PavelMakarchuk · Oct 5, 2026 · Oct 8, 2026 · Oct 8, 2026
diff --git a/changelog.d/state-eitc-helper-earned-income.fixed.md b/changelog.d/state-eitc-helper-earned-income.fixed.md
@@ -0,0 +1 @@
+Use federal EITC earned income, which nets spouses' self-employment losses, in the shared state EITC helper (IL, CO, DC, IN) and the Indiana decoupled EITC.
diff --git a/policyengine_us/tests/policy/baseline/gov/states/co/tax/income/credits/eitc/co_eitc.yaml b/policyengine_us/tests/policy/baseline/gov/states/co/tax/income/credits/eitc/co_eitc.yaml
@@ -397,3 +397,33 @@
     # credit is the childless 7.65% x 10,000 capped at 649; 50% x 649.
     eitc_child_count: 0
     co_eitc: 324.5
+
+- name: Colorado under-25 EITC nets a spouse's self-employment loss (50% x 7.65% x 6,000)
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 22
+        employment_income: 10_000
+        is_tax_unit_head: true
+      spouse:
+        age: 22
+        self_employment_income: -4_000
+        is_tax_unit_spouse: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        filing_status: JOINT
+    spm_units:
+      spm_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: CO
+  output:
+    # The spouse's $4,000 self-employment loss offsets the head's $10,000 of
+    # wages, so federal earned income is $6,000 (Form 1040 EIC Worksheet B,
+    # line 4b, combines both spouses' amounts on a joint return).
+    co_eitc: 229.5
diff --git a/...gine_us/tests/policy/baseline/gov/states/dc/tax/income/dc_eitc_with_qualifying_child.yaml b/...gine_us/tests/policy/baseline/gov/states/dc/tax/income/dc_eitc_with_qualifying_child.yaml
@@ -20,7 +20,7 @@
       tax_unit:
         members: [head, child]
         filing_status: HEAD_OF_HOUSEHOLD
-        filer_adjusted_earnings: 294.11764705882354
+        eitc_earned_income: 294.11764705882354
         adjusted_gross_income: 294.11764705882354
     households:
       household:
@@ -92,3 +92,36 @@
     # and the childless schedule returns zero.
     dc_eitc_with_qualifying_child: 3_400
     dc_eitc_without_qualifying_child: 0
+
+- name: DC EITC with a qualifying child nets a spouse's self-employment loss (70% x 2,040)
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+        is_tax_unit_head: true
+      spouse:
+        age: 40
+        self_employment_income: -4_000
+        is_tax_unit_spouse: true
+      child1:
+        age: 7
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1]
+        filing_status: JOINT
+    spm_units:
+      spm_unit:
+        members: [head, spouse, child1]
+    households:
+      household:
+        members: [head, spouse, child1]
+        state_code: DC
+  output:
+    # The spouse's $4,000 self-employment loss offsets the head's $10,000 of
+    # wages, so federal earned income is $6,000 (Form 1040 EIC Worksheet B,
+    # line 4b, combines both spouses' amounts on a joint return).
+    dc_eitc_with_qualifying_child: 1_428
diff --git a/policyengine_us/tests/policy/baseline/gov/states/il/tax/income/credits/il_eitc.yaml b/policyengine_us/tests/policy/baseline/gov/states/il/tax/income/credits/il_eitc.yaml
@@ -12,7 +12,7 @@
     tax_units:
       tax_unit:
         members: [head, child]
-        filer_adjusted_earnings: 2_941.176470588235
+        eitc_earned_income: 2_941.176470588235
         adjusted_gross_income: 2_941.176470588235
     households:
       household:
@@ -44,7 +44,7 @@
     tax_units:
       tax_unit:
         members: [head, child]
-        filer_adjusted_earnings: 2_941.176470588235
+        eitc_earned_income: 2_941.176470588235
         adjusted_gross_income: 2_941.176470588235
     households:
       household:
@@ -175,6 +175,108 @@
     # EITC (rather than the childless schedule) times the IL match.
     il_eitc: 680
 
+- name: IL EIC nets a spouse's self-employment loss, 2021 (18% x 2,400)
+  period: 2021
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+        is_tax_unit_head: true
+      spouse:
+        age: 40
+        self_employment_income: -4_000
+        is_tax_unit_spouse: true
+      child1:
+        age: 7
+        is_tax_unit_dependent: true
+      child2:
+        age: 10
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+        filing_status: JOINT
+    spm_units:
+      spm_unit:
+        members: [head, spouse, child1, child2]
+    households:
+      household:
+        members: [head, spouse, child1, child2]
+        state_code: IL
+  output:
+    # The spouse's $4,000 self-employment loss offsets the head's $10,000 of
+    # wages, so federal earned income is $6,000 (Form 1040 EIC Worksheet B,
+    # line 4b, combines both spouses' amounts on a joint return).
+    il_eitc: 432
+
+- name: IL EIC nets a spouse's self-employment loss, 2023 (20% x 2,400)
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+        is_tax_unit_head: true
+      spouse:
+        age: 40
+        self_employment_income: -4_000
+        is_tax_unit_spouse: true
+      child1:
+        age: 7
+        is_tax_unit_dependent: true
+      child2:
+        age: 10
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+        filing_status: JOINT
+    spm_units:
+      spm_unit:
+        members: [head, spouse, child1, child2]
+    households:
+      household:
+        members: [head, spouse, child1, child2]
+        state_code: IL
+  output:
+    # The spouse's $4,000 self-employment loss offsets the head's $10,000 of
+    # wages, so federal earned income is $6,000 (Form 1040 EIC Worksheet B,
+    # line 4b, combines both spouses' amounts on a joint return).
+    il_eitc: 480
+
+- name: IL EIC for a 65+ couple nets a self-employment loss, 2023 (20% x 7.65% x 5,000)
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 65
+        self_employment_income: -2_000
+        is_tax_unit_head: true
+      spouse:
+        age: 65
+        employment_income: 7_000
+        is_tax_unit_spouse: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        filing_status: JOINT
+    spm_units:
+      spm_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: IL
+  output:
+    # 35 ILCS 5/212(b-10) waives the federal age limit for filers 65 or older.
+    # Earned income is $7,000 - $2,000 = $5,000, so the childless credit is
+    # 7.65% x 5,000 = 382.50 and the IL EIC is 20% of it.
+    il_eitc: 76.5
+
 - name: Illinois EITC uses the childless schedule for a disabled parent dependent (IRC 152(c)(2))
   period: 2025
   absolute_error_margin: 0.01
@@ -209,3 +311,41 @@
     # A parent fails the IRC 152(c)(2) relationship test: 20% x the childless
     # federal-like credit of 649.
     il_eitc: 129.8
+
+- name: IL EIC nets a spouse's self-employment loss in the phase-out range, 2023
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 40_000
+        is_tax_unit_head: true
+      spouse:
+        age: 40
+        self_employment_income: -5_000
+        is_tax_unit_spouse: true
+      child1:
+        age: 7
+        is_tax_unit_dependent: true
+      child2:
+        age: 10
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+        filing_status: JOINT
+    spm_units:
+      spm_unit:
+        members: [head, spouse, child1, child2]
+    households:
+      household:
+        members: [head, spouse, child1, child2]
+        state_code: IL
+  output:
+    # Earned income and AGI are 40,000 - 5,000 = 35,000. Two children, 2023
+    # (Rev. Proc. 2022-38, section 3.06): maximum credit 6,604, phase-out
+    # 21.06% above the joint 28,120. Federal EITC: 6,604 - 0.2106 x 6,880 =
+    # 5,155.07; IL EIC 20%: 1,031.01. Without netting, earned income would be
+    # 40,000 and the IL EIC 20% x (6,604 - 0.2106 x 11,880) = 820.41.
+    il_eitc: 1_031.01
diff --git a/policyengine_us/tests/policy/baseline/gov/states/in/tax/income/in_eitc.yaml b/policyengine_us/tests/policy/baseline/gov/states/in/tax/income/in_eitc.yaml
@@ -116,3 +116,75 @@
       household: {members: [parent], state_fips: 18}
   output:
     in_eitc: 61.20
+
+- name: Indiana decoupled EITC nets a spouse's self-employment loss, 2022 (10% x 2,400)
+  period: 2022
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+        is_tax_unit_head: true
+      spouse:
+        age: 40
+        self_employment_income: -4_000
+        is_tax_unit_spouse: true
+      child1:
+        age: 7
+        is_tax_unit_dependent: true
+      child2:
+        age: 10
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+        filing_status: JOINT
+    spm_units:
+      spm_unit:
+        members: [head, spouse, child1, child2]
+    households:
+      household:
+        members: [head, spouse, child1, child2]
+        state_code: IN
+  output:
+    # The spouse's $4,000 self-employment loss offsets the head's $10,000 of
+    # wages, so federal earned income is $6,000 (Form 1040 EIC Worksheet B,
+    # line 4b, combines both spouses' amounts on a joint return).
+    in_eitc: 240
+
+- name: Indiana decoupled EITC nets a spouse's self-employment loss, 2021 (9% x 2,400)
+  period: 2021
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+        is_tax_unit_head: true
+      spouse:
+        age: 40
+        self_employment_income: -4_000
+        is_tax_unit_spouse: true
+      child1:
+        age: 7
+        is_tax_unit_dependent: true
+      child2:
+        age: 10
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+        filing_status: JOINT
+    spm_units:
+      spm_unit:
+        members: [head, spouse, child1, child2]
+    households:
+      household:
+        members: [head, spouse, child1, child2]
+        state_code: IN
+  output:
+    # The spouse's $4,000 self-employment loss offsets the head's $10,000 of
+    # wages, so federal earned income is $6,000 (Form 1040 EIC Worksheet B,
+    # line 4b, combines both spouses' amounts on a joint return).
+    in_eitc: 216
diff --git a/policyengine_us/tests/policy/baseline/gov/states/in/tax/income/in_eitc_eligible.yaml b/policyengine_us/tests/policy/baseline/gov/states/in/tax/income/in_eitc_eligible.yaml
@@ -97,7 +97,7 @@
     eitc: 0
     filing_status: HEAD_OF_HOUSEHOLD
     eitc_child_count: 1
-    filer_adjusted_earnings: 10_000
+    eitc_earned_income: 10_000
     adjusted_gross_income: 10_000
     filer_meets_eitc_identification_requirements: true
     would_file_taxes_voluntarily: true

diff --git a/policyengine_us/tools/state_eitc_helpers.py b/policyengine_us/tools/state_eitc_helpers.py
@@ -72,7 +72,7 @@ def calculate_eitc_amount_from_parameters(
 ):
     """Calculate the uncapped EITC amount under a chosen parameter set."""
 
-    earnings = tax_unit("filer_adjusted_earnings", period)
+    earnings = tax_unit("eitc_earned_income", period)
     agi = tax_unit("adjusted_gross_income", period)
     maximum = eitc_parameters.max.calc(child_count)
     phase_in_rate = eitc_parameters.phase_in_rate.calc(child_count)

diff --git a/policyengine_us/variables/gov/states/in/tax/income/credits/earned_income_credit/in_eitc.py b/policyengine_us/variables/gov/states/in/tax/income/credits/earned_income_credit/in_eitc.py
@@ -57,7 +57,7 @@ def formula(tax_unit, period, parameters):
             po_start = where(kids == 0, po_start0, po_start)
             po_rate = where(kids == 0, po_rate0, po_rate)
         # ... calculate eitc phase-in amount
-        earnings = tax_unit("filer_adjusted_earnings", period)
+        earnings = tax_unit("eitc_earned_income", period)
         phase_in_amount = min_(earnings * pi_rate, maximum)
         # ... calculate eitc reduction
         federal_agi = tax_unit("adjusted_gross_income", period)
Original file line number	Diff line number	Diff line change
		@@ -0,0 +1 @@
		Use federal EITC earned income, which nets spouses' self-employment losses, in the shared state EITC helper (IL, CO, DC, IN) and the Indiana decoupled EITC.