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Refactor TaxInc function to mirror Form 8995/8995-A line structure #3041

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martinholmer merged 1 commit into from
May 10, 2026
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Refactor TaxInc function to mirror Form 8995/8995-A line structure #3041

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237 changes: 171 additions & 66 deletions taxcalc/calcfunctions.py
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Original file line number Diff line number Diff line change
Expand Up @@ -1689,147 +1689,252 @@ def TaxInc(c00100, standard, c04470, c04600, MARS, e00900, c03260, e26270,
PT_qbid_ps, PT_qbid_prt, PT_qbid_min_ded, PT_qbid_min_qbi,
c04800, qbided):
"""
Calculates taxable income, c04800, and
qualified business income deduction, qbided.
Form 1040 lines 13-15 (2025): the §199A pass-through Qualified
Business Income deduction (line 13, from Form 8995 or Form 8995-A)
and regular taxable income (line 15 = AGI - line 14).

QBI deduction structure (TCJA §199A):
- Filers with pre-QBID taxable income at or below
PT_qbid_taxinc_thd[MARS-1] ($197,300 / $394,600 MFJ for 2025)
file the simplified Form 8995: deduction = PT_qbid_rt * QBI,
capped only by the income limitation.
- Filers above the threshold file Form 8995-A. In the phase-in
window of width PT_qbid_taxinc_gap[MARS-1] ($50,000 /
$100,000 MFJ) above the threshold:
* Specified Service Trade or Business (SSTB) filers have QBI
and W-2 wages / UBIA scaled by Schedule A's "applicable
percentage" = (upper_thd - taxinc) / gap, with full
disallowance once taxinc >= upper_thd.
* Non-SSTB filers face the W-2/UBIA cap with a Part III
phase-in reduction; above the window the cap binds in full.
- All filers face the Part IV income limitation: deduction may
not exceed PT_qbid_rt * (pre-QBID taxinc - net_cg), where
net_cg = qualified dividends + net long-term capital gain.

QBI components (Form 8995 line 1c instructions): Sch C net profit
`e00900`, Sch E partnership/S-corp `e26270`, Sch F `e02100`, Sch E
farm rent `e27200`. Wages (`e00200`) and investment income are NOT
QBI. QBI is reduced by the deductible part of SECA tax `c03260`
(Sch SE / Sch 1 line 15). REIT dividends and PTP income (Form 8995
lines 6-9 / Form 8995-A Part IV lines 28-31) are not modeled.

Pre-QBID taxable income (Form 8995 line 11 / Form 8995-A line 33)
subtracts from AGI: max(itemized, standard) + personal exemption
(reform-only `c04600`) + Sch 1-A senior/overtime/tip/auto-loan
deductions. The QBID is "stacked last" so that c04800 = max(0,
pre_qbid_taxinc - qbided).

Reform-only constructs (no IRS form analogue):
- PT_qbid_limited=False disables the W-2/UBIA cap, SSTB exclusion,
and phase-in entirely (deduction = PT_qbid_rt * QBI subject only
to the income cap).
- PT_qbid_ps / PT_qbid_prt: linear phase-out of the deduction
above PT_qbid_ps[MARS-1].
- PT_qbid_min_qbi / PT_qbid_min_ded: minimum-deduction floor for
filers with QBI at or above PT_qbid_min_qbi.

Downstream consumer: `c04800` is the input to `SchXYZ` /
`SchXYZTax` / `GainsTax` (regular tax) and to `AMT` (Form 6251).

Parameters
----------
c00100: float
Adjusted Gross Income (AGI)
Adjusted Gross Income (Form 1040 line 11)
standard: float
Standard deduction (zero for itemizers)
Standard deduction (Form 1040 line 12; zero for itemizers)
c04470: float
Itemized deductions after phase-out (zero for non-itemizers)
Itemized deductions after phase-out (Form 1040 line 12; zero
for non-itemizers)
c04600: float
Personal exemptions after phase-out
Personal exemptions after phase-out (reform-only; zero under
current law for 2018-2025 per TCJA suspension)
MARS: int
Filing (marital) status. (1=single, 2=joint, 3=separate,
4=household-head, 5=widow(er))
e00900: float
Schedule C business net profit/loss for filing unit
Schedule C business net profit/loss (QBI component)
c03260: float
Self-employment (SECA) tax above-the-line deduction
Self-employment (SECA) tax above-the-line deduction (Sch 1
line 15); subtracted from QBI per §199A
e26270: float
Schedule E: combined partnership and S-corporation net income/loss
Schedule E partnership / S-corporation net income/loss (QBI
component)
e02100: float
Farm net income/loss for filing unit from Schedule F
Schedule F farm net income/loss (QBI component)
e27200: float
Schedule E: farm rent net income or loss
Schedule E farm rent net income/loss (QBI component)
e00650: float
Qualified dividends included in ordinary dividends
Qualified dividends (Form 8995 line 12 / 8995-A line 34 input)
c01000: float
Limitation on capital losses
Net capital gain or loss after §1211(b) limit (Form 8995 line
12 / 8995-A line 34 input; see BUG? note in Phase-2 review re:
net STCG inclusion)
senior_deduction: float
Deduction for elderly head/spouse
Sch 1-A Part V senior deduction (reduces pre-QBID taxinc)
overtime_income_deduction: float
Deduction for qualified overtime income
Sch 1-A Part III overtime deduction (reduces pre-QBID taxinc)
tip_income_deduction: float
Deduction for qualified tip income
Sch 1-A Part II tip deduction (reduces pre-QBID taxinc)
auto_loan_interest_deduction: float
Deduction for qualified auto loan interest paid
Sch 1-A Part IV auto-loan-interest deduction (reduces pre-QBID
taxinc)
PT_SSTB_income: int
Value of one implies business income is from a specified service
trade or business (SSTB)
Value of zero implies business income is from a qualified trade or
business
1 = QBI is from a Specified Service Trade or Business; 0 = QBI
is from a qualified (non-SSTB) trade or business
PT_binc_w2_wages: float
Filing unit's share of total W-2 wages paid by the
pass-through business
Filing unit's allocable share of W-2 wages paid by the
pass-through business (Form 8995-A line 4)
PT_ubia_property: float
Filing unit's share of total business property owned by the
pass-through business
Filing unit's allocable share of unadjusted basis immediately
after acquisition of qualified property (Form 8995-A line 7)
PT_qbid_rt: float
Pass-through qualified business income deduction rate
QBID rate (Form 8995 line 5 / 8995-A line 3 multiplier; 20% in
2025)
PT_qbid_limited: bool
Whether or not TCJA QBID limits are active
Reform switch; False disables the W-2/UBIA cap, SSTB exclusion,
and Part III phase-in
PT_qbid_taxinc_thd: list
Lower threshold of pre-QBID taxable income
MARS-indexed lower threshold of pre-QBID taxable income (Form
8995-A line 21; $197,300 / $394,600 MFJ for 2025)
PT_qbid_taxinc_gap: list
Dollar gap between upper and lower threshold of pre-QBID taxable income
MARS-indexed phase-in window width (Form 8995-A line 23;
$50,000 / $100,000 MFJ for 2025)
PT_qbid_w2_wages_rt: float
QBID cap rate on pass-through business W-2 wages paid
Primary W-2-wages cap rate (Form 8995-A line 5; 50%)
PT_qbid_alt_w2_wages_rt: float
Alternative QBID cap rate on pass-through business W-2 wages paid
Alternative W-2-wages cap rate (Form 8995-A line 6; 25%)
PT_qbid_alt_property_rt: float
Alternative QBID cap rate on pass-through business property owned
Alternative UBIA cap rate (Form 8995-A line 8; 2.5%)
PT_qbid_ps: list
QBID phaseout taxable income start
Reform-only QBID phase-out start (no form analogue)
PT_qbid_prt: float
QBID phaseout rate
Reform-only QBID phase-out rate (no form analogue)
PT_qbid_min_ded: float
Minimum QBID amount
Reform-only minimum QBID amount (no form analogue)
PT_qbid_min_qbi: float
Minimum QBI necessary to get QBID no less than PT_qbid_min_ded
Reform-only minimum QBI to qualify for PT_qbid_min_ded floor
c04800: float
Regular taxable income
Regular taxable income (Form 1040 line 15; iterate_jit
Records-bound output)
qbided: float
Qualified Business Income (QBI) deduction
Qualified Business Income deduction (Form 1040 line 13;
iterate_jit Records-bound output)

Returns
-------
c04800: float
Regular taxable income
Regular taxable income (Form 1040 line 15)
qbided: float
Qualified Business Income (QBI) deduction
Qualified Business Income deduction (Form 1040 line 13)
"""
# calculate taxable income before qualified business income deduction,
# which is assumed to be stacked last in the list of deductions
# ----------------------------------------------------------------
# Pre-QBID taxable income (Form 8995 line 11 / Form 8995-A line 33)
# = Form 1040 line 15 with the QBID line removed. QBID is "stacked
# last" so all other below-AGI deductions are subtracted here:
# max(itemized, standard) + reform-only personal exemption +
# Sch 1-A senior/overtime/tip/auto-loan deductions.
# ----------------------------------------------------------------
odeds = (
senior_deduction
+ overtime_income_deduction
+ tip_income_deduction
+ auto_loan_interest_deduction
senior_deduction # Sch 1-A Part V
+ overtime_income_deduction # Sch 1-A Part III
+ tip_income_deduction # Sch 1-A Part II
+ auto_loan_interest_deduction # Sch 1-A Part IV
)
pre_qbid_taxinc = max(0., c00100 - max(c04470, standard) - c04600 - odeds)
# calculate qualified business income deduction
# ----------------------------------------------------------------
# Qualified Business Income (QBI) build (Form 8995 line 1c /
# Form 8995-A line 2): Sch C net (less SECA ALD), Sch E
# partnership/S-corp, Sch F farm, Sch E farm rent. Wages and
# investment income are NOT QBI.
# ----------------------------------------------------------------
qbinc = max(0., e00900 - c03260 + e26270 + e02100 + e27200)
qbid_before_limits = qbinc * PT_qbid_rt
qbid_before_limits = qbinc * PT_qbid_rt # Form 8995 line 5 / 8995-A line 3
if PT_qbid_limited:
lower_thd = PT_qbid_taxinc_thd[MARS - 1]
# ------------------------------------------------------------
# Form 8995-A Parts II/III: W-2 wage / UBIA cap and SSTB phase-in.
# Filers with pre_qbid_taxinc <= lower_thd file the simplified
# Form 8995 (no cap, no SSTB exclusion). Above lower_thd, four
# sub-cases per Form 8995-A: (a) SSTB above upper_thd: 0; (b)
# non-SSTB above upper_thd: line 11 = min(line 3, line 10); (c)
# non-SSTB in phase-in: Part III lines 24-26; (d) SSTB in
# phase-in: Schedule A scales QBI/W-2/UBIA by applicable %, then
# Part III applied to scaled values.
# ------------------------------------------------------------
lower_thd = PT_qbid_taxinc_thd[MARS - 1] # 8995-A line 21
if pre_qbid_taxinc <= lower_thd:
# Form 8995 path: no W-2/UBIA cap, no SSTB exclusion
qbided = qbid_before_limits
else:
pre_qbid_taxinc_gap = PT_qbid_taxinc_gap[MARS - 1]
upper_thd = lower_thd + pre_qbid_taxinc_gap
gap = PT_qbid_taxinc_gap[MARS - 1] # 8995-A line 23
upper_thd = lower_thd + gap
if PT_SSTB_income == 1 and pre_qbid_taxinc >= upper_thd:
# (a) SSTB above phase-in: deduction fully disallowed
qbided = 0.
else:
# W-2 wage / UBIA cap (8995-A lines 4-10):
# line 5 = 50% * W-2 wages
# line 9 = 25% * W-2 wages + 2.5% * UBIA
# line 10 = max(line 5, line 9)
wage_cap = PT_binc_w2_wages * PT_qbid_w2_wages_rt
alt_cap = (PT_binc_w2_wages * PT_qbid_alt_w2_wages_rt +
PT_ubia_property * PT_qbid_alt_property_rt)
full_cap = max(wage_cap, alt_cap)
if PT_SSTB_income == 0 and pre_qbid_taxinc >= upper_thd:
# apply full cap
# (b) non-SSTB above phase-in: line 11 =
# min(line 3, line 10)
qbided = min(full_cap, qbid_before_limits)
elif PT_SSTB_income == 0 and pre_qbid_taxinc < upper_thd:
# apply adjusted cap as in Part III of Worksheet 12-A
# in 2018 IRS Publication 535 (Chapter 12)
prt = (pre_qbid_taxinc - lower_thd) / pre_qbid_taxinc_gap
# (c) non-SSTB in phase-in: 8995-A Part III lines
# 24-26. line 26 = line 17 - line 25
# = qbid_before_limits
# - prt * (qbid_before_limits - full_cap)
# where prt = line 24 = (taxinc - thd) / gap.
prt = (pre_qbid_taxinc - lower_thd) / gap
adj = prt * (qbid_before_limits - full_cap)
qbided = qbid_before_limits - adj
else: # PT_SSTB_income == 1 and pre_qbid_taxinc < upper_thd
prti = (upper_thd - pre_qbid_taxinc) / pre_qbid_taxinc_gap
qbid_adjusted = prti * qbid_before_limits
cap_adjusted = prti * full_cap
prt = (pre_qbid_taxinc - lower_thd) / pre_qbid_taxinc_gap
# (d) SSTB in phase-in: Schedule A scales QBI and
# W-2/UBIA cap by applicable_pct = (upper_thd -
# taxinc) / gap; Part III phase-in is then applied
# to the Schedule-A-adjusted line 3 and line 10.
prti = (upper_thd - pre_qbid_taxinc) / gap # applicable %
qbid_adjusted = prti * qbid_before_limits # Sch A line 3
cap_adjusted = prti * full_cap # Sch A line 10
prt = (pre_qbid_taxinc - lower_thd) / gap
adj = prt * (qbid_adjusted - cap_adjusted)
qbided = qbid_adjusted - adj
# apply taxinc cap (assuming cap rate is equal to PT_qbid_rt)
# net_cg is defined on line 34 of 2018 Pub 535 Worksheet 12-A
# ------------------------------------------------------------
# Form 8995-A Part IV: income limitation (lines 33-37; same
# role as Form 8995 lines 11-15). net_cg = qualified divs +
# net cap gain (8995-A line 34 / 8995 line 12); income cap =
# PT_qbid_rt * (pre_qbid_taxinc - net_cg) is line 36 / 14;
# final qbided = min(line 32, line 36) is line 37 / 15.
# ------------------------------------------------------------
net_cg = e00650 + c01000
taxinc_cap = PT_qbid_rt * max(0., pre_qbid_taxinc - net_cg)
qbided = min(qbided, taxinc_cap)
# apply qbid phaseout
# ------------------------------------------------------------
# Reform-only: linear QBID phase-out above PT_qbid_ps (no IRS
# form analogue).
# ------------------------------------------------------------
if qbided > 0. and pre_qbid_taxinc > PT_qbid_ps[MARS - 1]:
excess = pre_qbid_taxinc - PT_qbid_ps[MARS - 1]
qbided = max(0., qbided - PT_qbid_prt * excess)
else: # if PT_qbid_limited is false
else:
# Reform: TCJA W-2/UBIA cap, SSTB exclusion, Part III phase-in,
# and Part IV income limitation all disabled.
qbided = qbid_before_limits
# apply minimum QBID logic
# ----------------------------------------------------------------
# Reform-only: minimum QBID floor for filers with QBI at or above
# PT_qbid_min_qbi (no IRS form analogue).
# ----------------------------------------------------------------
if qbinc >= PT_qbid_min_qbi and qbided < PT_qbid_min_ded:
qbided = PT_qbid_min_ded

# calculate taxable income after qbided
# ----------------------------------------------------------------
# Form 1040 line 15: taxable income = pre_qbid_taxinc - qbided
# (line 14 = std/itemized + QBID; QBID stacked last as documented
# in pre_qbid_taxinc construction above).
# ----------------------------------------------------------------
c04800 = max(0., pre_qbid_taxinc - qbided)
return (c04800, qbided)

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