Update Arizona 2025 Individual Income Tax Model

[DTrim99]

Summary

Update the Arizona income tax model for tax year 2025, including parameter value updates, 2025 references for all parameters, and implementation of new modelable programs.

Fixes #7111

Changes

Parameter Value Updates

• Standard deductions updated for 2025 (Single: $15,750, Joint: $31,500, HOH: $23,625, MFS: $15,750)
• Charitable contributions rate updated to 34%

2025 Reference Updates

• Tax rate parameters
• Exemption parameters (aged, blind, stillborn, parent/grandparent)
• Dependent tax credit parameters
• Family tax credit parameters
• Increased excise tax credit parameters
• Property tax credit parameters
• Subtraction parameters
• Charitable contribution credit parameters

New Programs (Planned)

• 529A ABLE Account Contributions Subtraction
• Adoption Expenses Subtraction
• Wood Stove/Fireplace Conversion Subtraction
• Arizona Families Tax Rebate Subtraction
• Filing requirement threshold parameters

Status

• Documentation collected
• Parameters updated
• Variables implemented
• Tests written
• CI passing

Test Plan

• Update existing test files for 2025 parameter values
• Create new test cases for new subtractions
• Run integration tests for 2025 tax year
• Verify make format passes
• Verify make test passes

Primary Source

2025 Arizona Form 140 Instructions

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This is a draft PR created for early visibility. Implementation work is in progress.

[codecov]

Codecov Report

✅ All modified and coverable lines are covered by tests.
✅ Project coverage is 100.00%. Comparing base (fc2b613) to head (dcd544c).
⚠️ Report is 45 commits behind head on main.

Additional details and impacted files

@@            Coverage Diff            @@
##              main     #7112   +/-   ##
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  Coverage   100.00%   100.00%           
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  Files           10         6    -4     
  Lines          144        69   -75     
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- Hits           144        69   -75     

Flag	Coverage Δ
unittests	100.00% <100.00%> (ø)

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[DTrim99]

PR Review: Arizona 2025 Income Tax Model Update

Overall Assessment: APPROVE with minor suggestions

This PR correctly implements Arizona 2025 income tax updates including standard deduction increases, charitable contribution rate updates, new subtractions, and filing requirement thresholds. The implementation is well-structured and properly wired into the existing Arizona tax model.

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What's Working Well

1. New subtractions are properly integrated: All 4 new subtractions (529A ABLE, adoption expenses, wood stove conversion, and Arizona Families Tax Rebate) are:

   • Added to subtractions.yaml so they flow into az_subtractions.py
   • Have proper input variables that users can specify
   • Correctly use defined_for = StateCode.AZ

2. Parameter values have 2025 references: All updated parameters include the 2025 Form 140 Instructions as a reference source.

3. Good test documentation: Tests include detailed calculation comments explaining expected values.

4. Modelable programs: All new subtractions ARE modelable because:

   • They have user-specifiable input variables (az_able_account_contributions, az_adoption_expenses, az_wood_stove_conversion_expense, az_families_tax_rebate_received)
   • The logic is straightforward (min of expense and cap)
   • No complex eligibility criteria that can't be captured by inputs

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Should Address

1. Test count is borderline excessive:

   • integration_2025.yaml: 56 tests (1,301 lines)
   • az_income_tax_filing_required.yaml: 20 tests
   • Individual subtraction files: 9-15 tests each

   Suggestion: The integration test file is comprehensive but could be trimmed. Consider:

   • Removing tests that duplicate what's already in unit test files (e.g., filing requirement boundary tests appear in both integration_2025.yaml and az_income_tax_filing_required.yaml)
   • The "Compare 2024 vs 2025" tests (lines 1236-1276) are good for documentation but could be trimmed to 1-2 examples

2. Variable unit mismatch: az_income_tax_filing_required.py (line 8) has unit = USD but the variable is a boolean. Should be removed or changed:

# policyengine_us/variables/gov/states/az/tax/income/az_income_tax_filing_required.py:8
unit = USD  # Should be removed - this is a bool variable

3. Filing requirement parameter missing pre-2024 values: filing_requirement.yaml only has values starting from 2024-01-01. Consider adding historical values or documenting when this was introduced.

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Suggestions (Non-blocking)

1. Consider consolidating similar edge case tests: For example, az_families_tax_rebate_subtraction.yaml has multiple tests that all just pass through the input value since the variable has no cap. Tests 9-11 ("Single dependent under 17", "Single dependent 17 or older", "Three dependents under 17") test the same code path as tests 1-3.

2. Add a README or module docstring: The new subtractions would benefit from a brief note explaining they were added for 2025 tax year.

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Validation Summary

Check	Result
New programs modelable	Yes - all have user inputs
Variables wired in correctly	In subtractions.yaml
References included	2025 Form 140 refs added
Code patterns correct	Uses defined_for, proper patterns
Test coverage	Comprehensive but some duplication
CI Status	Most passing, some pending

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Next Steps

1. Consider removing 5-10 duplicate tests from integration_2025.yaml
2. Fix the unit = USD on the boolean variable
3. Wait for remaining CI checks to complete

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Generated with Claude Code

[DTrim99]

Fixes Applied

Issues Fixed

1. Fixed unit attribute mismatch (az_income_tax_filing_required.py)

   • Removed unit = USD from boolean variable - boolean variables should not have a unit attribute

2. Removed duplicate tests (integration_2025.yaml)

   • Removed SECTION 9 with 6 filing requirement boundary tests that duplicated tests in az_income_tax_filing_required.yaml
   • Renumbered remaining sections (10→9, 11→10)
   • Reduced integration tests from 56 to 50

3. Removed redundant tests (az_families_tax_rebate_subtraction.yaml)

   • Removed 3 edge case tests that tested the same pass-through logic as existing tests
   • Reduced tests from 11 to 8 while maintaining full coverage

Verification

• All tests pass locally:
  • az_families_tax_rebate_subtraction.yaml: 8/8 passed
  • az_income_tax_filing_required.yaml: 20/20 passed
  • integration_2025.yaml: 50/50 passed
• Code formatted with make format

Summary

File	Change	Tests Removed
az_income_tax_filing_required.py	Removed unit = USD	N/A
integration_2025.yaml	Removed duplicate section	6 tests
az_families_tax_rebate_subtraction.yaml	Removed redundant tests	3 tests

Total test reduction: 9 duplicate/redundant tests removed

Ready for re-review.

[PavelMakarchuk]

High level notes

[PavelMakarchuk]

We dont model the filing requirements, I dont think it is in the legal code but a combination of deductions and exemptions etc.
Please remove

[PavelMakarchuk]

Remove

[PavelMakarchuk]

I think this is cluttering the model, we dont have relevant data

[PavelMakarchuk]

Do we not model the rebate itself?

[PavelMakarchuk]

If we want to model this, this should be a federal input

[DTrim99]

Review Feedback Addressed

Changes Made

Issue	Action Taken
Remove filing_requirement.yaml	✅ Deleted parameter file
Remove az_income_tax_filing_required.py	✅ Deleted variable file and tests
Remove wood stove conversion subtraction	✅ Deleted variable, parameter, input, and tests
Move adoption expenses to federal input	✅ Created qualified_adoption_expenses at federal level

Details

1. Filing Requirement - Removed entirely per feedback that filing requirements aren't modeled in PolicyEngine

2. Wood Stove Conversion - Removed entirely per feedback about model clutter without relevant data

3. Adoption Expenses - Converted from state-specific az_adoption_expenses to federal qualified_adoption_expenses so other states can reuse it

4. Arizona Families Tax Rebate - Kept the subtraction. This is a valid use case: the rebate is federally taxable but AZ-exempt, so users who received the rebate need to subtract it from AZ income. The input variable allows users to specify the rebate amount they received.

Files Changed

Deleted:

• policyengine_us/parameters/gov/states/az/tax/income/filing_requirement.yaml
• policyengine_us/variables/gov/states/az/tax/income/az_income_tax_filing_required.py
• policyengine_us/variables/gov/states/az/tax/income/subtractions/az_wood_stove_conversion_subtraction.py
• policyengine_us/variables/household/expense/person/az_wood_stove_conversion_expense.py
• policyengine_us/parameters/gov/states/az/tax/income/subtractions/wood_stove/max_amount.yaml
• policyengine_us/variables/household/expense/person/az_adoption_expenses.py
• Related test files

Added:

• policyengine_us/variables/household/expense/tax_unit/qualified_adoption_expenses.py (federal input)

Modified:

• az_adoption_expense_subtraction.py - Now uses federal input
• subtractions.yaml - Removed wood stove entry
• Test files updated accordingly

Verification

• ✅ All 255 Arizona income tax tests pass
• ✅ Code formatted with make format

Question for Reviewer

Regarding Arizona Families Tax Rebate: I kept the subtraction because it serves a legitimate purpose - users who received the 2023/2024 rebate need to subtract it from Arizona taxable income (federally taxable but AZ-exempt). Should this also be removed, or is the current approach acceptable?

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Ready for re-review.