Restrict tip deduction to qualifying occupations

changelog.d/codex-tip-deduction-occupation-gate.fixed.md

@@ -0,0 +1 @@
+Restricted the federal tip income deduction to Treasury-listed tipped occupations via a TTOC input, with SSTB exclusion support.

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/senior_deduction/integration.yaml

@@ -69,6 +69,7 @@
         is_tax_unit_head_or_spouse: true
         ssn_card_type: CITIZEN
         tip_income: 1_000
+        treasury_tipped_occupation_code: 102
         fsla_overtime_premium: 2_000
     tax_units:
       tax_unit:
@@ -92,6 +93,7 @@
         is_tax_unit_head_or_spouse: true
         ssn_card_type: CITIZEN
         tip_income: 1_000
+        treasury_tipped_occupation_code: 102
         fsla_overtime_premium: 2_000
     tax_units:
       tax_unit:

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/tip_and_overtime_income_deduction.yaml

@@ -1,6 +1,7 @@
 - name: Tip and overtime income are exempt
   period: 2026
   input:
+    treasury_tipped_occupation_code: 102
     tip_income: 200
     fsla_overtime_premium: 300
     standard_deduction: 0
@@ -22,10 +23,12 @@
       person1:
         ssn_card_type: CITIZEN
         tip_income: 200
+        treasury_tipped_occupation_code: 102
         fsla_overtime_premium: 300
       person2:
         ssn_card_type: OTHER_NON_CITIZEN
         tip_income: 600
+        treasury_tipped_occupation_code: 102
         fsla_overtime_premium: 900
     tax_units:
       tax_unit:
@@ -51,10 +54,12 @@
       person1:
         ssn_card_type: NONE
         tip_income: 200
+        treasury_tipped_occupation_code: 102
         fsla_overtime_premium: 300
       person2:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 600
+        treasury_tipped_occupation_code: 102
         fsla_overtime_premium: 900
     tax_units:
       tax_unit:
@@ -80,10 +85,12 @@
       person1:
         ssn_card_type: CITIZEN
         tip_income: 200
+        treasury_tipped_occupation_code: 102
         fsla_overtime_premium: 300
       person2:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 600
+        treasury_tipped_occupation_code: 102
         fsla_overtime_premium: 900
     tax_units:
       tax_unit:
@@ -247,9 +254,11 @@
       person1:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 300
+        treasury_tipped_occupation_code: 102
       person2:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 900
+        treasury_tipped_occupation_code: 102
     tax_units:
       tax_unit:
         members: [person1, person2]
@@ -274,9 +283,11 @@
       person1:
         ssn_card_type: NONE
         tip_income: 300
+        treasury_tipped_occupation_code: 102
       person2:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 900
+        treasury_tipped_occupation_code: 102
     tax_units:
       tax_unit:
         members: [person1, person2]
@@ -301,9 +312,11 @@
       person1:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 300
+        treasury_tipped_occupation_code: 102
       person2:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 900
+        treasury_tipped_occupation_code: 102
       person3:
         ssn_card_type: NONE
         is_tax_unit_dependent: true
@@ -331,9 +344,11 @@
       person1:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 300
+        treasury_tipped_occupation_code: 102
       person2:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 900
+        treasury_tipped_occupation_code: 102
     tax_units:
       tax_unit:
         members: [person1, person2]
@@ -358,9 +373,11 @@
       person1:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 300
+        treasury_tipped_occupation_code: 102
       person2:
         ssn_card_type: NON_CITIZEN_VALID_EAD
         tip_income: 900
+        treasury_tipped_occupation_code: 102
     tax_units:
       tax_unit:
         members: [person1, person2]

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/tip_income/tip_income_deduction.yaml

@@ -12,6 +12,7 @@
   period: 2025
   input:
     tip_income_deduction_ssn_requirement_met: true
+    treasury_tipped_occupation_code: 102
     tip_income: 10_000
     adjusted_gross_income: 100_000
     filing_status: JOINT
@@ -22,6 +23,7 @@
   period: 2025
   input:
     tip_income_deduction_ssn_requirement_met: true
+    treasury_tipped_occupation_code: 102
     tip_income: 10_000
     adjusted_gross_income: 1_000_000
     filing_status: JOINT
@@ -32,6 +34,7 @@
   period: 2025
   input:
     tip_income_deduction_ssn_requirement_met: true
+    treasury_tipped_occupation_code: 102
     tip_income: 10_000
     adjusted_gross_income: 190_000
     filing_status: JOINT
@@ -71,9 +74,68 @@
         is_tax_unit_head: true
         is_tax_unit_spouse: false
         tip_income: 1_000
+        treasury_tipped_occupation_code: 102
     tax_units:
       tax_unit:
         members: [person1, person2]
   output:
     tip_income_deduction_ssn_requirement_met: true
     tip_income_deduction: 1_000
+
+- name: Occupation gate allows Treasury-listed tipped occupation
+  period: 2025
+  input:
+    people:
+      worker:
+        ssn_card_type: CITIZEN
+        is_tax_unit_head: true
+        is_tax_unit_spouse: false
+        tip_income: 10_000
+        treasury_tipped_occupation_code: 102
+    tax_units:
+      tax_unit:
+        adjusted_gross_income: 100_000
+        filing_status: SINGLE
+        members: [worker]
+  output:
+    tip_income_deduction_occupation_requirement_met: true
+    tip_income_deduction: 10_000
+
+- name: Occupation gate blocks unlisted occupation
+  period: 2025
+  input:
+    people:
+      worker:
+        ssn_card_type: CITIZEN
+        is_tax_unit_head: true
+        is_tax_unit_spouse: false
+        tip_income: 10_000
+        treasury_tipped_occupation_code: 0
+    tax_units:
+      tax_unit:
+        adjusted_gross_income: 100_000
+        filing_status: SINGLE
+        members: [worker]
+  output:
+    tip_income_deduction_occupation_requirement_met: false
+    tip_income_deduction: 0
+
+- name: SSTB exclusion blocks otherwise eligible tipped worker
+  period: 2025
+  input:
+    people:
+      worker:
+        ssn_card_type: CITIZEN
+        is_tax_unit_head: true
+        is_tax_unit_spouse: false
+        tip_income: 5_000
+        treasury_tipped_occupation_code: 102
+        business_is_sstb: true
+    tax_units:
+      tax_unit:
+        adjusted_gross_income: 100_000
+        filing_status: SINGLE
+        members: [worker]
+  output:
+    tip_income_deduction_occupation_requirement_met: false
+    tip_income_deduction: 0

policyengine_us/tests/policy/baseline/gov/states/in/tax/income/deductions/obbba_conformity/in_tip_income_deduction.yaml

@@ -2,6 +2,7 @@
   period: 2026
   input:
     state_code: IN
+    treasury_tipped_occupation_code: 102
     tip_income: 10_000
     employment_income: 50_000
   output:
@@ -20,6 +21,7 @@
   period: 2025
   input:
     state_code: IN
+    treasury_tipped_occupation_code: 102
     tip_income: 10_000
     employment_income: 50_000
   output:
@@ -31,6 +33,7 @@
   absolute_error_margin: 1
   input:
     state_code: IN
+    treasury_tipped_occupation_code: 102
     tip_income: 5_000
     employment_income: 50_000
   output:
@@ -41,6 +44,7 @@
   period: 2027
   input:
     state_code: IN
+    treasury_tipped_occupation_code: 102
     tip_income: 10_000
     employment_income: 50_000
   output:

policyengine_us/variables/gov/irs/income/taxable_income/deductions/tip_income/tip_income_deduction.py

@@ -12,12 +12,16 @@ class tip_income_deduction(Variable):
     def formula(tax_unit, period, parameters):
         person = tax_unit.members
         tip_income = person("tip_income", period)
+        occupation_requirement_met = person(
+            "tip_income_deduction_occupation_requirement_met", period
+        )
         agi = tax_unit("adjusted_gross_income", period)
         filing_status = tax_unit("filing_status", period)
         p = parameters(period).gov.irs.deductions.tip_income
         start = p.phase_out.start[filing_status]
         agi_excess = max_(agi - start, 0)
         phase_out_amount = agi_excess * p.phase_out.rate
-        total_tip_income = tax_unit.sum(tip_income)
+        qualified_tip_income = tip_income * occupation_requirement_met
+        total_tip_income = tax_unit.sum(qualified_tip_income)
         capped_tip_income = min_(p.cap, total_tip_income)
         return max_(0, capped_tip_income - phase_out_amount)

policyengine_us/variables/gov/irs/income/taxable_income/deductions/tip_income/tip_income_deduction_occupation_requirement_met.py

@@ -0,0 +1,24 @@
+from policyengine_us.model_api import *
+
+
+class tip_income_deduction_occupation_requirement_met(Variable):
+    value_type = bool
+    entity = Person
+    label = "Occupation requirement met for the tip income deduction"
+    definition_period = YEAR
+    reference = [
+        "https://www.govinfo.gov/content/pkg/PLAW-119publ21/pdf/PLAW-119publ21.pdf",
+        "https://www.irs.gov/irb/2025-42_IRB",
+    ]
+    documentation = (
+        "A person meets the occupation requirement if they received tips "
+        "in a Treasury-listed tipped occupation and not in the course of "
+        "a specified service trade or business."
+    )
+
+    def formula(person, period, _parameters):
+        treasury_tipped_occupation_code = person(
+            "treasury_tipped_occupation_code", period
+        )
+        is_sstb = person("business_is_sstb", period)
+        return (treasury_tipped_occupation_code > 0) & ~is_sstb

policyengine_us/variables/gov/irs/income/taxable_income/deductions/tip_income/treasury_tipped_occupation_code.py

@@ -0,0 +1,17 @@
+from policyengine_us.model_api import *
+
+
+class treasury_tipped_occupation_code(Variable):
+    value_type = int
+    entity = Person
+    label = "Treasury tipped occupation code for the tip income deduction"
+    definition_period = YEAR
+    reference = [
+        "https://www.govinfo.gov/content/pkg/PLAW-119publ21/pdf/PLAW-119publ21.pdf",
+        "https://www.irs.gov/irb/2025-42_IRB",
+    ]
+    documentation = (
+        "Treasury Tipped Occupation Code (TTOC) from Table 1 of proposed "
+        "section 1.224-1(f). Use 0 if the person did not receive tips in "
+        "a Treasury-listed tipped occupation."
+    )