Merge pull request #7687 from PolicyEngine/cdcc-fix-oh-v2

Fix OH CDCC to use uncapped federal credit for low-income filers

Author: PavelMakarchuk

changelog.d/cdcc-fix-oh.fixed.md

@@ -0,0 +1 @@
+Fix OH CDCC to use the uncapped federal credit (cdcc_potential) only for filers with AGI below $20,000 per ORC § 5747.054(A); filers in the $20,000–$39,999 bracket now correctly use the § 26-limited cdcc.

policyengine_us/parameters/gov/states/oh/tax/income/credits/cdcc/low_income_threshold.yaml

@@ -0,0 +1,20 @@
+description: Ohio uses the federal child and dependent care credit without regard to any limitation imposed by IRC section 26 for filers with AGI below this threshold.
+values:
+  2021-01-01: 20_000
+metadata:
+  unit: currency-USD
+  period: year
+  label: Ohio CDCC low-income AGI threshold
+  reference:
+    - title: Ohio Revised Code Section 5747.054, Tax credit based on federal dependent care credit
+      href: https://codes.ohio.gov/ohio-revised-code/section-5747.054
+    - title: Ohio 2021 Instructions for Filing Original and Amended - Line 6
+      href: https://tax.ohio.gov/static/forms/ohio_individual/individual/2021/pit-it1040-booklet.pdf#page=30
+    - title: Ohio Income Tax Form 2022 Instructions (line 6)
+      href: https://dam.assets.ohio.gov/image/upload/tax.ohio.gov/forms/ohio_individual/individual/2022/it1040-sd100-instruction-booklet.pdf#page=20
+    - title: Ohio Income Tax Form 2023 Instructions (line 6)
+      href: https://dam.assets.ohio.gov/image/upload/tax.ohio.gov/forms/ohio_individual/individual/2023/it1040-sd100-instructionbooklet.pdf#page=45
+    - title: Ohio Income Tax Form 2024 Instructions (line 6)
+      href: https://dam.assets.ohio.gov/image/upload/v1735920104/tax.ohio.gov/forms/ohio_individual/individual/2024/it1040-booklet.pdf#page=45
+    - title: Ohio Income Tax Form 2025 Instructions (Page 45)
+      href: https://dam.assets.ohio.gov/image/upload/v1767095693/tax.ohio.gov/forms/ohio_individual/individual/2025/it1040-booklet.pdf#page=45

policyengine_us/tests/policy/baseline/gov/states/oh/tax/income/credits/oh_cdcc.yaml

@@ -1,35 +1,77 @@
-- name: child and dependent care credit low AGI (full eligibility)
+# ORC § 5747.054(A): AGI < $20,000 gets 100% of cdcc_potential (no § 26 cap).
+# AGI $20,000-$39,999 gets 25% of cdcc (limited by § 26). AGI >= $40,000 gets $0.
+
+- name: Low-income filer uses cdcc_potential (100%, AGI below threshold)
   period: 2021
   input:
     state_code: OH
     oh_modified_agi: 19_999
     cdcc_potential: 2_000
+    cdcc: 1_500
   output:
+    # Uses cdcc_potential (2_000) because AGI < 20_000
     oh_cdcc: 2_000
 
-- name: child and dependent care credit test, just above lower threshold AGI (.25 * federal CDCC)
+- name: Low-income filer at zero AGI
+  period: 2021
+  input:
+    state_code: OH
+    oh_modified_agi: 0
+    cdcc_potential: 500
+    cdcc: 200
+  output:
+    # Uses cdcc_potential (500) because AGI < 20_000
+    oh_cdcc: 500
+
+- name: Middle-income filer uses cdcc (25%, AGI at lower threshold)
   period: 2021
   input:
     state_code: OH
     oh_modified_agi: 20_000
     cdcc_potential: 2_000
+    cdcc: 1_200
   output:
-    oh_cdcc: 500
+    # Uses cdcc (1_200), not cdcc_potential (2_000), because AGI >= 20_000
+    oh_cdcc: 300
 
-- name: child and dependent care credit test, solidly above lower threshold AGI (.25 * federal CDCC)
+- name: Middle-income filer uses cdcc (25%, AGI solidly in middle bracket)
   period: 2021
   input:
     state_code: OH
     oh_modified_agi: 39_999
     cdcc_potential: 2_000
+    cdcc: 1_600
+  output:
+    # Uses cdcc (1_600), not cdcc_potential (2_000)
+    oh_cdcc: 400
+
+- name: Middle-income filer where cdcc equals cdcc_potential (no section 26 reduction)
+  period: 2021
+  input:
+    state_code: OH
+    oh_modified_agi: 30_000
+    cdcc_potential: 2_000
+    cdcc: 2_000
   output:
+    # cdcc = cdcc_potential here, so result is 25% of 2_000
     oh_cdcc: 500
 
-- name: child and dependent care credit test above upper threshold (ineligible)
+- name: High-income filer is ineligible (AGI at upper threshold)
   period: 2021
   input:
     state_code: OH
     oh_modified_agi: 40_000
     cdcc_potential: 2_000
+    cdcc: 2_000
+  output:
+    oh_cdcc: 0
+
+- name: Out-of-state filer is ineligible
+  period: 2021
+  input:
+    state_code: CA
+    oh_modified_agi: 10_000
+    cdcc_potential: 2_000
+    cdcc: 2_000
   output:
     oh_cdcc: 0

policyengine_us/tests/policy/baseline/gov/states/oh/tax/income/integration.yaml

@@ -179,8 +179,8 @@
         members: [person1, person2, person3]
         state_fips: 39
   output:
-    oh_cdcc: 165
-    oh_income_tax: 273
+    oh_cdcc: 0
+    oh_income_tax: 414
 
 - name: 40115-OH.yaml
   absolute_error_margin: 2

policyengine_us/variables/gov/states/oh/tax/income/credits/oh_cdcc.py

@@ -8,6 +8,7 @@ class oh_cdcc(Variable):
     unit = USD
     definition_period = YEAR
     reference = (
+        "https://codes.ohio.gov/ohio-revised-code/section-5747.054",
         "https://tax.ohio.gov/static/forms/ohio_individual/individual/2021/pit-it1040-booklet.pdf#page=20",
     )
     defined_for = StateCode.OH
@@ -16,11 +17,19 @@ def formula(tax_unit, period, parameters):
         p = parameters(period).gov.states.oh.tax.income.credits.cdcc
 
         agi = tax_unit("oh_modified_agi", period)
-        # Ohio matches the potential federal credit
-        us_cdcc = tax_unit("cdcc_potential", period)
+        # ORC § 5747.054(A): filers with AGI below the low-income threshold
+        # receive credit "without regard to any limitation imposed by section 26
+        # of the Internal Revenue Code", i.e. cdcc_potential.
+        # Filers in the middle bracket use cdcc (limited by IRC § 26).
+        low_income = agi < p.low_income_threshold
+        us_cdcc = where(
+            low_income,
+            tax_unit("cdcc_potential", period),
+            tax_unit("cdcc", period),
+        )
 
         rate = p.match.calc(agi)
         # qualify for full CDCC amount when AGI < 20_000
-        # qualify for 25% percent of CDCC when 20000 <= AGI < 40_000
+        # qualify for 25% of CDCC when 20000 <= AGI < 40_000
         # not qualify when AGI >= 40_000
         return rate * us_cdcc