026 amounts as worksheet inputs, so they will move when the FTB publishes the 2026 amounts. The rate step is the only part that this PR changes.

I did not add cases to ca_amt.yaml, to avoid a conflict with #9621, which edits that file.

Results: tests/policy/baseline/gov/states/ca/tax/: 288 passed. Code-health tests: 503 passed, 1 skipped, 2 failed. The 2 failures (test_selective_test_batches.py::test_reform_folders_run_each_yaml_and_python_file_separately[True-contrib/crfb] and [True-reform]) fail the same way on main in my local environment and do not touch these files.

Not changed

ca_amt_exemption lines 7–10 (children under 24) still read the federal gov.irs.income.amt.exemption.child.amount. The 2025 instructions give "$9,750" for line 7. That is outside this issue.

Fixes #10268

axiom: TheAxiomFoundation/rulespec-us#1958 queued (open, pe-parity; 17062.1 is a deferred stub with no rules, and the signed encoder dispatch needs approval)

🤖 Generated with Claude Code

[hua7450]

Approving at 9a2a243. Thanks, Pavel.

The California rate is 25% in every year from 2021. IRC 55(d)(3) as it read on January 1, 2015 uses "25 percent" in both sentences, and the 2021 and 2025 Schedule P (540) instructions use 25% in the Line 21 worksheet and the Exemption Worksheet. R&TC 17062(b)(6) replaces only the threshold amounts. Using the new parameter in ca_amti for the separate-filer add-back is also right, because the same sentence of 55(d)(3) sets that rate. Results through 2025 do not change. I recomputed the three new cases, including the 2026 uprating from the 2025 amounts (factor 1.0226629), and they match.

Optional nits:

1. Reference attribution. 17062.1 took effect October 1, 2025. For 2021 to 2024, the January 1, 2015 IRC came through R&TC 17062(b)(1) read with 17024.5(a)(1)(P). The value is right in every year, but the first reference title implies 17062.1 governed the earlier years. A 17024.5 reference, or a reworded title, would cover them.
2. Parameter description. phase_out_rate.yaml describes only the exemption reduction, but ca_amti now also uses it for the separate-filer AMTI increase.
3. Joint-case comment. The 2026 joint comment shows rounded intermediates, so its subtractions come out a cent off (70,033.35 from the shown figures). The expectation of 70,033.36 is right. Showing three decimals, or noting "unrounded intermediates", would fix it.
4. Tests. The 2025 control case is in the same class as the existing 2022 case and would pass on main. A 2026 separate-filer ca_amti case would be the one that covers the second change.
5. Stored upper threshold. The add-back starts at upper.yaml, which equals lower + amount / rate. Now that the rate is its own California parameter, a reform of it would move the exemption phase-out but not the add-back's start. You could derive the start from lower + amount / rate, or leave this for later.

Follow-ups, outside this PR:

• gov.states.ca.cpi stops at 2025, so the 2026 California AMT amounts use a projection. R&TC 17062(b)(7) also rounds them to the nearest dollar. DIR has published June 2026 (364.969). The two 2026 expectations will move when this is updated, as the PR body notes.
• Exemption Worksheet line 7 (certain children) reads the federal gov.irs.income.amt.exemption.child.amount. The FTB figures differ in every year from 2021 to 2025 (for example, $9,750 vs $9,550 in 2025), as the PR body notes.
• ca_amti_adjustments adds back the full federal medical deduction. Schedule P line 2 adds back only the smaller of that deduction or 2.5% of federal AGI.