Fix WI retirement income exclusion not reflected in state_income_tax

changelog.d/fix-wi-retirement-exclusion-state-income-tax.fixed.md

@@ -0,0 +1 @@
+Include Wisconsin retirement income exclusion in state_income_tax aggregation, fixing overstated tax for retirees.

policyengine_us/tests/policy/baseline/gov/states/wi/tax/income/wi_income_tax.yaml

@@ -0,0 +1,27 @@
+# Integration test from issue #7805:
+# Single filer, age 85, WI, 2025 with retirement income.
+# Verifies that state_income_tax equals wi_income_tax when the
+# retirement income exclusion path produces a lower tax.
+- name: WI retirement exclusion reflected in state_income_tax
+  absolute_error_margin: 1
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 85
+        taxable_interest_income: 18_145
+        short_term_capital_gains: 11_677
+        long_term_capital_gains: 85_655
+        taxable_pension_income: 71_458
+        social_security: 19_429
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SINGLE
+    households:
+      household:
+        members: [person1]
+        state_code: WI
+  output:
+    wi_income_tax: 6_631
+    state_income_tax: 6_631

policyengine_us/tests/policy/baseline/gov/states/wi/tax/income/wi_income_tax_before_refundable_credits.yaml

@@ -17,3 +17,44 @@
     state_code: WI
   output:
     wi_income_tax_before_refundable_credits: 0
+
+- name: WI income tax before refundable credits with retirement exclusion
+  # This intermediate remains the standard pre-refundable-credit tax,
+  # even when the exclusion path wins in wi_income_tax.
+  # standard_before_refundable = max(0, 5000 - 500) = 4500
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    wi_income_tax_before_credits: 5_000
+    wi_non_refundable_credits: 500
+    wi_retirement_income_exclusion_tax: 3_000
+    wi_refundable_credits: 200
+    state_code: WI
+  output:
+    wi_income_tax_before_refundable_credits: 4_500
+
+- name: WI income tax before refundable credits - standard path lower
+  # standard_before_refundable = max(0, 2000 - 500) = 1500
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    wi_income_tax_before_credits: 2_000
+    wi_non_refundable_credits: 500
+    wi_retirement_income_exclusion_tax: 5_000
+    wi_refundable_credits: 200
+    state_code: WI
+  output:
+    wi_income_tax_before_refundable_credits: 1_500
+
+- name: WI state income tax still follows the lower exclusion path
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    wi_income_tax_before_credits: 5_000
+    wi_non_refundable_credits: 500
+    wi_retirement_income_exclusion_tax: 3_000
+    wi_refundable_credits: 200
+    state_code: WI
+  output:
+    wi_income_tax: 3_000
+    state_income_tax: 3_000

policyengine_us/tests/policy/baseline/gov/states/wi/tax/income/wi_retirement_income_exclusion.yaml

@@ -1,4 +1,7 @@
 - name: Exclusion beneficial - no credits, Line 16 reduces tax
+  # standard_before_refundable = max(0, 350 - 0) = 350
+  # exclusion_tax = 70 (from wi_retirement_income_exclusion_tax)
+  # wi_income_tax = min(350 - 0, 70) = 70
   absolute_error_margin: 0.01
   period: 2025
   input:
@@ -8,15 +11,18 @@
     filing_status: SINGLE
     state_code: WI
     wi_taxable_income: 10_000
-    wi_income_tax_before_refundable_credits: 350
+    wi_income_tax_before_credits: 350
+    wi_non_refundable_credits: 0
+    wi_retirement_income_exclusion_tax: 70
     wi_refundable_credits: 0
     wi_retirement_income_subtraction: 0
   output:
-    # after_exclusion = max(0, 350 - 280) = 70
-    # wi_income_tax = 70 - 0 = 70
     wi_income_tax: 70
 
 - name: Exclusion NOT beneficial - refundable credits make standard path better
+  # standard_before_refundable = max(0, 350 - 0) = 350
+  # exclusion_tax = 280
+  # wi_income_tax = min(350 - 300, 280) = 50 (standard path wins)
   absolute_error_margin: 0.01
   period: 2025
   input:
@@ -26,12 +32,12 @@
     filing_status: SINGLE
     state_code: WI
     wi_taxable_income: 10_000
-    wi_income_tax_before_refundable_credits: 350
+    wi_income_tax_before_credits: 350
+    wi_non_refundable_credits: 0
+    wi_retirement_income_exclusion_tax: 280
     wi_refundable_credits: 300
     wi_retirement_income_subtraction: 0
   output:
-    # reduction = 0, after_exclusion = 350
-    # wi_income_tax = 350 - 300 = 50
     wi_income_tax: 50
 
 - name: Not eligible for exclusion - age 64, standard path used
@@ -44,7 +50,8 @@
     filing_status: SINGLE
     state_code: WI
     wi_taxable_income: 10_000
-    wi_income_tax_before_refundable_credits: 350
+    wi_income_tax_before_credits: 350
+    wi_non_refundable_credits: 0
     wi_refundable_credits: 0
     wi_retirement_income_subtraction: 0
   output:

policyengine_us/tests/policy/baseline/household/income/household/household_state_income_tax.yaml

@@ -40,3 +40,14 @@
         spm_unit_state_tax_reported: 1_000
   output:
     household_state_income_tax: 500
+
+- name: Wisconsin household state income tax follows the lower exclusion path
+  period: 2025
+  input:
+    state_code: WI
+    wi_income_tax_before_credits: 5_000
+    wi_non_refundable_credits: 500
+    wi_retirement_income_exclusion_tax: 3_000
+    wi_refundable_credits: 200
+  output:
+    household_state_income_tax: 3_000

policyengine_us/variables/gov/states/tax/income/state_income_tax.py

@@ -27,4 +27,10 @@ def formula(tax_unit, period, parameters):
                 ["state_income_tax_before_refundable_credits"],
             )
             refundable_credits = add(tax_unit, period, ["state_refundable_credits"])
-            return income_tax_before_refundable_credits - refundable_credits
+            default_tax = income_tax_before_refundable_credits - refundable_credits
+            state_code = tax_unit.household("state_code", period)
+            return where(
+                state_code == StateCode.WI,
+                tax_unit("wi_income_tax", period),
+                default_tax,
+            )

policyengine_us/variables/gov/states/wi/tax/income/wi_income_tax_before_refundable_credits.py

@@ -8,11 +8,12 @@ class wi_income_tax_before_refundable_credits(Variable):
     unit = USD
     definition_period = YEAR
     reference = (
-        "https://www.revenue.wi.gov/TaxForms2021/2021-Form1f.pdf"
-        "https://www.revenue.wi.gov/TaxForms2021/2021-Form1-Inst.pdf"
-        "https://www.revenue.wi.gov/TaxForms2022/2022-Form1f.pdf"
-        "https://www.revenue.wi.gov/TaxForms2022/2022-Form1-Inst.pdf"
-        "https://docs.legis.wisconsin.gov/misc/lfb/informational_papers/january_2023/0002_individual_income_tax_informational_paper_2.pdf"
+        "https://www.revenue.wi.gov/TaxForms2021/2021-Form1f.pdf",
+        "https://www.revenue.wi.gov/TaxForms2021/2021-Form1-Inst.pdf",
+        "https://www.revenue.wi.gov/TaxForms2022/2022-Form1f.pdf",
+        "https://www.revenue.wi.gov/TaxForms2022/2022-Form1-Inst.pdf",
+        "https://docs.legis.wisconsin.gov/misc/lfb/informational_papers/january_2023/0002_individual_income_tax_informational_paper_2.pdf",
+        "https://docs.legis.wisconsin.gov/statutes/statutes/71/i/05/6/b/54m/a",
     )
     defined_for = StateCode.WI
 

policyengine_us/variables/household/income/household/household_state_income_tax.py

@@ -20,8 +20,14 @@ def formula(tax_unit, period, parameters):
                 0,
             )
         else:
-            return add(
+            default_tax = add(
                 tax_unit,
                 period,
                 ["state_income_tax_before_refundable_credits"],
             ) - add(tax_unit, period, ["state_refundable_credits"])
+            state_code = tax_unit.household("state_code", period)
+            return where(
+                state_code == StateCode.WI,
+                tax_unit("wi_income_tax", period),
+                default_tax,
+            )