Phase out the California AMT exemption at 25% instead of the federal 2026 rate

changelog.d/fix-10268-ca-amt-phase-out-rate.fixed.md

@@ -0,0 +1 @@
+Phase out the California AMT exemption at 25% under R&TC 17062.1 instead of the federal 2026 rate of 50%.

policyengine_us/parameters/gov/states/ca/tax/income/amt/exemption/phase_out_rate.yaml

@@ -0,0 +1,21 @@
+description: California reduces the alternative minimum tax exemption by this share of alternative minimum taxable income above the phase-out threshold.
+values:
+  2021-01-01: 0.25
+
+metadata:
+  period: year
+  unit: /1
+  label: California AMT exemption phase-out rate
+  reference:
+    # California applies IRC 55 as it read on January 1, 2015, so the 50% rate
+    # that P.L. 119-21 added in IRC 55(d)(4)(A)(ii)(IV) from 2026 does not apply.
+    - title: Cal. Rev. & Tax. Code § 17062.1 (IRC alternative minimum tax as it read on January 1, 2015)
+      href: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=17062.1
+    - title: Cal. Rev. & Tax. Code § 17062(b)(6) (replaces only the IRC 55(d)(3) phase-out thresholds)
+      href: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=17062
+    - title: 26 U.S.C. § 55(d)(3) (2014 edition) - 25 percent of alternative minimum taxable income above the threshold
+      href: https://www.govinfo.gov/content/pkg/USCODE-2014-title26/html/USCODE-2014-title26-subtitleA-chap1-subchapA-partVI-sec55.htm
+    - title: 2021 Instructions for Schedule P (540), Line 21 worksheet line 4 and Line 22 Exemption Worksheet line 5
+      href: https://www.ftb.ca.gov/forms/2021/2021-540-p-instructions.html
+    - title: 2025 Instructions for Schedule P (540), Line 21 worksheet line 4 and Line 22 Exemption Worksheet line 5
+      href: https://www.ftb.ca.gov/forms/2025/2025-540-p-instructions.html

policyengine_us/tests/policy/baseline/gov/states/ca/tax/income/alternative_minimum_tax/ca_amt_exemption.yaml

@@ -70,3 +70,71 @@
         state_code: CA
   output:
     ca_amt_exemption: 0
+
+- name: Single filer, 2026, exemption phases out at 25% under R&TC 17062.1, not the federal 50%
+  # Schedule P (540) Exemption Worksheet with PE's CPI-uprated 2026 amounts
+  # (the FTB has not published 2026 amounts):
+  # Line 1: 94,850.96. Line 3: 355,690.34. Line 4: 500,000 - 355,690.34 = 144,309.66.
+  # Line 5: 25% x 144,309.66 = 36,077.41. Line 6: 94,850.96 - 36,077.41 = 58,773.55.
+  # At the federal 2026 rate of 50%, line 6 would be 94,850.96 - 72,154.83 = 22,696.13.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1: {}
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SINGLE
+        ca_amti: 500_000
+        head_earned: 500_000
+    households:
+      household:
+        members: [person1]
+        state_code: CA
+  output:
+    ca_amt_exemption: 58_773.55
+
+- name: Joint filers, 2026, exemption phases out at 25%
+  # Line 1: 126,469.65. Line 3: 474,254.81. Line 4: 700,000 - 474,254.81 = 225,745.19.
+  # Line 5: 25% x 225,745.19 = 56,436.30. Line 6: 126,469.65 - 56,436.30 = 70,033.36.
+  # At 50%, line 6 would be 126,469.65 - 112,872.60 = 13,597.06.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1: {}
+      person2: {}
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        filing_status: JOINT
+        ca_amti: 700_000
+        head_earned: 700_000
+    households:
+      household:
+        members: [person1, person2]
+        state_code: CA
+  output:
+    ca_amt_exemption: 70_033.36
+
+- name: Single filer, 2025, published amounts (control, unchanged)
+  # 2025 Schedule P (540) Exemption Worksheet:
+  # Line 1: 92,749. Line 3: 347,808. Line 4: 500,000 - 347,808 = 152,192.
+  # Line 5: 25% x 152,192 = 38,048. Line 6: 92,749 - 38,048 = 54,701.
+  period: 2025
+  input:
+    people:
+      person1: {}
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SINGLE
+        ca_amti: 500_000
+        head_earned: 500_000
+    households:
+      household:
+        members: [person1]
+        state_code: CA
+  output:
+    ca_amt_exemption: 54_701

policyengine_us/variables/gov/states/ca/tax/income/alternative_minimum_tax/amti/ca_amti.py

@@ -13,7 +13,6 @@ class ca_amti(Variable):
     def formula(tax_unit, period, parameters):
         filing_status = tax_unit("filing_status", period)
         p = parameters(period).gov.states.ca.tax.income.amt.exemption
-        p_us = parameters(period).gov.irs.income.amt.capital_gains
 
         amti_before_ded = tax_unit("ca_pre_exemption_amti", period)
         separate = filing_status == filing_status.possible_values.SEPARATE
@@ -24,7 +23,7 @@ def formula(tax_unit, period, parameters):
         # Line 3
         reduced_amti = max_(amti_before_ded - maximum_exemption, 0)
         # Line 4
-        reduced_amti_rate = reduced_amti * p_us.capital_gain_excess_tax_rate
+        reduced_amti_rate = reduced_amti * p.phase_out_rate
         # Line 5
         separate_amti_calc = min_(reduced_amti_rate, p.amount[filing_status])
 

policyengine_us/variables/gov/states/ca/tax/income/alternative_minimum_tax/exemption/ca_amt_exemption.py

@@ -23,8 +23,7 @@ def formula(tax_unit, period, parameters):
         # Line 4
         reduced_amti = max_(amti - lower_exemption_threshold, 0)
         # Line 5
-        p_irs = parameters(period).gov.irs.income.amt.exemption
-        reduced_amti_rate = reduced_amti * p_irs.phase_out.rate
+        reduced_amti_rate = reduced_amti * p.phase_out_rate
         # Line 6
         adult_exemption = max_(exemption_max_amount - reduced_amti_rate, 0)
         # Eligible children receive an increased exemption amount.
@@ -34,6 +33,7 @@ def formula(tax_unit, period, parameters):
         is_head = person("is_tax_unit_head", period)
         head_is_eligible_child = tax_unit.any(eligible_child & is_head)
         # Line 7
+        p_irs = parameters(period).gov.irs.income.amt.exemption
         exemption_amount_child = p_irs.child.amount
         # Line 8
         earned_income = tax_unit("head_earned", period)