MS income tax difference with TAXSIM35

[martinholmer]

The following integration test fails. It is not yet known whether the
tax logic problem is in TAXSIM35 or in the current PEUS code, or
whether there are problems in both models. This topic is meant to
facilitate discussion of why this test fails, primarily by reporting
the results of hand calculations required to fill out the relevant tax
form.

- name: Tax unit with taxsimid 86116 in j21.its.csv and j21.ots.csv
  absolute_error_margin: 0.01
  period: 2021
  input:
    people:
      person1:
        age: 54
        employment_income: 140010
        qualified_dividend_income: 505.0
        taxable_interest_income: 5505.0
        short_term_capital_gains: 505.0
        long_term_capital_gains: 505.0
        rent: 23000
        self_employment_income: 157010
        business_is_qualified: true
        business_is_sstb: false
        w2_wages_from_qualified_business: 100e6
        ssi: 0  # not in TAXSIM35
        state_supplement: 0  # not in TAXSIM35
        wic: 0  # not in TAXSIM35
        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
      person2:
        age: 54
        employment_income: 1010
        qualified_dividend_income: 505.0
        taxable_interest_income: 5505.0
        short_term_capital_gains: 505.0
        long_term_capital_gains: 505.0
        ssi: 0  # not in TAXSIM35
        state_supplement: 0  # not in TAXSIM35
        wic: 0  # not in TAXSIM35
        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
      person3:
        age: 16
        ssi: 0  # not in TAXSIM35
        state_supplement: 0  # not in TAXSIM35
        wic: 0  # not in TAXSIM35
        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
      person4:
        age: 16
        ssi: 0  # not in TAXSIM35
        state_supplement: 0  # not in TAXSIM35
        wic: 0  # not in TAXSIM35
        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
      person5:
        age: 16
        ssi: 0  # not in TAXSIM35
        state_supplement: 0  # not in TAXSIM35
        wic: 0  # not in TAXSIM35
        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
      person6:
        age: 16
        ssi: 0  # not in TAXSIM35
        state_supplement: 0  # not in TAXSIM35
        wic: 0  # not in TAXSIM35
        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
    tax_units:
      tax_unit:
        members: [person1, person2, person3, person4, person5, person6]
        premium_tax_credit: 0  # not in TAXSIM35
        local_income_tax: 0  # not in TAXSIM35
        state_sales_tax: 0  # not in TAXSIM35
        ca_use_tax: 0  # not in TAXSIM35
        il_use_tax: 0  # not in TAXSIM35
        nm_2021_income_rebate: 0  # not in TAXSIM35
        nm_additional_2021_income_rebate: 0  # not in TAXSIM35
        nm_supplemental_2021_income_rebate: 0  # not in TAXSIM35
        ny_supplemental_eitc: 0  # not in TAXSIM35
        ok_use_tax: 0  # not in TAXSIM35
        pa_use_tax: 0  # not in TAXSIM35
        vt_renter_credit: 0  # not in TAXSIM35
    spm_units:
      spm_unit:
        members: [person1, person2, person3, person4, person5, person6]
        snap: 0  # not in TAXSIM35
        tanf: 0  # not in TAXSIM35
    households:
      household:
        members: [person1, person2, person3, person4, person5, person6]
        state_fips: 28  # MS
  output:  # expected results from patched TAXSIM35 2024-03-09 version
    ms_income_tax: 13819.73

[PavelMakarchuk]

@Shinuing could you take a look at the diff here

[Shinuing]

PE adds value to qualified_business_income while TAMSIM calculates 0.

Based on the current calculation, the self_employment_income are calculated twice in PE (line 37 for total wage and line line 38 for business income), that's why the ms_agi are different. Two results match when qualified_business_income = 0. Please advice if any issues in the qualified_business_income as lot's of states are using this.

[PavelMakarchuk]

Looking at Form 80-107 it seems like filers are able to enter income from their form W2 or 1099 which I believe includes self-employment income

I believe we should use partnership_s_corp_income as opposed to qualified_business_income to avoid counting the self-emp. income twice

[Shinuing]

Hey @PavelMakarchuk

After fixing the income source, the ms_income_tax still not match. But I think PE result is correct. Let me know if I missed anything

[PavelMakarchuk]

Is the source of the difference the EITC?

[Shinuing]

No. I changed qualified_business_income to partnership_s_corp_income as we discussed

[PavelMakarchuk]

Is the household able to file separately in this case? - What would be the value of ms_taxable_income_indiv?

[Shinuing]

No. indiv. tax >joint tax

[PavelMakarchuk]

@martinholmer - we have been looking at the calculation for a while and we cant deduct how TAXSIM is getting to the income tax amount, looking at the tax form:
We align on AGI, standard ded, and exemptions and this is the outcome that we get:

Tax computation:

Moving the numbers around does not explain how taxsim gets the lower income tax output, the household should not use the married filing separate filing status as it would reduce the taxable income below 0 and the offset is only allowed if the unit is filing jointly:

Let us know your thoughts

[PavelMakarchuk]

The relevant fix to the QBI input is in this PR by @Shinuing which reduces the diff to $20:
https://github.com/PolicyEngine/policyengine-us/pull/4329/files

[martinholmer]

@PavelMakarchuk said in discussion topic $4221:

The relevant fix to the QBI input is in this PR by @Shinuing which reduces the diff to $20:
https://github.com/PolicyEngine/policyengine-us/pull/4329/files

Why don't you merge that PR (minus the test with a $20 tax difference)?
Then I'll redo the integration tests for the new PEUS version.

[PavelMakarchuk]

Sounds good, will close the discussion once we merge the PR