Let Utah military retirees claim the military retirement credit when no retirement credit applies

changelog.d/fix-ut-military-retirement-credit-choice.fixed.md

@@ -0,0 +1 @@
+Utah's military retirement credit no longer goes unclaimed when the filer has neither a retirement credit nor a Social Security benefits credit; the retirement-credit choice now weighs the military credit alongside the Social Security credit; and the credit uses the income tax rate, as 59-10-1043 requires (4.45% in 2026), starting in 2021.

policyengine_us/parameters/gov/states/ut/tax/income/credits/military_retirement/in_effect.yaml

@@ -0,0 +1,18 @@
+description: Utah allows the military retirement credit when this is true.
+values:
+  0000-01-01: false
+  # 59-10-1043 applies to taxable years beginning on or after January 1, 2021.
+  2021-01-01: true
+metadata:
+  unit: bool
+  period: year
+  label: Utah military retirement credit in effect
+  reference:
+    - title: Utah Code §59-10-1043
+      href: https://le.utah.gov/xcode/Title59/Chapter10/59-10-S1043.html
+    - title: Utah Military Retirement Credit
+      href: https://incometax.utah.gov/credits/military-retirement
+    - title: 2021 Utah TC-40 Instructions, Military Retirement Credit Worksheet
+      href: https://files.tax.utah.gov/tax/forms/2021/tc-40inst.pdf#page=22
+    - title: 2025 Utah TC-40 Instructions, Military Retirement Credit (code AJ)
+      href: https://files.tax.utah.gov/tax/forms/2025/tc-40inst.pdf#page=23

policyengine_us/tests/core/test_dependent_retirement_income_state_invariants.py

@@ -452,9 +452,9 @@ def test_dependents_retirement_income_never_reduces_state_income_tax(year):
     assert (unit_has_dependent_income & filer_social_security).any()
     assert (unit_has_dependent_income & filer_aged_73).any()
     assert (unit_has_dependent_income & elderly_dependent).any()
-    # Utah's military retirement credit is open only when the retirement
-    # credit is not claimed, which needs Social Security worth more than the
-    # age-gated retirement credit.
+    # Utah's military retirement credit is open only when the filer does not
+    # claim the retirement credit: when that credit is worth nothing, or less
+    # than the Social Security and military retirement credits together.
     dependent_military_pay = np.tile(
         [any(d["income"]["military_retirement_pay"] > 0 for d in u["dependents"])
          for u in units],

policyengine_us/tests/policy/baseline/gov/states/ut/tax/income/credits/military_retirement_credit/ut_military_retirement_credit.yaml

@@ -98,3 +98,45 @@
         state_code: UT
   output:
     ut_military_retirement_credit: 1350
+
+- name: UT military retirement credit - retiree too young for the retirement credit gets the military credit
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 45
+        military_retirement_pay: 30_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+        ut_income_tax_before_non_refundable_credits: 1_000_000
+    households:
+      household:
+        members: [person1]
+        state_code: UT
+  output:
+    ut_claims_retirement_credit: false
+    ut_military_retirement_credit_eligible: true
+    ut_military_retirement_credit: 1_350
+
+- name: UT military retirement credit - older retiree with little military pay takes the retirement credit instead
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 76
+        military_retirement_pay: 4_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+        ut_income_tax_before_non_refundable_credits: 1_000_000
+    households:
+      household:
+        members: [person1]
+        state_code: UT
+  output:
+    ut_retirement_credit_max: 450
+    ut_military_retirement_credit_max: 180
+    ut_claims_retirement_credit: true
+    ut_military_retirement_credit_eligible: false
+    ut_military_retirement_credit: 0

policyengine_us/tests/policy/baseline/gov/states/ut/tax/income/credits/military_retirement_credit/ut_military_retirement_credit_max.yaml

@@ -0,0 +1,63 @@
+- name: UT military retirement credit maximum - 4.5% of military retirement pay in 2025
+  period: 2025
+  input:
+    people:
+      person1:
+        military_retirement_pay: 30_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: UT
+  output:
+    ut_military_retirement_credit_max: 1_350
+
+- name: UT military retirement credit maximum - survivor benefits count as military retirement pay
+  period: 2025
+  input:
+    people:
+      person1:
+        military_retirement_pay_survivors: 10_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: UT
+  output:
+    ut_military_retirement_credit_max: 450
+
+- name: UT military retirement credit maximum - none before the credit took effect in 2021
+  period: 2020
+  input:
+    people:
+      person1:
+        military_retirement_pay: 30_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: UT
+  output:
+    ut_military_retirement_credit_max: 0
+
+- name: UT military retirement credit maximum - follows the 4.45% income tax rate in 2026
+  period: 2026
+  input:
+    people:
+      person1:
+        military_retirement_pay: 30_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: UT
+  output:
+    ut_military_retirement_credit_max: 1_335

policyengine_us/tests/policy/baseline/gov/states/ut/tax/income/credits/retirement_credit/ut_claims_retirement_credit.yaml

@@ -25,11 +25,41 @@
   output:
     ut_claims_retirement_credit: true
 
-- name: UT claims retirement credit unit test 4
+- name: UT claims retirement credit unit test 4 - a retirement credit worth nothing is never claimed
   period: 2022
   input:
     ut_retirement_credit_max: 0
     ut_ss_benefits_credit_max: 0
     state_code: UT
+  output:
+    ut_claims_retirement_credit: false
+
+- name: UT claims retirement credit - military credit alone outweighs the retirement credit
+  period: 2025
+  input:
+    ut_retirement_credit_max: 450
+    ut_ss_benefits_credit_max: 0
+    ut_military_retirement_credit_max: 1_350
+    state_code: UT
+  output:
+    ut_claims_retirement_credit: false
+
+- name: UT claims retirement credit - Social Security and military credits combine against the retirement credit
+  period: 2025
+  input:
+    ut_retirement_credit_max: 450
+    ut_ss_benefits_credit_max: 300
+    ut_military_retirement_credit_max: 200
+    state_code: UT
+  output:
+    ut_claims_retirement_credit: false
+
+- name: UT claims retirement credit - retirement credit outweighs both alternatives combined
+  period: 2025
+  input:
+    ut_retirement_credit_max: 450
+    ut_ss_benefits_credit_max: 100
+    ut_military_retirement_credit_max: 225
+    state_code: UT
   output:
     ut_claims_retirement_credit: true

policyengine_us/variables/gov/states/ut/tax/income/credits/military_retirement_credit/ut_military_retirement_credit_max.py

@@ -0,0 +1,26 @@
+from policyengine_us.model_api import *
+
+
+class ut_military_retirement_credit_max(Variable):
+    value_type = float
+    entity = TaxUnit
+    label = "Utah military retirement credit maximum amount"
+    unit = USD
+    definition_period = YEAR
+    reference = "https://le.utah.gov/xcode/Title59/Chapter10/59-10-S1043.html"
+    defined_for = StateCode.UT
+
+    def formula(tax_unit, period, parameters):
+        # 59-10-1043(2)(b): only the pay included in adjusted gross income on
+        # the claimant's federal return, which excludes dependents' income;
+        # dependents report it on their own return.
+        military_retirement_pay = tax_unit_non_dep_add(
+            tax_unit,
+            period,
+            ["military_retirement_income"],
+        )
+        # 59-10-1043(2)(a): the percentage listed in 59-10-104(2), the
+        # income tax rate.
+        p = parameters(period).gov.states.ut.tax.income
+        in_effect = p.credits.military_retirement.in_effect
+        return in_effect * military_retirement_pay * p.rate

policyengine_us/variables/gov/states/ut/tax/income/credits/military_retirement_credit/ut_military_retirement_credit_potential.py

@@ -10,15 +10,4 @@ class ut_military_retirement_credit_potential(Variable):
     reference = "https://le.utah.gov/xcode/Title59/Chapter10/59-10-S1043.html"
     defined_for = "ut_military_retirement_credit_eligible"
 
-    def formula(tax_unit, period, parameters):
-        # 59-10-1043(2)(b): only the pay included in adjusted gross income on
-        # the claimant's federal return, which excludes dependents' income;
-        # dependents report it on their own return.
-        military_retirement_pay = tax_unit_non_dep_add(
-            tax_unit,
-            period,
-            ["military_retirement_income"],
-        )
-
-        p = parameters(period).gov.states.ut.tax.income.credits.military_retirement
-        return military_retirement_pay * p.rate
+    adds = ["ut_military_retirement_credit_max"]

policyengine_us/variables/gov/states/ut/tax/income/credits/retirement_credit/ut_claims_retirement_credit.py

@@ -6,11 +6,33 @@ class ut_claims_retirement_credit(Variable):
     entity = TaxUnit
     label = "claims the Utah retirement credit"
     unit = USD
-    documentation = "Utah residents can claim only one of the retirement credit or the social security benefits credit. We assume they claim the one with higher value."
+    documentation = (
+        "A Utah filer who claims the retirement credit cannot also claim the "
+        "Social Security benefits credit or the military retirement credit, "
+        "but can claim those two together. We assume the filer takes whichever "
+        "option is worth more, and never claims a retirement credit worth "
+        "nothing."
+    )
+    reference = (
+        # Each section's subsection (3)(b) bars its credit alongside the
+        # retirement credit; nothing bars 59-10-1042 with 59-10-1043.
+        "https://le.utah.gov/xcode/Title59/Chapter10/59-10-S1019.html",
+        "https://le.utah.gov/xcode/Title59/Chapter10/59-10-S1042.html",
+        "https://le.utah.gov/xcode/Title59/Chapter10/59-10-S1043.html",
+        "https://files.tax.utah.gov/tax/forms/2025/tc-40inst.pdf#page=21",
+        "https://files.tax.utah.gov/tax/forms/2025/tc-40inst.pdf#page=23",
+    )
     definition_period = YEAR
     defined_for = StateCode.UT
 
     def formula(tax_unit, period, parameters):
-        max_retirement_credit = tax_unit("ut_retirement_credit_max", period)
-        max_ss_benefits_credit = tax_unit("ut_ss_benefits_credit_max", period)
-        return max_retirement_credit >= max_ss_benefits_credit
+        retirement_credit = tax_unit("ut_retirement_credit_max", period)
+        # The Social Security benefits credit and the military retirement
+        # credit can be claimed together, so the retirement credit competes
+        # with their sum.
+        alternative_credits = add(
+            tax_unit,
+            period,
+            ["ut_ss_benefits_credit_max", "ut_military_retirement_credit_max"],
+        )
+        return (retirement_credit > 0) & (retirement_credit >= alternative_credits)