Let farm, partnership and S corporation plans set the self-employed health insurance limit

changelog.d/sehi-plan-business-base.fixed.md

@@ -0,0 +1 @@
+Let the self-employed health insurance deduction's earned income limit come from a Schedule F farm, a partnership's K-1 box 14 code A earnings, or a more-than-2% S corporation shareholder's wages when the plan is established under that business (26 U.S.C. 162(l)(2)(A) and (l)(5), Form 7206); the business can be named, and otherwise the person's business with the largest earned income is used.

docs/contributed_reforms/owners_draw.md

@@ -117,7 +117,11 @@ on. These are the draw profits whose SECA the deduction includes. Draw
 profits beyond the OASDI room with HI off stay out of line 5. With
 `half_seca_deduction: false` the draw's SECA is not deductible, so line 5
 omits the draw and the limit follows the baseline formula. Disabled years
-use the baseline formula.
+use the baseline formula. The draw enters line 5 only: the plan business is
+chosen as in the baseline, from the Schedule C business, the farm, the
+partnership or the S corporation named by
+`self_employed_health_insurance_plan_business`, or the one with the largest
+line 13 when none is named.
 
 ## Benefit credit and active NIIT interaction
 

policyengine_us/reforms/ssa/owners_draw.py

@@ -21,6 +21,7 @@
 )
 from policyengine_us.variables.gov.irs.income.taxable_income.adjusted_gross_income.above_the_line_deductions.self_employed_health_insurance_earned_income_limit import (
     self_employed_health_insurance_earned_income_limit as baseline_sehi_limit,
+    form_7206_line_13,
 )
 from policyengine_us.variables.gov.ssa.social_security.ss_aime import (
     ss_aime as baseline_aime,
@@ -247,32 +248,11 @@ def formula(person, period, parameters):
                 person("owners_draw_niit_exclusion", period),
                 0,
             )
-            plan_business_profit = max_(
-                0, person("total_self_employment_income", period)
-            )
-            all_business_profits = (
-                plan_business_profit
-                + max_(0, person("farm_operations_income", period))
-                + max_(0, person("partnership_self_employment_net_earnings", period))
-                + draw_profits_in_line_7
-            )
-            plan_business_share = np.divide(
-                plan_business_profit,
-                all_business_profits,
-                out=np.zeros_like(all_business_profits),
-                where=all_business_profits > 0,
-            )
-            self_employment_tax_deduction = (
-                person("self_employment_tax_ald_person", period) * plan_business_share
-            )
-            retirement_plan_deduction = person(
-                "self_employed_pension_contribution_ald_person", period
-            )
-            return max_(
-                0,
-                plan_business_profit
-                - self_employment_tax_deduction
-                - retirement_plan_deduction,
+            # The draw profits enter line 5 only: the plan business is still
+            # chosen among the baseline's Schedule C, farm, partnership and
+            # S corporation businesses.
+            return form_7206_line_13(
+                person, period, other_line_5_profits=draw_profits_in_line_7
             )
 
     class ss_aime(baseline_aime):

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_ald.yaml

@@ -162,3 +162,147 @@
     # The child takes it on their own return.
     self_employed_health_insurance_ald: 0
     dependents_self_employed_health_insurance_ald: 2_788.05675
+
+- name: Case 9, a farmer whose plan is established under the farm deducts up to farm earned income.
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    is_self_employed: true
+    farm_operations_income: 20_000
+    health_insurance_premiums: 25_000
+  output:
+    # Form 7206: line 3 is 25,000; line 13 is 20,000 - 1,412.955.
+    self_employed_health_insurance_ald_person: 18_587.045
+    # 20,000 - 1,412.955 - 18,587.045.
+    adjusted_gross_income: 0
+
+- name: Case 10, a partner deducts up to their K-1 box 14 code A earnings less half of self-employment tax.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    is_self_employed: true
+    partnership_income: 30_000
+    partnership_self_employment_net_earnings: 30_000
+    health_insurance_premiums: 40_000
+  output:
+    # Form 7206 line 13: 30,000 - 2,119.4325.
+    self_employed_health_insurance_ald_person: 27_880.5675
+    adjusted_gross_income: 0
+
+- name: Case 11, an S corporation shareholder deducts up to their wages from the corporation.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    is_self_employed: true
+    # The corporation reimburses the 12,000 of premiums and reports them in
+    # W-2 box 1, so box 1 wages are 22,000. Box 5 Medicare wages leave them
+    # out (26 U.S.C. 3121(a)(2)(B)): 10,000.
+    employment_income: 22_000
+    s_corp_shareholder_medicare_wages: 10_000
+    health_insurance_premiums: 12_000
+  output:
+    # Form 7206: line 3 is 12,000; line 13 is line 11, 10,000.
+    self_employed_health_insurance_ald_person: 10_000
+    # 22,000 - 10,000.
+    adjusted_gross_income: 12_000
+
+- name: Case 12, a plan named under the smaller farm is limited to the farm's earned income.
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    is_self_employed: true
+    self_employment_income: 30_000
+    farm_operations_income: 10_000
+    self_employed_health_insurance_plan_business: SCHEDULE_F
+    health_insurance_premiums: 20_000
+  output:
+    # Form 7206 line 13: 10,000 - 0.25 x 2,825.91.
+    self_employed_health_insurance_ald_person: 9_293.5225
+
+- name: Case 13, an S corporation shareholder's wages cover the medical premiums first, then eligible long-term care premiums.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 55
+    is_self_employed: true
+    # The corporation pays the 8,500 of premiums and reports them in W-2
+    # box 1 (Form 7206 instructions), so box 1 wages are 15,500. The case
+    # sets box 5 Medicare wages to 7,000.
+    employment_income: 15_500
+    s_corp_shareholder_medicare_wages: 7_000
+    health_insurance_premiums: 6_000
+    long_term_health_insurance_premiums: 2_500
+  output:
+    # Line 1 is 6,000; line 2 is min(2,500, 1,860) = 1,860 (ages 51 to 60);
+    # line 3 is 7,860; line 13 is line 11, 7,000.
+    self_employed_health_insurance_ald_person: 7_000
+    # 7,000 - 6,000 of medical premiums.
+    self_employed_health_insurance_ald_long_term_care_part: 1_000
+    # Schedule A keeps line 3 less the deduction: 7,860 - 7,000.
+    itemized_medical_expenses: 860
+    # 15,500 - 7,000.
+    adjusted_gross_income: 8_500
+
+- name: Case 14, a farmer whose plan is established under the farm deducts eligible long-term care premiums up to farm earned income.
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    age: 75
+    is_self_employed: true
+    farm_operations_income: 20_000
+    health_insurance_premiums: 15_000
+    long_term_health_insurance_premiums: 7_000
+  output:
+    # Line 2 is min(7,000, 5,880) = 5,880 (over 70); line 3 is 20,880.
+    # Line 13: 20,000 - 20,000 x 0.9235 x 0.153 / 2 = 18,587.045.
+    self_employed_health_insurance_ald_person: 18_587.045
+    # 18,587.045 - 15,000 of medical premiums.
+    self_employed_health_insurance_ald_long_term_care_part: 3_587.045
+    # 20,880 - 18,587.045.
+    itemized_medical_expenses: 2_292.955
+    # 20,000 - 1,412.955 - 18,587.045.
+    adjusted_gross_income: 0
+
+- name: Case 15, a partner deducts eligible long-term care premiums up to their K-1 box 14 code A earnings less half of self-employment tax.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    age: 62
+    is_self_employed: true
+    partnership_income: 10_000
+    partnership_self_employment_net_earnings: 10_000
+    health_insurance_premiums: 8_000
+    long_term_health_insurance_premiums: 6_000
+  output:
+    # Line 2 is min(6,000, 4,810) = 4,810 (ages 61 to 70); line 3 is 12,810.
+    # Line 13: 10,000 - 10,000 x 0.9235 x 0.153 / 2 = 9,293.5225.
+    self_employed_health_insurance_ald_person: 9_293.5225
+    # 9,293.5225 - 8,000 of medical premiums.
+    self_employed_health_insurance_ald_long_term_care_part: 1_293.5225
+    # 12,810 - 9,293.5225.
+    itemized_medical_expenses: 3_516.4775
+    # 10,000 - 706.4775 - 9,293.5225.
+    adjusted_gross_income: 0
+
+- name: Case 16, with no plan business named, the larger farm's earned income covers line 3, long-term care premiums included.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 45
+    is_self_employed: true
+    self_employment_income: 2_000
+    farm_operations_income: 30_000
+    health_insurance_premiums: 20_000
+    long_term_health_insurance_premiums: 1_500
+  output:
+    # Line 15: 32,000 x 0.9235 x 0.153 / 2 = 2,260.728. Line 13 for the farm
+    # is 30,000 - 30/32 x 2,260.728 = 27,880.5675, and for the Schedule C
+    # business 2,000 - 2/32 x 2,260.728 = 1,858.7045. The model takes the farm.
+    self_employed_health_insurance_earned_income_limit: 27_880.5675
+    # Line 2 is min(1,500, 930) = 930 (ages 41 to 50); line 3 is 20,930.
+    self_employed_health_insurance_ald_person: 20_930
+    self_employed_health_insurance_ald_long_term_care_part: 930
+    # 20,930 - 20,930.
+    itemized_medical_expenses: 0
+    # 32,000 - 2,260.728 - 20,930.
+    adjusted_gross_income: 8_809.272

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/self_employed_health_insurance_earned_income_limit.yaml

@@ -1,6 +1,10 @@
 # Form 7206 lines 4-13 (Pub. 535 Worksheet 6-A before 2023). Expected values
 # are hand-computed from the form: the deductible part of self-employment tax
 # is net profit x 0.9235 x 15.3% / 2 below the Social Security wage base.
+# One Form 7206 per plan: the limit is the earned income of the business under
+# which the plan is established (self_employed_health_insurance_plan_business),
+# or of the person's business with the largest earned income when that input
+# is not supplied.
 
 - name: Case 1, one business, the limit is net profit less half of self-employment tax.
   period: 2022
@@ -85,12 +89,13 @@
     self_employment_tax_ald_person: 0
     self_employed_health_insurance_earned_income_limit: 400
 
-- name: Case 8, a Schedule C loss leaves no limit.
+- name: Case 8, a plan established under a Schedule C business with a loss has no limit.
   period: 2025
   absolute_error_margin: 0.01
   input:
     self_employment_income: -5_000
     partnership_self_employment_net_earnings: 20_000
+    self_employed_health_insurance_plan_business: SCHEDULE_C
   output:
     self_employed_health_insurance_earned_income_limit: 0
 
@@ -119,3 +124,139 @@
     self_employment_tax_ald_person: 1_412.955
     # Lines 4 and 5 are both 20,000, so line 6 is 1; 20,000 - 1,412.955.
     self_employed_health_insurance_earned_income_limit: 18_587.045
+
+- name: Case 11, a Schedule C loss leaves the partnership as the plan business.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income: -5_000
+    partnership_self_employment_net_earnings: 20_000
+  output:
+    # Schedule 1 line 15: (20,000 - 5,000) x 0.9235 x 0.153 / 2 = 1,059.71625.
+    self_employment_tax_ald_person: 1_059.71625
+    # Line 5 leaves out the loss, so line 6 is 1: 20,000 - 1,059.71625.
+    self_employed_health_insurance_earned_income_limit: 18_940.28375
+
+- name: Case 12, a farm is the only business.
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    farm_operations_income: 20_000
+  output:
+    # Schedule 1 line 15: 20,000 x 0.9235 x 0.153 / 2 = 1,412.955.
+    self_employment_tax_ald_person: 1_412.955
+    # Lines 4 to 8 for Schedule F: 20,000 - 1,412.955.
+    self_employed_health_insurance_earned_income_limit: 18_587.045
+
+- name: Case 13, a partnership with K-1 box 14 code A earnings is the only business.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    partnership_self_employment_net_earnings: 30_000
+  output:
+    # Schedule 1 line 15: 30,000 x 0.9235 x 0.153 / 2 = 2,119.4325.
+    self_employment_tax_ald_person: 2_119.4325
+    self_employed_health_insurance_earned_income_limit: 27_880.5675
+
+- name: Case 14, without a named business the larger farm is the plan business.
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income: 5_000
+    farm_operations_income: 40_000
+  output:
+    # Schedule 1 line 15: 45,000 x 0.9235 x 0.153 / 2 = 3,179.14875.
+    self_employment_tax_ald_person: 3_179.14875
+    # Farm: 40,000 - 40,000 / 45,000 x 3,179.14875 = 37,174.09.
+    # Schedule C: 5,000 - 5,000 / 45,000 x 3,179.14875 = 4,646.76125.
+    self_employed_health_insurance_earned_income_limit: 37_174.09
+
+- name: Case 15, a named Schedule C business sets the limit even when the farm earns more.
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income: 5_000
+    farm_operations_income: 40_000
+    self_employed_health_insurance_plan_business: SCHEDULE_C
+  output:
+    # Schedule C line 13, as in Case 14: 5,000 - 5,000 / 45,000 x 3,179.14875.
+    self_employed_health_insurance_earned_income_limit: 4_646.76125
+
+- name: Case 16, a named farm business takes its own share of the self-employment tax deduction.
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income: 30_000
+    farm_operations_income: 10_000
+    self_employed_health_insurance_plan_business: SCHEDULE_F
+  output:
+    # Schedule 1 line 15: 40,000 x 0.9235 x 0.153 / 2 = 2,825.91.
+    # Lines 5 to 8: 10,000 / 40,000 = 0.25; 10,000 - 0.25 x 2,825.91.
+    self_employed_health_insurance_earned_income_limit: 9_293.5225
+
+- name: Case 17, the plan deduction is attributable to Schedule C, so the partnership earns more.
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income: 20_000
+    self_employed_pension_contributions_desired: 15_000
+    partnership_self_employment_net_earnings: 10_000
+  output:
+    # Schedule 1 line 15: 30,000 x 0.9235 x 0.153 / 2 = 2,119.4325.
+    self_employment_tax_ald_person: 2_119.4325
+    self_employed_pension_contribution_ald_person: 15_000
+    # Schedule C: 20,000 - 2 / 3 x 2,119.4325 - 15,000 = 3,587.045.
+    # Partnership (line 9 is 0): 10,000 - 1 / 3 x 2,119.4325 = 9,293.5225.
+    self_employed_health_insurance_earned_income_limit: 9_293.5225
+
+- name: Case 18, an S corporation shareholder's wages are the earned income.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    employment_income: 50_000
+    s_corp_shareholder_medicare_wages: 50_000
+    self_employment_income: 10_000
+  output:
+    # Line 11: 50,000. The Schedule C business would give
+    # 10,000 - 10,000 x 0.9235 x 0.153 / 2 = 9,293.5225.
+    self_employed_health_insurance_earned_income_limit: 50_000
+
+- name: Case 19, a named Schedule C business ignores the S corporation wages.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    employment_income: 50_000
+    s_corp_shareholder_medicare_wages: 50_000
+    self_employment_income: 10_000
+    self_employed_health_insurance_plan_business: SCHEDULE_C
+  output:
+    # Schedule 1 line 15: 10,000 x 0.9235 x 0.153 / 2 = 706.4775. Schedule C
+    # line 13: 10,000 - 706.4775; line 11 does not apply.
+    self_employment_tax_ald_person: 706.4775
+    self_employed_health_insurance_earned_income_limit: 9_293.5225
+
+- name: Case 20, a named partnership sets the limit even when the farm earns more.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    farm_operations_income: 40_000
+    partnership_self_employment_net_earnings: 10_000
+    self_employed_health_insurance_plan_business: PARTNERSHIP
+  output:
+    # Schedule 1 line 15: 50,000 x 0.9235 x 0.153 / 2 = 3,532.3875.
+    self_employment_tax_ald_person: 3_532.3875
+    # Lines 5 to 8: 10,000 / 50,000 = 0.2; 10,000 - 0.2 x 3,532.3875.
+    self_employed_health_insurance_earned_income_limit: 9_293.5225
+
+- name: Case 21, a named S corporation sets the limit even when the Schedule C business earns more.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    employment_income: 10_000
+    s_corp_shareholder_medicare_wages: 10_000
+    self_employment_income: 50_000
+    self_employed_health_insurance_plan_business: S_CORPORATION
+  output:
+    # Line 11: 10,000. The Schedule C business would give
+    # 50,000 - 50,000 x 0.9235 x 0.153 / 2 = 46,467.6125.
+    self_employed_health_insurance_earned_income_limit: 10_000