DE Filing Status 4: non-refundable credits must be allocated per-spouse, not pooled at unit level

[PavelMakarchuk]

Summary

When Delaware married couples file combined separate (Filing Status 4), non-refundable credits must be allocated per-column (per-spouse) and applied against each spouse's individual tax. PE currently pools all credits at the tax-unit level and subtracts them from total tax, which overstates the credit benefit when one spouse has little or no tax liability.

For a joint elderly couple (ages 65/80) with $314 pwages, $20K swages, $1K interest, $41K pensions, 2 dependents:

Approach	Credits Used	DE Tax
PE (pools unit-level)	$710 of $710	$199
Optimal per-column	$550 of $660	$359
TaxAct (suboptimal allocation)	$220 of $660	$689
Joint filing	$710	$388

PE's $199 is too low because it pools credits that DE law requires to be per-column.

Legal Basis

PIT-RES Instructions, Page 5 (Filing Status 3 and 4):

"For Filing Status 3 or 4, you must each report your own income, personal credits, deductions, and one-half of the income derived from securities, bank accounts, real estate, etc."

Credits are per-column for Filing Status 4.

Line 27a (Personal Credits):
The form allows taxpayers to choose how many exemptions to allocate to each column: "On Line 27a, enter the number of exemptions for: Column A ___, Column B ___". Optimal allocation puts more exemptions in the column with higher tax.

Line 27b (Aged Credits, Page 9):

"If you are filing a combined separate return (Filing Status 4), enter $110 in the column(s) that correspond to the checked box(es)."

Aged credits are locked to the person's column.

EITC (Page 10):

"the credit may only be applied against the tax imposed on the spouse with the higher taxable income reported on Line 23."

Root Cause

de_income_tax_before_refundable_credits.py computes:

max(de_income_tax_before_non_refundable_credits_unit - de_non_refundable_credits, 0)

This subtracts total credits from total unit tax. For Filing Status 4, credits should be applied per-column with each column's credits capped at that column's tax.

Suggested Fix

For FS4, implement per-column credit allocation:

1. Optimize personal exemption allocation between columns (assign to the column with higher tax)
2. Lock aged credits to each person's column
3. Apply EITC to the higher-income spouse's column
4. Cap each column's credits at that column's tax
5. Sum the per-column net tax

Integration Test

- name: taxsim_812_de_joint_elderly_2025_per_column_credits
  absolute_error_margin: 10
  period: 2025
  input:
    people:
      person1:
        age: 65
        employment_income: 314
        taxable_interest_income: 628
        taxable_private_pension_income: 20_840
        is_tax_unit_head: true
      person2:
        age: 80
        employment_income: 20_000
        taxable_interest_income: 628
        taxable_private_pension_income: 20_840
        is_tax_unit_spouse: true
      child1:
        age: 8
      child2:
        age: 15
    tax_units:
      tax_unit:
        members: [person1, person2, child1, child2]
        premium_tax_credit: 0
    families:
      family:
        members: [person1, person2, child1, child2]
    spm_units:
      spm_unit:
        members: [person1, person2, child1, child2]
        snap: 0
        tanf: 0
    households:
      household:
        members: [person1, person2, child1, child2]
        state_fips: 10
  output:
    de_income_tax: 359

Note: Expected value $359 assumes optimal per-column exemption allocation (all 4 personal exemptions to Column A/spouse who has $909 tax; aged credits locked per-person). TaxAct gives $689 because it suboptimally allocates 3 of 4 exemptions to Column B (primary, who has $0 tax).

References

• Originating TAXSIM issue: DE joint 202 elderly 2depx 20Kswages 1Kintrec 41Kpensions policyengine-taxsim#812
• DE PIT-RES Instructions (2025): https://revenuefiles.delaware.gov/2025/PITForms_Instructions/Instructions/PIT-RES_Instructions_2025-01.pdf
  • Page 5: Filing Status 3/4 per-spouse credit requirement
  • Page 9: Line 27a/27b credit instructions
  • Page 10: EITC allocation to higher-income spouse
• DE PIT-RES Form (2025): https://revenuefiles.delaware.gov/2025/PITForms_Instructions/PIT-RES_2025-01_PaperInteractiveIPM.pdf
• de_income_tax_before_refundable_credits.py — pools credits at unit level instead of per-column