Iowa Itemized and Standard Deduction Changes for 2023 (#4952)

* Iowa Standard Deduction Changes for 2023
Fixes #4935

* variable and test

* remove extra

* format

* legal code and format

* typo

* format

changelog_entry.yaml

@@ -0,0 +1,4 @@
+- bump: minor
+  changes:
+    added:
+    - Apply the federal standard and itemized deductions in Iowa from 2023 on.

policyengine_us/parameters/gov/irs/deductions/itemized/salt_and_real_estate/cap.yaml

@@ -2,7 +2,6 @@ description: Maximum amount of state and local income, sales and real estate tax
 metadata:
   unit: currency-USD
   period: year
-  name: salt_cap
   label: SALT cap
 HEAD_OF_HOUSEHOLD:
   values:

policyengine_us/parameters/gov/states/ia/tax/income/deductions/itemized/applies_federal.yaml

@@ -0,0 +1,15 @@
+description: Iowa applies the federal itemized deduction if this is true.
+values:
+  0000-01-01: false
+  2023-01-01: true
+
+metadata:
+  label: Iowa federal itemized deduction applies
+  period: year
+  unit: bool
+  reference: 
+  - title: Iowa Department of Revenue - 2023 IA1040 Income Tax Return instructions - Iowa Taxable Income
+    href: https://revenue.iowa.gov/taxes/tax-guidance/individual-income-tax/1040-expanded-instructions/iowa-taxable-income
+  # The legal code does not represent the current policy according to the 2023 IA1040 instructions.
+  - title: Iowa Admin. Code Rule 701-303.4 - Optional standard deduction
+    href: https://www.legis.iowa.gov/docs/iac/agency/01-24-2024.701.pdf#page=1019

policyengine_us/parameters/gov/states/ia/tax/income/deductions/standard/applies_federal.yaml

@@ -0,0 +1,15 @@
+description: Iowa applies the federal standard deduction if this is true.
+values:
+  0000-01-01: false
+  2023-01-01: true
+
+metadata:
+  label: Iowa federal standard deduction applies
+  period: year
+  unit: bool
+  reference: 
+  - title: Iowa Department of Revenue - 2023 IA1040 Income Tax Return instructions - Iowa Taxable Income
+    href: https://revenue.iowa.gov/taxes/tax-guidance/individual-income-tax/1040-expanded-instructions/iowa-taxable-income
+  # The legal code does not represent the current policy according to the 2023 IA1040 instructions.
+  - title: Iowa Individual Income, Corporate, and Franchise Taxes, §422.5 3(a)
+    href: https://www.legis.iowa.gov/docs/iac/agency/01-24-2024.701.pdf#page=1019

policyengine_us/tests/policy/baseline/gov/states/ia/tax/income/ia_itemized_deductions_unit.yaml

@@ -21,3 +21,21 @@
         state_code: IA
   output:
     ia_itemized_deductions_unit: 30_000
+
+- name: Capped SALT deduction post 2023
+  period: 2023
+  input:
+    real_estate_taxes: 11_000
+    state_code: IA
+    filing_status: JOINT
+  output:
+    ia_itemized_deductions_unit: 10_000
+
+- name: Uncapped SALT deduction pre 2023
+  period: 2022
+  input:
+    real_estate_taxes: 11_000
+    state_code: IA
+    filing_status: JOINT
+  output:
+    ia_itemized_deductions_unit: 11_000

policyengine_us/tests/policy/baseline/gov/states/ia/tax/income/ia_standard_deduction_indiv.yaml

@@ -53,3 +53,73 @@
         state_code: IA
   output:
     ia_standard_deduction_indiv: 2_210
+
+- name: IA standard deduction indiv unit test 5 (Single 2023)
+  period: 2023
+  input:
+    people:
+      person1:
+        is_tax_unit_head: true
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SINGLE
+    households:
+      household:
+        members: [person1]
+        state_code: IA
+  output:
+    ia_standard_deduction_indiv: 13_850
+
+- name: IA standard deduction indiv unit test 6 (Married Filing Jointly 2023)
+  period: 2023
+  input:
+    people:
+      person1:
+        is_tax_unit_head: true
+      person2:
+        is_tax_unit_spouse: true
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        filing_status: JOINT
+    households:
+      household:
+        members: [person1, person2]
+        state_code: IA
+  output:
+    ia_standard_deduction_indiv: [13_850, 13_850]
+
+- name: IA standard deduction indiv unit test 7 (Head of Household 2023)
+  period: 2023
+  input:
+    people:
+      person1:
+        is_tax_unit_head: true
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: HEAD_OF_HOUSEHOLD
+    households:
+      household:
+        members: [person1]
+        state_code: IA
+  output:
+    ia_standard_deduction_indiv: 20_800
+
+- name: IA standard deduction indiv unit test 8 (Married Filing Separately 2023)
+  period: 2023
+  input:
+    people:
+      person1:
+        is_tax_unit_head: true
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SEPARATE
+    households:
+      household:
+        members: [person1]
+        state_code: IA
+  output:
+    ia_standard_deduction_indiv: 13_850

policyengine_us/tests/policy/baseline/gov/states/ia/tax/income/ia_standard_deduction_joint.yaml

@@ -34,3 +34,20 @@
   output:
     ia_standard_deduction_joint: 5_450
 
+- name: Federal standard deduction applies, hoh
+  absolute_error_margin: 0.01
+  period: 2023
+  input:
+    filing_status: HEAD_OF_HOUSEHOLD
+    state_code: IA
+  output:
+    ia_standard_deduction_joint: 20_800
+
+- name: Federal standard deduction applies, joint
+  absolute_error_margin: 0.01
+  period: 2023
+  input:
+    filing_status: JOINT
+    state_code: IA
+  output:
+    ia_standard_deduction_joint: 27_700

policyengine_us/tests/policy/baseline/gov/states/ia/tax/income/ia_withheld_income_tax.yaml

@@ -27,3 +27,13 @@
     state_code: IA
   output:
     ia_withheld_income_tax: 0
+
+- name: Federal deduction from 2023 on
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    irs_employment_income: 10_000
+    filing_status: JOINT
+    state_code: IA
+  output:
+    ia_withheld_income_tax: 0

policyengine_us/variables/gov/states/ia/tax/income/deductions/ia_itemized_deductions_unit.py

@@ -24,6 +24,13 @@ def formula(tax_unit, period, parameters):
         federal dollar limitation.
         """
         # compute tax unit's itemized deductions
-        itm_deds_less_salt = tax_unit("itemized_deductions_less_salt", period)
-        uncapped_property_taxes = add(tax_unit, period, ["real_estate_taxes"])
-        return itm_deds_less_salt + uncapped_property_taxes
+        p = parameters(period).gov.states.ia.tax.income.deductions.itemized
+        if p.applies_federal:
+            p_fed = parameters(period).gov.irs.deductions
+            return add(tax_unit, period, p_fed.itemized_deductions)
+        else:
+            return add(
+                tax_unit,
+                period,
+                ["itemized_deductions_less_salt", "real_estate_taxes"],
+            )

policyengine_us/variables/gov/states/ia/tax/income/deductions/ia_standard_deduction_indiv.py

@@ -36,5 +36,12 @@ def formula(person, period, parameters):
         )
         is_head = person("is_tax_unit_head", period)
         is_spouse = person("is_tax_unit_spouse", period)
-        p = parameters(period).gov.states.ia.tax.income
-        return (is_head | is_spouse) * p.deductions.standard[filing_status]
+        p = parameters(period).gov.states.ia.tax.income.deductions.standard
+
+        if p.applies_federal:
+            fed_p = parameters(period).gov.irs.deductions
+            deduction = fed_p.standard.amount[filing_status]
+        else:
+            deduction = p.amount[filing_status]
+
+        return person("is_tax_unit_head_or_spouse", period) * deduction

policyengine_us/variables/gov/states/ia/tax/income/deductions/ia_standard_deduction_joint.py

@@ -16,7 +16,14 @@ class ia_standard_deduction_joint(Variable):
     defined_for = StateCode.IA
 
     def formula(person, period, parameters):
-        is_head = person("is_tax_unit_head", period)
         filing_status = person.tax_unit("filing_status", period)
+        is_head = person("is_tax_unit_head", period)
         p = parameters(period).gov.states.ia.tax.income
-        return is_head * p.deductions.standard[filing_status]
+
+        if p.deductions.standard.applies_federal:
+            fed_p = parameters(period).gov.irs.deductions
+            deduction = fed_p.standard.amount[filing_status]
+        else:
+            deduction = p.deductions.standard.amount[filing_status]
+
+        return is_head * deduction

policyengine_us/variables/gov/states/ia/tax/income/ia_withheld_income_tax.py

@@ -13,7 +13,11 @@ def formula(person, period, parameters):
         employment_income = person("irs_employment_income", period)
         p = parameters(period).gov.states.ia.tax.income
         # We apply the base standard deduction amount
-        standard_deduction = p.deductions.standard["SINGLE"]
+        if p.deductions.standard.applies_federal:
+            p_fed = parameters(period).gov.irs.deductions
+            standard_deduction = p_fed.standard.amount["SINGLE"]
+        else:
+            standard_deduction = p.deductions.standard.amount["SINGLE"]
         reduced_employment_income = max_(
             employment_income - standard_deduction, 0
         )