Fix WA WFTC phase-out to use federal phase-out income (max of earned income, AGI)#8681
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Fix WA WFTC phase-out to use federal phase-out income (max of earned income, AGI)#8681DTrim99 wants to merge 1 commit into
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The Washington Working Families Tax Credit phase-out reduction was computed on earned income alone, but RCW 82.08.0206(3)(b) bases it on the federal phase-out income (the greater of earned income or AGI), the same measure already used for the maximum-qualifying-income ceiling and eligibility test. Filers with AGI above earned income in the phase-out band (e.g. unemployment, taxable pension, taxable Social Security) were overpaid. Surfaced via PolicyEngine/policyengine-taxsim#986. Co-Authored-By: Claude Opus 4.8 (1M context) <noreply@anthropic.com>
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Fixes #8680.
What
The Washington Working Families Tax Credit (WFTC) phase-out reduction was computed on earned income alone, but RCW 82.08.0206(3)(b) bases the reduction on the federal phase-out income — the federal EITC measure, i.e. the greater of earned income or AGI. The credit's eligibility ceiling and
wa_working_families_tax_credit_maximum_qualifying_incomealready usemax(earned income, AGI); this aligns the taper with them.Impact
Filers whose AGI exceeds earned income and lands in the phase-out band (unearned income — unemployment compensation, taxable pension, taxable Social Security — near the top of the eligibility range) were overpaid. Filers with earnings ≈ AGI, or income below the band, are unchanged.
Example (MFJ, 3 children, 2025)
Tests
Added Case 6b to
wa_working_families_tax_credit.yamlcovering the $40k-wages + $16k-UI household (expected $866.57). Full WA WFTC suite (24 cases) passes.Context
Surfaced by Daniel Feenberg (NBER TAXSIM) in PolicyEngine/policyengine-taxsim#986. The original household in that issue (earnings ≈ AGI, below the band) is not affected.
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