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Alabama itemized deductions count tax unit dependents' FICA and self-employment tax

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Assessment

Difficulty
3/5
Estimated time
1-2 days
Newbie friendliness
70/100
Issue type
Bug
Clarity
Mostly clear
Activity status
Active
Tech stack
python
Domain
fintech-quant

Research direction

Start with policyengine_us/tests/core/test_al_agi_dependent_invariants.py and inspect the Alabama itemized deduction sources named in the issue. Extend the test to check that changing dependents' inputs does not change al_itemized_deductions, while checking Missouri's self-employment tax treatment in the same pass. Done means the dependent-invariance test passes and the requested payroll-tax exemption behavior is preserved.

Written by the indexing model from the issue text.

Description

What's wrong

al_itemized_deductions adds gov.states.al.tax.income.deductions.itemized.sources, which lists employee_payroll_tax (a tax-unit sum of every member's FICA) and self_employment_tax (person-level, so adds sums every member). A tax unit dependent's FICA and self-employment tax therefore become itemized deductions on the parent's Alabama return.

Found by the property test added in the Alabama AGI fix (branch al-agi-exclude-dependents): zeroing a dependent's wages moved one unit's al_itemized_deductions from 231.44 to 0.

Authority

2025 Form 40 booklet, Schedule A instructions, PDF p. 19:

FICA Tax (Social Security and Medicare) (line 6). You can deduct the FICA tax (Social Security and Medicare) withheld on your income by your employer.

Federal Self-Employment Taxes (line 6). You can deduct the Federal self-employment tax you paid during the year 2025 for the tax year 2024 and/or prior years.

A dependent's own FICA is withheld on the dependent's income, and the dependent files their own Alabama return (Ala. Code 40-18-27(a); booklet p. 5).

Fix sketch

  • Make the payroll tax items the head's and spouse's own: list the person-level employee_social_security_tax and employee_medicare_tax (plus tax-unit additional_medicare_tax and employee_state_payroll_tax) and sum with tax_unit_non_dep_add. Keep gov.contrib.ubi_center.flat_tax.abolish_payroll_tax zeroing the deduction, as employee_payroll_tax does today.
  • Keep real_estate_taxes, mortgage and investment interest pooled as the federal itemized deduction does (capped_property_taxes adds every member), unless the federal treatment changes.
  • Missouri lists self_employment_tax in gov.states.mo.tax.income.deductions.itemized too; check it in the same pass.
  • Extend policyengine_us/tests/core/test_al_agi_dependent_invariants.py to assert al_itemized_deductions is invariant to dependents' inputs.
Dominant language
Python
Stars
166
Forks
214
Avg merge
2d 12h
Merged PRs (30d)
294

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