Subtract pre-tax contributions from taxable wages and salaries

changelog_entry.yaml

@@ -0,0 +1,4 @@
+- bump: patch
+  changes:
+    fixed:
+      - Subtract pre-tax contributions from taxable wages and salaries.

policyengine_us/data/datasets/cps/cps.py

@@ -220,7 +220,8 @@ def add_personal_income_variables(
     """
     # Get income imputation parameters.
     yamlfilename = os.path.join(
-        os.path.abspath(os.path.dirname(__file__)), "income_parameters.yaml"
+        os.path.abspath(os.path.dirname(__file__)),
+        "imputation_parameters.yaml",
     )
     with open(yamlfilename, "r", encoding="utf-8") as yamlfile:
         p = yaml.safe_load(yamlfile)
@@ -229,18 +230,18 @@ def add_personal_income_variables(
     # Assign CPS variables.
     cps["employment_income"] = person.WSAL_VAL
     cps["taxable_interest_income"] = person.INT_VAL * (
-        p["taxable_interest_fraction"][year]
+        p["taxable_interest_fraction"]
     )
     cps["tax_exempt_interest_income"] = person.INT_VAL * (
-        1 - p["taxable_interest_fraction"][year]
+        1 - p["taxable_interest_fraction"]
     )
     cps["self_employment_income"] = person.SEMP_VAL
     cps["farm_income"] = person.FRSE_VAL
     cps["qualified_dividend_income"] = person.DIV_VAL * (
-        p["qualified_dividend_fraction"][year]
+        p["qualified_dividend_fraction"]
     )
     cps["non_qualified_dividend_income"] = person.DIV_VAL * (
-        1 - p["qualified_dividend_fraction"][year]
+        1 - p["qualified_dividend_fraction"]
     )
     cps["rental_income"] = person.RNT_VAL
     # Assign Social Security retirement benefits if at least 62.
@@ -255,11 +256,12 @@ def add_personal_income_variables(
     cps["unemployment_compensation"] = person.UC_VAL
     # Add pensions and annuities.
     cps_pensions = person.PNSN_VAL + person.ANN_VAL
-    cps["taxable_private_pension_income"] = cps_pensions * (
-        p["taxable_pension_fraction"][year]
+    # Assume a constant fraction of pension income is taxable.
+    cps["taxable_private_pension_income"] = (
+        cps_pensions * p["taxable_pension_fraction"]
     )
     cps["tax_exempt_private_pension_income"] = cps_pensions * (
-        1 - p["taxable_pension_fraction"][year]
+        1 - p["taxable_pension_fraction"]
     )
     # Other income (OI_VAL) is a catch-all for all other income sources.
     # The code for alimony income is 20.
@@ -271,12 +273,77 @@ def add_personal_income_variables(
     # They could also include General Assistance.
     cps["tanf_reported"] = person.PAW_VAL
     cps["ssi_reported"] = person.SSI_VAL
-    cps["pension_contributions"] = person.RETCB_VAL
+    # Assume all retirement contributions are traditional 401(k) for now.
+    # Procedure for allocating retirement contributions:
+    # 1) If they report any self-employment income, allocate entirely to
+    #    self-employed pension contributions.
+    # 2) If they report any wage and salary income, allocate in this order:
+    #    a) Traditional 401(k) contributions up to to limit
+    #    b) Roth 401(k) contributions up to the limit
+    #    c) IRA contributions up to the limit, split according to administrative fractions
+    #    d) Other retirement contributions
+    # Disregard reported pension contributions from people who report neither wage and salary
+    # nor self-employment income.
+    # Assume no 403(b) or 457 contributions for now.
+    LIMIT_401K_2022 = 20_500
+    LIMIT_401K_CATCH_UP_2022 = 6_500
+    LIMIT_IRA_2022 = 6_000
+    LIMIT_IRA_CATCH_UP_2022 = 1_000
+    CATCH_UP_AGE_2022 = 50
+    retirement_contributions = person.RETCB_VAL
+    cps["self_employment_retirement_contributions"] = np.where(
+        person.SEMP_VAL > 0, retirement_contributions, 0
+    )
+    remaining_retirement_contributions = np.maximum(
+        retirement_contributions
+        - cps["self_employment_retirement_contributions"],
+        0,
+    )
+    # Compute the 401(k) limit for the person's age.
+    catch_up_eligible = person.A_AGE >= CATCH_UP_AGE_2022
+    limit_401k = LIMIT_401K_2022 + catch_up_eligible * LIMIT_401K_CATCH_UP_2022
+    limit_ira = LIMIT_IRA_2022 + catch_up_eligible * LIMIT_IRA_CATCH_UP_2022
+    cps["traditional_401k_contributions"] = np.where(
+        person.WSAL_VAL > 0,
+        np.minimum(remaining_retirement_contributions, limit_401k),
+        0,
+    )
+    remaining_retirement_contributions = np.maximum(
+        remaining_retirement_contributions
+        - cps["traditional_401k_contributions"],
+        0,
+    )
+    cps["roth_401k_contributions"] = np.where(
+        person.WSAL_VAL > 0,
+        np.minimum(remaining_retirement_contributions, limit_401k),
+        0,
+    )
+    remaining_retirement_contributions = np.maximum(
+        remaining_retirement_contributions - cps["roth_401k_contributions"],
+        0,
+    )
+    cps["traditional_ira_contributions"] = np.where(
+        person.WSAL_VAL > 0,
+        np.minimum(remaining_retirement_contributions, limit_ira),
+        0,
+    )
+    remaining_retirement_contributions = np.maximum(
+        remaining_retirement_contributions
+        - cps["traditional_ira_contributions"],
+        0,
+    )
+    roth_ira_limit = limit_ira - cps["traditional_ira_contributions"]
+    cps["roth_ira_contributions"] = np.where(
+        person.WSAL_VAL > 0,
+        np.minimum(remaining_retirement_contributions, roth_ira_limit),
+        0,
+    )
+    # Allocate capital gains into long-term and short-term based on aggregate split.
     cps["long_term_capital_gains"] = person.CAP_VAL * (
-        p["long_term_capgain_fraction"][year]
+        p["long_term_capgain_fraction"]
     )
     cps["short_term_capital_gains"] = person.CAP_VAL * (
-        1 - p["long_term_capgain_fraction"][year]
+        1 - p["long_term_capgain_fraction"]
     )
     cps["receives_wic"] = person.WICYN == 1
     cps["veterans_benefits"] = person.VET_VAL

policyengine_us/data/datasets/cps/imputation_parameters.yaml

@@ -0,0 +1,14 @@
+# Personal income variable imputation parameters used
+# in the cps.py add_personal_income_variables function.
+
+# SOI 2020 data
+taxable_interest_fraction: 0.680
+
+# SOI 2018 data
+qualified_dividend_fraction: 0.448
+
+# no SOI data, so arbitrary assumption
+taxable_pension_fraction: 1.000  
+
+# SOI 2012 data
+long_term_capgain_fraction: 0.880  

policyengine_us/parameters/gov/irs/ald/deductions.yaml

@@ -12,8 +12,7 @@ values:
     - health_savings_account_ald
     - self_employed_health_insurance_ald
     - self_employed_pension_contribution_ald
-    - ira_contributions
-    - sep_simple_qualified_plan_contributions
+    - traditional_ira_contributions
     - qualified_adoption_assistance_expense
     - us_bonds_for_higher_ed
     - specified_possession_income
@@ -29,8 +28,7 @@ values:
     - health_savings_account_ald
     - self_employed_health_insurance_ald
     - self_employed_pension_contribution_ald
-    - ira_contributions
-    - sep_simple_qualified_plan_contributions
+    - traditional_ira_contributions
     - qualified_adoption_assistance_expense
     - us_bonds_for_higher_ed
     - specified_possession_income
@@ -45,8 +43,7 @@ values:
     - health_savings_account_ald
     - self_employed_health_insurance_ald
     - self_employed_pension_contribution_ald
-    - ira_contributions
-    - sep_simple_qualified_plan_contributions
+    - traditional_ira_contributions
     - qualified_adoption_assistance_expense
     - us_bonds_for_higher_ed
     - specified_possession_income
@@ -61,15 +58,13 @@ values:
     - health_savings_account_ald
     - self_employed_health_insurance_ald
     - self_employed_pension_contribution_ald
-    - ira_contributions
-    - sep_simple_qualified_plan_contributions
+    - traditional_ira_contributions
     - qualified_adoption_assistance_expense
     - us_bonds_for_higher_ed
     - specified_possession_income
     - puerto_rico_income
 metadata:
   unit: variable
-  name: ald_deductions
   label: Above-the-line deductions
   reference:
     - title: 26 U.S. Code § 62 - Adjusted gross income defined

policyengine_us/parameters/gov/irs/gross_income/pre_tax_contributions.yaml

@@ -0,0 +1,11 @@
+description: The US subtracts these payroll deductions from wages and salaries when determining the taxable amount.
+values:
+  2010-01-01:
+    # Assumes all are pre-tax.
+    - traditional_401k_contributions
+    # Assumes employer for now.
+    - health_insurance_premiums
+metadata:
+  label: Pre-tax contributions
+  unit: list
+  period: year

policyengine_us/parameters/gov/irs/gross_income/retirement_contributions/catch_up/age_threshold.yaml

@@ -0,0 +1,10 @@
+description: The US limits catch-up pension contributions to individuals this age or older.
+values:
+  2021-01-01: 50
+metadata:
+  unit: year
+  period: year
+  label: Pension contribution catch-up age threshold
+  references:
+  - title: 26 CFR § 1.414(v)-1 - Catch-up contributions. (g)(3)(ii)
+    href: https://www.law.cornell.edu/cfr/text/26/1.414(v)-1#g_3_ii

policyengine_us/parameters/gov/irs/gross_income/retirement_contributions/catch_up/limit/401k.yaml

@@ -0,0 +1,15 @@
+description: IRS limits the 401(k) contributions catch-up to this amount.
+values:
+  2018-01-01: 6_000
+  2020-01-01: 6_500
+  2023-01-01: 7_500
+metadata:
+  unit: currency-USD
+  period: year
+  label: 401(k) catch-up amount
+  references:
+  - title: 26 CFR § 1.414 - Catch-up contributions. (v)(2)(B)(i) 
+    href: https://www.law.cornell.edu/cfr/text/26/1.414(v)-1
+  # Inflation adjusted amount
+  - title: Cost-of-Living Adjustments for Retirement Items
+    href: https://www.irs.gov/pub/irs-tege/cola-table.pdf#page=1

policyengine_us/parameters/gov/irs/gross_income/retirement_contributions/catch_up/limit/ira.yaml

@@ -0,0 +1,12 @@
+description: The US allows for catch-up IRA contributions of this amount.
+values:
+  2018-01-01: 1_000
+metadata:
+  unit: currency-USD
+  period: year
+  label: IRA catch-up amount
+  references:
+  - title: 26 U.S. Code § 219 - Retirement savings (b)(5)(B)
+    href: https://www.law.cornell.edu/uscode/text/26/219
+  - title: Cost-of-Living Adjustments for Retirement Items
+    href: https://www.irs.gov/pub/irs-tege/cola-table.pdf#page=2

policyengine_us/parameters/gov/irs/gross_income/retirement_contributions/limit/401k.yaml

@@ -0,0 +1,19 @@
+description: The US limits annual 401(k) contributions to this amount.
+values:
+  2018-01-01: 18_500
+  2019-01-01: 19_000
+  2020-01-01: 19_500
+  2022-01-01: 20_500
+  2023-01-01: 22_500
+  2024-01-01: 23_000
+metadata:
+  unit: currency-USD
+  period: year
+  label: 401(k) contribution limit
+  references:
+  - title: 26 CFR § 1.402(g)-1 - Limitation on exclusion for elective deferrals. (d))(i)
+    href: https://law.cornell.edu/cfr/text/26/1.402(g)-1
+  # Inflation adjusted amounts
+  - title: Cost-of-Living Adjustments for Retirement Items
+    href: https://www.irs.gov/pub/irs-tege/cola-table.pdf#page=1
+

policyengine_us/parameters/gov/irs/gross_income/retirement_contributions/limit/ira.yaml

@@ -0,0 +1,16 @@
+description: The US limits annual IRA contributions to this amount.
+values:
+  2018-01-01: 5_500
+  2019-01-01: 6_000
+  2023-01-01: 6_500
+  2024-01-01: 7_000
+metadata:
+  unit: currency-USD
+  period: year
+  label: IRA contribution limit
+  references:
+  - title: 26 U.S. Code § 219 - Retirement savings (b)(5)(A)
+    href: https://www.law.cornell.edu/uscode/text/26/219
+  # Inflation adjusted amounts
+  - title: Cost-of-Living Adjustments for Retirement Items
+    href: https://www.irs.gov/pub/irs-tege/cola-table.pdf#page=2

policyengine_us/parameters/gov/irs/gross_income/sources.yaml

@@ -1,7 +1,7 @@
 description: Income sources counted as gross income for tax purposes.
 values:
   2010-01-01:
-    - employment_income
+    - irs_employment_income
     - self_employment_income
     - partnership_s_corp_income
     - farm_income
@@ -19,6 +19,8 @@ values:
     - taxable_unemployment_compensation
     - taxable_social_security
     - illicit_income
+    - taxable_ira_distributions
+    - taxable_401k_distributions
     - miscellaneous_income
 metadata:
   unit: currency-USD

policyengine_us/parameters/gov/local/ca/la/general_relief/income_sources.yaml

@@ -7,7 +7,7 @@ values:
     - unemployment_compensation # match?
     - ca_state_disability_insurance
     # Income from a job of any type.
-    - employment_income
+    - irs_employment_income
     - self_employment_income
 metadata:
   unit: list

policyengine_us/parameters/gov/states/al/tax/income/agi/deductions.yaml

@@ -2,8 +2,7 @@ description: Alabama provides these deductions for the state adjusted gross inco
 values:
   2021-01-01:
   # IRA distributions prior to 1982 are not deductible.
-    - roth_ira_distributions # Line 1 
-    - regular_ira_distributions # Line 1 
+    - traditional_ira_contributions # Line 1 
     - alimony_expense # Line 4
     - self_employed_health_insurance_ald # Line 7
 

policyengine_us/parameters/gov/states/al/tax/income/agi/gross_income_sources.yaml

@@ -1,13 +1,12 @@
 description: Alabama counts these income sources for the state gross income.
 values:
   2021-01-01:
-    - employment_income
+    - irs_employment_income
     - self_employment_income
     - interest_income
     - dividend_income
     - alimony_income
-    - regular_ira_distributions
-    - roth_ira_distributions
+    - taxable_ira_distributions
     - pension_income
     - rental_income
     - capital_gains

policyengine_us/parameters/gov/states/ar/tax/income/gross_income_sources.yaml

@@ -1,14 +1,14 @@
 description: Arkansas accounts for these sources when calculating the gross income.
 values:
   2021-01-01:
-    - employment_income # Line 8
+    - irs_employment_income # Line 8
     - self_employment_income # Line 8
     - military_service_income # Line 9
     - interest_income # Line 10
     - dividend_income # Line 11
     - alimony_income # Line 12
     - capital_gains # Line 13
-    - regular_ira_distributions # Line 16
+    - taxable_ira_distributions # Line 16
     # - ar_military_retirement_income_person # Line 17
     - taxable_pension_income # Line 18
     - rental_income # Line 19