Allocate taxable UC by recipient, not all to head

changelog.d/fix-taxable-uc-allocation.fixed.md

@@ -0,0 +1 @@
+Allocate taxable unemployment compensation by actual recipient instead of all to head.

policyengine_us/tests/variables/gov/irs/income/taxable_income/adjusted_gross_income/adjusted_gross_income_person.yaml

@@ -0,0 +1,58 @@
+- name: Per-person AGI reflects actual UC recipient when UC is on spouse only
+  period: 2025
+  input:
+    people:
+      head:
+        age: 75
+        unemployment_compensation: 0
+      spouse:
+        age: 40
+        employment_income: 10_000
+        unemployment_compensation: 19_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    families:
+      family:
+        members: [head, spouse]
+    spm_units:
+      spm_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+  output:
+    adjusted_gross_income_person: [0, 29_000]
+
+- name: Per-person AGI reflects proportional UC allocation when both spouses have UC
+  period: 2025
+  input:
+    people:
+      head:
+        age: 50
+        employment_income: 30_000
+        unemployment_compensation: 4_000
+      spouse:
+        age: 48
+        employment_income: 20_000
+        unemployment_compensation: 12_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    families:
+      family:
+        members: [head, spouse]
+    spm_units:
+      spm_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+  output:
+    adjusted_gross_income_person: [34_000, 32_000]

policyengine_us/tests/variables/gov/irs/income/taxable_income/adjusted_gross_income/irs_gross_income/unemployment_insurance/taxable_unemployment_compensation.yaml

@@ -0,0 +1,84 @@
+- name: Taxable UC allocated to spouse when only spouse received UC
+  period: 2025
+  input:
+    people:
+      head:
+        age: 75
+        unemployment_compensation: 0
+      spouse:
+        age: 40
+        unemployment_compensation: 19_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    families:
+      family:
+        members: [head, spouse]
+    spm_units:
+      spm_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: KY
+  output:
+    taxable_unemployment_compensation: [0, 19_000]
+
+- name: Taxable UC split in proportion to person-level UC
+  period: 2025
+  input:
+    people:
+      head:
+        age: 50
+        unemployment_compensation: 5_000
+      spouse:
+        age: 48
+        unemployment_compensation: 15_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    families:
+      family:
+        members: [head, spouse]
+    spm_units:
+      spm_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: CA
+  output:
+    taxable_unemployment_compensation: [5_000, 15_000]
+
+- name: Zero UC produces zero allocation
+  period: 2025
+  input:
+    people:
+      head:
+        age: 35
+        employment_income: 50_000
+        unemployment_compensation: 0
+    tax_units:
+      tax_unit:
+        members: [head]
+    marital_units:
+      marital_unit:
+        members: [head]
+    families:
+      family:
+        members: [head]
+    spm_units:
+      spm_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: CA
+  output:
+    taxable_unemployment_compensation: [0]

policyengine_us/tests/variables/gov/states/ky/tax/income/ky_agi.yaml

@@ -0,0 +1,32 @@
+- name: KY per-person AGI reflects UC recipient (regression test for #8494)
+  period: 2025
+  input:
+    people:
+      head:
+        age: 75
+        unemployment_compensation: 0
+      spouse:
+        age: 40
+        employment_income: 10_000
+        unemployment_compensation: 19_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    families:
+      family:
+        members: [head, spouse]
+    spm_units:
+      spm_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: KY
+  output:
+    # Before the fix, head's KY AGI was inflated by the spouse's UC ($19,000)
+    # and the spouse's KY AGI was deflated by the same amount. KY's combined-
+    # return optimization then gave the head an unearned standard deduction.
+    ky_agi: [0, 29_000]

policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/irs_gross_income/unemployment_insurance/taxable_unemployment_insurance.py

@@ -9,13 +9,15 @@ class taxable_unemployment_compensation(Variable):
     definition_period = YEAR
 
     def formula(person, period, parameters):
-        # The taxable amount of unemployment compensation is decided at the tax unit level, but
-        # gross income (which contains taxable UI) is person-level. Therefore, we include the
-        # taxable UI in gross income by assigning it to the head of the tax unit: this will be
-        # not affect overall tax liability.
-
-        is_tax_unit_head = person("is_tax_unit_head", period)
+        # The taxable amount of unemployment compensation is decided at the tax
+        # unit level, but gross income (which contains taxable UI) is person-level.
+        # Allocate the tax unit's taxable UC to each person in proportion to their
+        # unemployment_compensation, so that per-person AGI reflects the actual
+        # recipient (required by states with combined-return optimization).
         tax_unit_taxable_uc = person.tax_unit(
             "tax_unit_taxable_unemployment_compensation", period
         )
-        return where(is_tax_unit_head, tax_unit_taxable_uc, 0)
+        person_uc = person("unemployment_compensation", period)
+        tax_unit_uc = person.tax_unit.sum(person_uc)
+        share = where(tax_unit_uc > 0, person_uc / tax_unit_uc, 0)
+        return tax_unit_taxable_uc * share