Leave federally excluded income out of North Dakota renter's refund income

changelog.d/nd-renters-refund-federal-exclusions.fixed.md

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+North Dakota renter's refund income leaves out every part of market income that federal law excludes from gross income, as N.D.C.C. 57-02-08.1(5)(c) requires: tax-exempt interest and savings bond interest spent on higher education, the nontaxable parts of pensions and retirement distributions, the payroll deductions and employer adoption assistance excluded from wages, income from Puerto Rico and the U.S. possessions that federal law excludes, and alimony under divorce instruments executed after 2018, besides the disability benefits it already left out.

policyengine_us/parameters/gov/states/nd/tax/property/renters_refund/excluded_deductions.yaml

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+description: North Dakota subtracts these federal exclusions from income under the Renter's Refund program, because the model deducts them above the line and market income still holds the income they exclude.
+values:
+  2025-01-01:
+    # Savings bond interest spent on higher education.
+    - us_bonds_for_higher_ed
+    # Employer adoption assistance.
+    - qualified_adoption_assistance_expense
+    # Income of bona fide residents of Guam, American Samoa or the Northern
+    # Mariana Islands from sources there.
+    - specified_possession_income
+    # Income of bona fide residents of Puerto Rico from sources there.
+    - puerto_rico_income
+metadata:
+  unit: list
+  period: year
+  label: North Dakota Renter's Refund federal exclusions deducted above the line
+  reference:
+    - title: N.D.C.C. § 57-02-08.1(5)(c)
+      href: https://ndlegis.gov/cencode/t57c02.pdf#page=16
+    - title: 26 U.S. Code § 135(a)
+      href: https://www.law.cornell.edu/uscode/text/26/135#a
+    - title: 26 U.S. Code § 137(a)
+      href: https://www.law.cornell.edu/uscode/text/26/137#a
+    - title: 26 U.S. Code § 931(a)
+      href: https://www.law.cornell.edu/uscode/text/26/931#a
+    - title: 26 U.S. Code § 933
+      href: https://www.law.cornell.edu/uscode/text/26/933

policyengine_us/tests/policy/baseline/gov/states/nd/tax/property/renters_refund/nd_renters_refund_federally_excluded_income.yaml

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+- name: Each part of market income that federal law excludes is subtracted once.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    employment_income: 60_000
+    traditional_401k_contributions: 4_000
+    traditional_403b_contributions: 1_000
+    pre_tax_health_insurance_premiums: 3_000
+    health_savings_account_payroll_contributions: 2_000
+    dependent_care_employer_benefits: 5_000
+    taxable_interest_income: 700
+    tax_exempt_interest_income: 1_500
+    taxable_private_pension_income: 9_000
+    tax_exempt_private_pension_income: 2_500
+    tax_exempt_401k_distributions: 3_000
+    taxable_401k_distributions: 4_000
+    disability_benefits: 8_000
+    tax_exempt_disability_benefits: 3_500
+    alimony_income: 6_000
+    divorce_year: 2021
+  output:
+    # Payroll deductions 4,000 + 1,000 + 3,000 + 2,000 + 5,000 = 15,000,
+    # all within their limits, plus 1,500 + 2,500 + 3,000 + 3,500 + 6,000.
+    nd_renters_refund_federally_excluded_income: 31_500
+
+- name: Taxable amounts are not excluded.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    employment_income: 30_000
+    taxable_interest_income: 1_000
+    taxable_private_pension_income: 5_000
+    taxable_ira_distributions: 2_000
+    disability_benefits: 4_000
+    alimony_income: 6_000
+    divorce_year: 2015
+    strike_benefits: 1_000
+    military_retirement_pay: 10_000
+  output:
+    nd_renters_refund_federally_excluded_income: 0
+
+- name: A tax-exempt amount above the reported total of its source is capped at that total.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    interest_income: 3_000
+    tax_exempt_interest_income: 5_000
+  output:
+    market_income: 3_000
+    nd_renters_refund_federally_excluded_income: 3_000
+
+- name: A source reported only as a total counts in full.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    pension_income: 12_000
+  output:
+    nd_renters_refund_federally_excluded_income: 0
+
+- name: The exclusion applies only in North Dakota.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: SD
+    tax_exempt_interest_income: 5_000
+  output:
+    nd_renters_refund_federally_excluded_income: 0

policyengine_us/tests/policy/baseline/gov/states/nd/tax/property/renters_refund/nd_renters_refund_income.yaml

@@ -249,3 +249,234 @@
     # The 5,000 from a plan the recipient paid for is excluded by IRC
     # 104(a)(3), and NDCC 57-02-08.1(5)(c) excludes it: 10,000 + 7,000.
     nd_renters_refund_income: 17_000
+
+- name: North Dakota leaves out interest on state and local bonds, which federal law excludes from income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    employment_income: 20_000
+    taxable_interest_income: 1_000
+    tax_exempt_interest_income: 5_000
+  output:
+    market_income: 26_000
+    # IRC 103(a) excludes the 5,000 of bond interest, and NDCC
+    # 57-02-08.1(5)(c) excludes any amount federal law excludes:
+    # 20,000 + 1,000.
+    nd_renters_refund_income: 21_000
+
+- name: North Dakota counts social security in full but leaves out the nontaxable parts of pensions and IRA distributions.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    taxable_private_pension_income: 10_000
+    # The investment in the contract (IRC 72(b)(1)).
+    tax_exempt_private_pension_income: 4_000
+    # A qualified Roth IRA distribution (IRC 408A(d)(1)).
+    tax_exempt_ira_distributions: 6_000
+    taxable_ira_distributions: 3_000
+    social_security_retirement: 8_000
+  output:
+    # Social security is the one federal exclusion the statute keeps in
+    # income: 10,000 + 3,000 + 8,000.
+    nd_renters_refund_income: 21_000
+
+- name: North Dakota leaves out the payroll deductions federal law excludes from wages.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    employment_income: 50_000
+    # IRC 402(e)(3) and 402(g)(1) elective deferrals, and HSA contributions
+    # through payroll (IRC 106(d)).
+    traditional_401k_contributions: 5_000
+    health_savings_account_payroll_contributions: 2_000
+  output:
+    irs_employment_income: 43_000
+    nd_renters_refund_income: 43_000
+
+- name: North Dakota counts dependent care assistance above the IRC 129 limit.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    employment_income: 50_000
+    dependent_care_employer_benefits: 9_000
+  output:
+    # IRC 129(a)(2)(A) excludes 7,500 for 2026, and the other 1,500 is
+    # gross income: 50,000 - 7,500.
+    taxable_dependent_care_benefits: 1_500
+    nd_renters_refund_income: 42_500
+
+- name: North Dakota leaves out alimony under a divorce instrument executed after 2018.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    employment_income: 10_000
+    alimony_income: 12_000
+    divorce_year: 2020
+  output:
+    # The recipient's gross income leaves out alimony under an instrument
+    # executed after 2018 (IRS Topic 452).
+    nd_renters_refund_income: 10_000
+
+- name: North Dakota counts alimony under a divorce instrument executed before 2019.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    employment_income: 10_000
+    alimony_income: 12_000
+    divorce_year: 2015
+  output:
+    nd_renters_refund_income: 22_000
+
+- name: North Dakota leaves out a dependent's tax-exempt interest and counts the rest of the dependent's income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 30_000
+      child:
+        age: 15
+        is_tax_unit_dependent: true
+        taxable_interest_income: 500
+        tax_exempt_interest_income: 2_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: ND
+  output:
+    # NDCC 57-02-08.1(5)(c) counts the dependent's income and excludes what
+    # federal law excludes: 30,000 + 500.
+    nd_renters_refund_income: 30_500
+
+- name: North Dakota leaves out savings bond interest spent on higher education, which federal law excludes from income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    employment_income: 20_000
+    taxable_interest_income: 3_000
+    # IRC 135(a) excludes it. The model deducts it above the line, so
+    # interest_income still holds it.
+    us_bonds_for_higher_ed: 2_000
+  output:
+    market_income: 23_000
+    # 20,000 + 3,000 - 2,000.
+    nd_renters_refund_income: 21_000
+
+- name: North Dakota leaves out savings bond interest whose exclusion the household records on the student it paid for.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 45
+        employment_income: 30_000
+        taxable_interest_income: 4_000
+      child:
+        age: 19
+        is_tax_unit_dependent: true
+        us_bonds_for_higher_ed: 2_500
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: ND
+  output:
+    # 30,000 + 4,000 - 2,500.
+    nd_renters_refund_income: 31_500
+
+- name: North Dakota leaves out employer adoption assistance, which federal law excludes from income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 45_000
+      child:
+        age: 3
+        is_tax_unit_dependent: true
+        # IRC 137(a) excludes it, and households record it on the adopted
+        # child. The model deducts it above the line, so the wages include it.
+        qualified_adoption_assistance_expense: 5_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: ND
+  output:
+    # 45,000 - 5,000.
+    nd_renters_refund_income: 40_000
+
+- name: North Dakota leaves out income from Puerto Rico that federal law excludes.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 40_000
+    tax_units:
+      tax_unit:
+        members: [person]
+        # IRC 933 excludes it. The model deducts it above the line, so the
+        # wages include it.
+        puerto_rico_income: 15_000
+    households:
+      household:
+        members: [person]
+        state_code: ND
+  output:
+    # 40,000 - 15,000.
+    nd_renters_refund_income: 25_000
+
+- name: North Dakota takes the exclusions the model deducts above the line out of market income only, never out of social security.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    state_code: ND
+    taxable_interest_income: 1_000
+    us_bonds_for_higher_ed: 3_000
+    social_security_retirement: 8_000
+  output:
+    # Only the 1,000 of market income can leave: 1,000 + 8,000 - 1,000.
+    nd_renters_refund_income: 8_000
+
+- name: North Dakota's income tax reductions leave retired military benefits, capital gains and dividends in income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 45
+    state_code: ND
+    # N.D.C.C. 57-38-30.3(2)(d) and (r) reduce North Dakota taxable income by
+    # 40 percent of net long-term gains and qualified dividends and by retired
+    # military benefits. Item 10 of the Tax Commissioner's guideline lists
+    # military pensions and net gains as income.
+    military_retirement_income: 30_000
+    long_term_capital_gains: 5_000
+    qualified_dividend_income: 1_000
+  output:
+    # 30,000 + 5,000 + 1,000, with no state-law subtraction.
+    nd_renters_refund_income: 36_000