VA 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 7856 in k21.its.csv and k21.ots.csv
  absolute_error_margin: 0.01
  period: 2021
  input:
    people:
      person1:
        age: 63
        employment_income: 82010
        qualified_dividend_income: 4005.0
        taxable_interest_income: 5505.0
        short_term_capital_gains: 2005.0
        long_term_capital_gains: 2505.0
        rental_income: 4505.0
        taxable_private_pension_income: 1500.0
        social_security_retirement: 5000.0
        real_estate_taxes: 24000
        mortgage_interest: 36000
        self_employment_income: 158010
        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: 63
        employment_income: 82010
        qualified_dividend_income: 4005.0
        taxable_interest_income: 5505.0
        short_term_capital_gains: 2005.0
        long_term_capital_gains: 2505.0
        rental_income: 4505.0
        taxable_private_pension_income: 1500.0
        social_security_retirement: 5000.0
        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
    tax_units:
      tax_unit:
        members: [person1, person2, person3, person4, person5]
        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
        tax_unit_itemizes: True
        state_income_tax: 19956.35
    spm_units:
      spm_unit:
        members: [person1, person2, person3, person4, person5]
        snap: 0  # not in TAXSIM35
        tanf: 0  # not in TAXSIM35
    households:
      household:
        members: [person1, person2, person3, person4, person5]
        state_fips: 51  # VA
  output:  # expected results from patched TAXSIM35 2024-03-21 version
    va_income_tax: 16559.04

[PavelMakarchuk]

@martinholmer I believe the issue here are the itemized deductions:
TAXSIM returns the following: $59,083.65
But this is my computation worksheet:

Based on that it looks like TAXSIM is missing the part B of Schedule A

[martinholmer]

@PavelMakarchuk said in discussion topic #4259:

Based on that it looks like TAXSIM is missing the part B of Schedule A

Part B is the limitation of itemized deductions for those with federal AGI above a threshold.

Actually, TAXSIM35 is doing the VA itemized deduction limitation calculations. For the case under discussion, this is what TAXSIM35 is calculating:

 --xlin1,xlin2   60000.000000000000        0.0000000000000000     
   PRE-LIMIT xitded    60000.000000000000     
   law,AGIthd        2021   334150.00000000000     
   xlin3,xlin4   60000.000000000000        48000.000000000000     
   xlin8,xlin9   916.35446850365315        916.35446850365315     
   xlin11,alin17   1.5272574475060885E-002   59083.645531496346     
   xlin13,xlin14   0.0000000000000000        0.0000000000000000     
   alin18   0.0000000000000000     
   POST-LIMIT xitded    59083.645531496346     

I don't see how PEUS gets zero itemized deductions for this case, whose federal AGI is just slightly above the limitation-start threshold.

[PavelMakarchuk]

@martinholmer I am getting an output of 35_282.85 for va_itemized_deductions when running the integration test above, see PR #4434 - this output corresponds with our hand calculated values from line 19 in the form above (we rounded very generously through the calculation hence the $18 diff.).

[martinholmer]

@PavelMakarchuk said:

I am getting an output of 35_282.85 for va_itemized_deductions ... this output corresponds with our hand calculated values from line 19 in the form above.

Why are you ignoring the $24,000 in real-estate taxes in your hand calculations?

[PavelMakarchuk]

@martinholmer You are absolutely right, I missed that

One question: If I am reading the TAXSIM output above correctly:
xlin3,xlin4 60000.000000000000 48000.000000000000
TAXSIM assigns $60,000 to Line 3 of the reduction computation, but wouldn't it be $70,000:
5a: $10,000 (capped state and local income tax)
5b: $24,000
10: $36,000

Let me know if I missed anything

[martinholmer]

Closed in favor of issue #4505.