CDCC coupling accuracy: SC § 21(e)(4), ID/GA reform gating, KY/ME/VT static conformity

changelog.d/cdcc-coupling-accuracy.fixed.md

@@ -0,0 +1,4 @@
+- Honored the IRC § 21(e)(4) separated-taxpayer exception in the South Carolina child and dependent care credit.
+- Stopped the Idaho and Georgia contributed child tax credit reforms from applying in years before their in_effect activation date.
+- Computed the Kentucky, Maine, and Vermont child and dependent care credits from the pre-OBBBA federal IRC § 21 credit for 2026, matching each state's static conformity to the Internal Revenue Code as of December 31, 2024.
+- Reduced the California, Idaho, and Virginia child and dependent care benefit bases by employer-provided dependent care benefits excluded under IRC § 129, matching each state's form treatment and the federal IRC § 21(c) reduction.

policyengine_us/reforms/states/ga/ctc/ga_ctc_reform.py

@@ -40,7 +40,12 @@ def formula(tax_unit, period, parameters):
             ga_child_age_eligible = age < baseline.age_threshold
             eligible_children = tax_unit.sum(ctc_eligible_child & ga_child_age_eligible)
             refund_limit = p.refundable.amount * eligible_children
-            return min_(unused_credit, refund_limit)
+            refundable_credit = min_(unused_credit, refund_limit)
+            # Only pay the refund in periods where the reform is in effect. The
+            # reform is installed for the whole simulation whenever it activates
+            # in any of the next five years (see create_ga_ctc_reform), so this
+            # per-period gate prevents a refund leaking into pre-activation years.
+            return where(p.refundable.in_effect, refundable_credit, 0)
 
     class ga_refundable_credits(Variable):
         value_type = float

policyengine_us/reforms/states/id/ctc/id_ctc_reform.py

@@ -6,6 +6,24 @@
 )
 
 
+def _first_true_instant(nodes, default):
+    """Earliest instant at which any of the boolean parameters is true.
+
+    Scans each parameter's ``values_list`` (which reflects user-supplied dated
+    overrides) for the earliest instant whose value is truthy, and returns the
+    minimum such instant across all nodes. Falls back to ``default`` when none
+    of the parameters is ever true.
+    """
+    candidates = []
+    for node in nodes:
+        for value_at_instant in node.values_list:
+            if value_at_instant.value:
+                candidates.append(instant(value_at_instant.instant_str))
+    if not candidates:
+        return default
+    return min(candidates)
+
+
 def create_id_ctc() -> Reform:
     class id_refundable_ctc(Variable):
         value_type = float
@@ -40,22 +58,38 @@ def formula(tax_unit, period, parameters):
             return where(p.refundable.in_effect, refundable_credit, 0)
 
     def modify_parameters(parameters):
-        # Revive id_ctc in the ordered nonrefundable list (it was dropped as of
-        # 2026), so the baseline credit applies against liability again.
+        # The baseline id_ctc drops out of the ordered nonrefundable list as of
+        # 2026-01-01. Revive it only from the instant the reform actually turns
+        # on, so a delayed activation does not leak the credit into
+        # pre-activation years. The activation instant is the earliest date at
+        # which either in_effect toggle is true; default to 2026-01-01 (the
+        # baseline drop date) when neither carries a dated override.
+        p_id = parameters.gov.contrib.states.id.ctc
+        baseline_drop = instant("2026-01-01")
+        activation = _first_true_instant(
+            [p_id.in_effect, p_id.refundable.in_effect],
+            default=baseline_drop,
+        )
+        # Never revive before the baseline drop date: id_ctc is already in the
+        # list through 2025, so revival only matters from 2026 onward.
+        revival_start = max(activation, baseline_drop)
         non_refundable = parameters.gov.states.id.tax.income.credits.non_refundable
-        current_non_refundable = non_refundable(instant("2026-01-01"))
+        current_non_refundable = non_refundable(revival_start)
         if "id_ctc" not in current_non_refundable:
             non_refundable.update(
-                start=instant("2026-01-01"),
+                start=revival_start,
                 stop=instant("2100-12-31"),
                 value=list(current_non_refundable) + ["id_ctc"],
             )
-        # Register the refundable top-up in the refundable list.
+        # Register the refundable top-up in the refundable list. The
+        # id_refundable_ctc variable self-gates on refundable.in_effect, so it
+        # pays nothing before activation; registering it from the same revival
+        # instant keeps the list free of a dead entry in pre-activation years.
         refundable = parameters.gov.states.id.tax.income.credits.refundable
-        current_refundable = refundable(instant("2026-01-01"))
+        current_refundable = refundable(revival_start)
         if "id_refundable_ctc" not in current_refundable:
             refundable.update(
-                start=instant("2026-01-01"),
+                start=revival_start,
                 stop=instant("2100-12-31"),
                 value=list(current_refundable) + ["id_refundable_ctc"],
             )

policyengine_us/tests/policy/baseline/gov/irs/credits/cdcc/pre_obbba_cdcc.yaml

@@ -0,0 +1,67 @@
+# The pre_obbba_cdcc family recomputes the federal section 21 credit on the
+# rate schedule as it stood before the One Big Beautiful Bill Act (OBBBA). For
+# 2025 it must equal the live cdcc (identical schedule); for 2026 it must hold
+# the pre-OBBBA rate (max 35%, min 20%, no amended second phase-out) while the
+# live cdcc reflects the OBBBA increase (max 50%, min 35%). Read by states whose
+# income tax statically conforms to a pre-2026 IRC (KY, ME, VT).
+
+# Low-income joint family, two children, $6,000 childcare, AGI below the first
+# phase-out start so the applicable rate is at its maximum.
+- name: 2025 pre-OBBBA CDCC equals the live CDCC (identical schedule)
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 35
+        employment_income: 25_000
+      spouse:
+        age: 35
+        employment_income: 25_000
+      child1:
+        age: 5
+      child2:
+        age: 7
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+        filing_status: JOINT
+        tax_unit_childcare_expenses: 6_000
+        premium_tax_credit: 0
+  output:
+    # $6,000 x 20% applicable rate at this AGI = $1,200 (same as live cdcc).
+    cdcc: 1_200
+    pre_obbba_cdcc_potential: 1_200
+    pre_obbba_cdcc: 1_200
+    pre_obbba_capped_cdcc: 1_200
+
+- name: 2026 pre-OBBBA CDCC holds the pre-OBBBA rate while live CDCC rises
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 35
+        employment_income: 25_000
+      spouse:
+        age: 35
+        employment_income: 25_000
+      child1:
+        age: 5
+      child2:
+        age: 7
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+        filing_status: JOINT
+        tax_unit_childcare_expenses: 6_000
+        premium_tax_credit: 0
+  output:
+    # Live 2026 credit uses the OBBBA rate (35% here) = $2,100 potential,
+    # $1,780 after the section 26 cap for this family.
+    cdcc_potential: 2_100
+    cdcc: 1_780
+    # Pre-OBBBA credit holds the 20% pre-OBBBA rate = $1,200.
+    pre_obbba_cdcc_potential: 1_200
+    pre_obbba_cdcc: 1_200
+    pre_obbba_capped_cdcc: 1_200

policyengine_us/tests/policy/baseline/gov/states/ca/tax/income/credits/child_dependent_care/ca_cdcc_relevant_expenses.yaml

@@ -72,3 +72,18 @@
     # One qualifying individual at the pre-ARPA $3,000 cap:
     # min(10_000 adult care, 3_000, 50_000) = 3_000.
     ca_cdcc_relevant_expenses: 3_000
+
+# FTB 3506 Part IV reduces the $3,000 / $6,000 dollar limit by the IRC § 129
+# employer-provided dependent care benefits excluded from income, matching the
+# federal § 21(c) reduction.
+- name: Section 129 employer benefits reduce the California base
+  period: 2024
+  input:
+    state_code: CA
+    tax_unit_childcare_expenses: 10_000
+    count_cdcc_eligible: 2
+    min_head_spouse_earned: 50_000
+    dependent_care_assistance_exclusion: 5_000
+  output:
+    # min(10_000 expenses, $6,000 two-child cap - $5,000 exclusion, 50_000) = 1_000.
+    ca_cdcc_relevant_expenses: 1_000

policyengine_us/tests/policy/baseline/gov/states/id/tax/income/deductions/household_and_dependent_care/id_household_and_dependent_care_expense_deduction.yaml

@@ -109,3 +109,18 @@
     state_code: ID
   output:
     id_household_and_dependent_care_expense_deduction: 3_000
+
+# Idaho Form 39R Line 6 worksheet line 4 reduces the operative cap by the IRC
+# § 129 employer-provided dependent care benefits ("excluded benefits from Part
+# III of Form 2441"). Here the reduced $12,000 cap binds below the expenses.
+- name: Section 129 employer benefits reduce the Idaho deduction cap
+  period: 2023
+  input:
+    tax_unit_childcare_expenses: 10_000
+    id_cdcc_limit: 6_000
+    min_head_spouse_earned: 60_000
+    dependent_care_assistance_exclusion: 5_000
+    state_code: ID
+  output:
+    # min(10_000 expenses, max(6_000, 12_000) - 5_000 = 7_000, 60_000) = 7_000.
+    id_household_and_dependent_care_expense_deduction: 7_000

policyengine_us/tests/policy/baseline/gov/states/ky/tax/income/credits/dependent_care_credit/ky_cdcc.yaml

@@ -20,3 +20,39 @@
     ky_tuition_tax_credit: 0
   output:
     ky_cdcc: 0
+
+# KRS 141.010(21) freezes Kentucky's IRC at December 31, 2024, so from 2026 the
+# credit uses the pre-OBBBA federal section 21 credit (20% of $1,200 = $240),
+# not the OBBBA-inflated live credit (which would give 20% of $1,780 = $356).
+- name: 2026 uses the pre-OBBBA federal credit under static conformity
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 35
+        employment_income: 25_000
+      spouse:
+        age: 35
+        employment_income: 25_000
+      child1:
+        age: 5
+      child2:
+        age: 7
+    tax_units:
+      tax_unit:
+        members: [head, spouse, child1, child2]
+        filing_status: JOINT
+        tax_unit_childcare_expenses: 6_000
+        premium_tax_credit: 0
+        ky_income_tax_before_non_refundable_credits_unit: 1_000_000
+        ky_personal_tax_credits: 0
+        ky_family_size_tax_credit: 0
+        ky_tuition_tax_credit: 0
+    households:
+      household:
+        members: [head, spouse, child1, child2]
+        state_code: KY
+  output:
+    # 20% of the pre-OBBBA $1,200 federal credit.
+    ky_cdcc: 240

policyengine_us/tests/policy/baseline/gov/states/me/tax/income/credits/child_care_credit.yaml

@@ -59,3 +59,21 @@
     me_child_care_credit: 750
     me_refundable_child_care_credit: 500
     me_non_refundable_child_care_credit: 250
+
+# 36 M.R.S. § 111(1-A) freezes Maine's "Code" at December 31, 2024, so from 2026
+# the credit is 25% of the pre-OBBBA federal credit (pre_obbba_cdcc), not the
+# OBBBA-inflated live cdcc. Inject both to confirm the pin reads the frozen
+# variable.
+- name: 2026 uses the pre-OBBBA federal credit under static conformity
+  period: 2026
+  absolute_error_margin: 0
+  input:
+    state_code: ME
+    filing_status: SINGLE
+    cdcc: 4_000
+    pre_obbba_cdcc: 1_000
+    me_step_4_share_of_child_care_expenses: 0
+    me_income_tax_before_credits: 1_000_000
+  output:
+    # 25% of the frozen $1,000, ignoring the $4,000 live credit.
+    me_child_care_credit: 250

policyengine_us/tests/policy/baseline/gov/states/sc/tax/income/credits/sc_cdcc.yaml

@@ -79,3 +79,60 @@
     sc_income_tax_before_non_refundable_credits: 1000000
   output:
     sc_cdcc: 210
+
+# S.C. Code § 12-6-3380 computes the credit "as provided in Internal Revenue
+# Code Section 21," importing § 21(e)(2)'s joint-return rule together with the
+# § 21(e)(4) separated-taxpayer exception. An ordinary married-separate filer
+# remains ineligible; a separated filer who lives apart while maintaining a home
+# for a qualifying individual qualifies, matching the federal treatment.
+- name: Ordinary married-filing-separately filer gets no SC CDCC
+  period: 2024
+  input:
+    people:
+      head:
+        age: 35
+        is_tax_unit_head: true
+        employment_income: 40_000
+      child:
+        age: 5
+        is_tax_unit_head: false
+        is_tax_unit_spouse: false
+    tax_units:
+      tax_unit:
+        members: [head, child]
+        filing_status: SEPARATE
+        cdcc_relevant_expenses: 3_000
+        sc_income_tax_before_non_refundable_credits: 1_000_000
+    households:
+      household:
+        members: [head, child]
+        state_code: SC
+  output:
+    sc_cdcc: 0
+
+- name: Separated MFS filer maintaining a home for a qualifying child gets the SC CDCC
+  period: 2024
+  input:
+    people:
+      head:
+        age: 35
+        is_tax_unit_head: true
+        is_separated: true
+        employment_income: 40_000
+      child:
+        age: 5
+        is_tax_unit_head: false
+        is_tax_unit_spouse: false
+    tax_units:
+      tax_unit:
+        members: [head, child]
+        filing_status: SEPARATE
+        cdcc_relevant_expenses: 3_000
+        sc_income_tax_before_non_refundable_credits: 1_000_000
+    households:
+      household:
+        members: [head, child]
+        state_code: SC
+  output:
+    # 7% of min($3,000 spent, $3,000 one-person 2024 cap) = $210.
+    sc_cdcc: 210

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/deductions/cdcc_expense/va_child_dependent_care_deduction_cdcc_limit.yaml

@@ -13,3 +13,26 @@
     state_code: VA
   output:
     va_child_dependent_care_deduction_cdcc_limit: 3_000
+
+# Va. Code § 58.1-322.03(3) deducts the amount on which the federal credit is
+# based (Form 2441 line 31), which IRC § 21(c) reduces by § 129 employer
+# benefits. The Virginia limit inherits that reduction.
+- name: Section 129 employer benefits reduce the Virginia limit
+  period: 2024
+  input:
+    capped_count_cdcc_eligible: 2
+    dependent_care_assistance_exclusion: 5_000
+    state_code: VA
+  output:
+    # $6,000 two-child limit less the $5,000 exclusion.
+    va_child_dependent_care_deduction_cdcc_limit: 1_000
+
+- name: Section 129 benefits exceeding the limit floor it at zero
+  period: 2024
+  input:
+    capped_count_cdcc_eligible: 1
+    dependent_care_assistance_exclusion: 5_000
+    state_code: VA
+  output:
+    # max($3,000 - $5,000, 0) = $0.
+    va_child_dependent_care_deduction_cdcc_limit: 0

policyengine_us/tests/policy/baseline/gov/states/vt/tax/income/credits/cdcc/vt_cdcc.yaml

@@ -41,3 +41,17 @@
     state_code: VT
   output:
     vt_cdcc: 720
+
+# 32 V.S.A. § 5824 freezes Vermont's IRC at December 31, 2024, so from 2026 the
+# credit is 72% of the pre-OBBBA federal credit (pre_obbba_capped_cdcc), not the
+# OBBBA-inflated live capped_cdcc. Inject both to confirm the pin reads the
+# frozen variable.
+- name: Vermont CDCC 2026 uses the pre-OBBBA federal credit under static conformity
+  period: 2026
+  input:
+    capped_cdcc: 2_000
+    pre_obbba_capped_cdcc: 1_000
+    state_code: VT
+  output:
+    # 72% of the frozen $1,000, ignoring the $2,000 live credit.
+    vt_cdcc: 720