[MaxGhenis]

Summary

Indiana, Massachusetts and West Virginia each take a repayment of income held under a claim of right off the state base, whichever federal method applies. PolicyEngine had none of the three, so a repayment changed nothing in these states. This PR adds them.

• in_claim_of_right_deduction (tax unit), with the person input in_claim_of_right_repayment_excluded_from_income. It joins every year block of gov.states.in.tax.income.deductions.deductions (IT-40 Schedule 2, code 630).
• ma_claim_of_right_deduction (tax unit), with the person input ma_claim_of_right_repayment_excluded_from_income. It joins ma_part_b_taxable_income_deductions (Schedule Y line 14).
• wv_claim_of_right_subtraction (person), with gov.states.wv.tax.income.subtractions.claim_of_right.threshold ($3,000). It joins gov.states.wv.tax.income.subtractions.subtractions (Schedule M, "IRC 1341 Repayments", line 42 in 2025).

The law

Indiana. IC 6-3-1-3.5(a)(22), as set out in HEA 1001-2021 section 71 (PDF p. 117), subtracts "an amount as described in Section 1341(a)(2) of the Internal Revenue Code" to the extent it "was previously included in the taxpayer's adjusted gross income for a prior taxable year".

The 2025 IT-40 instructions, deduction 630 (PDF p. 23) state a general rule that asks whether the filer could itemize the repayment or claim the credit federally. The footnote to Example 1 then allows a $345 repayment of unemployment compensation although "he cannot claim miscellaneous itemized deductions for federal purposes". The example takes off $15 because the earlier year's unemployment compensation deduction, refigured, falls by that much, giving $330. Example 2 deducts $3,400 repaid by a filer who claimed the federal credit. Repaid Social Security gets nothing, "since Indiana has not previously taxed this income". The 2018 instructions (PDF p. 23) carry the same rule and examples, and their footnote says only that the filer may have taken the standard deduction.

Massachusetts. M.G.L. c. 62, s. 3(B)(a)(14) deducts the amount described in section 1341(a)(2) to the extent it "(i) was previously included in Massachusetts taxable income and (ii) is not otherwise deductible under section 2(d)(1) of this chapter". The 2025 Form 1 instructions (PDF p. 21) list "Repayment of unemployment compensation and supplemental unemployment benefits in a subsequent year" among the cases and send the amount to Schedule Y, line 14. Neither text has a $3,000 threshold or refers to the federal method.

West Virginia. The 2025 IT-140 instructions, Schedule M line 42 (PDF p. 29) say: "Enter the amount of money paid back under IRC 1341. ... The amount of income repaid MUST be more than $3,000.00 to qualify." The line decreases income (PDF p. 5) and doesn't depend on the federal method. From 2020 it has its own line with the $3,000 text and points to federal Publication 525 (2020 line 40, PDF p. 24). In 2017–2019 it shared a check-one line with long-term care insurance, and the instructions said only "money paid back under IRC 1341" (2017 line 50, PDF p. 23).

The January 2026 tax expenditure study (PDF p. 49) lists the modification with the same condition and cites W. Va. Code 11-21-12(c)(4), whose current text covers income tax refunds. We found no statutory paragraph that names repayments, so the model follows the instructions.

Design notes

• None of the three reads the federal method. Neither claim_of_right_credit_applies nor federal itemizing enters them. Under the federal credit method, section 1341(b)(3) keeps the federal deduction out of everything else, and these states give their own relief anyway, so the repayment lowers state tax under either method.
• Indiana and Massachusetts deduct any amount. Both texts refer to the deduction described in section 1341(a)(2), and neither states the $3,000 test in (a)(3). IC 6-3-1-11(b) could import federal allowability through Indiana's cross-reference, and the IT-40 general rule asks for federal eligibility. But the paragraph states its own limit, income previously included in AGI, and the Example 1 footnote allows a repayment the federal return can't deduct, so we follow the paragraph. Massachusetts DOR's differences from federal tax law allows this deduction regardless of the repayment amount, provided Massachusetts previously taxed it and it isn't otherwise deductible in computing Massachusetts income. TIR 06-4 explains the deduction and dates it to tax years beginning on or after January 1, 2005.
• West Virginia's $3,000 has its own parameter, because its instructions state the amount. The model tests the head's and spouse's total, as IRS Publication 525 (which the instructions cite) does for section 1341.
• Indiana and Massachusetts deduct only income they taxed when received. Each gets a person-level leaf input for the part they didn't tax, and both default to zero. For Indiana, that covers repaid Social Security or the part of the earlier unemployment compensation deduction attributable to the repaid amount (Example 1: $73 originally claimed minus $58 refigured = $15). For Massachusetts, it covers income that Massachusetts taxable income left out.
• West Virginia's senior modification keeps its base. Line 47's box (c) counts "all income ... not reported on lines 35 through 48" (2025 instructions, PDF p. 29), and W. Va. Code 11-21-12(c)(9) allows $8,000 of income included in federal AGI. A repayment adds no income, so it doesn't reduce that base: a 70-year-old with $9,000 of wages who repays $4,000 gets the full $8,000 senior modification plus the $4,000 repayment modification.
• Indiana and Massachusetts sum the head's and spouse's amounts. West Virginia keeps each spouse's own repayment in their Schedule M column. A dependent's repayment belongs on the dependent's own return.
• Indiana's repayments move out of the catch-all input. in_other_subtractions now lists code 630 among the deductions PolicyEngine computes. An Indiana user who entered a repayment there should move it to claim_of_right_repayment, or it counts twice. The comment on Massachusetts's 529 deduction now cites (B)(a)(19), since (14) holds this deduction.
• The Indiana and West Virginia relief also reaches 2015–2020. Each state's list starts in 2021, and the model extends the list's first entry back to 2015 (policyengine_us/system.py). We haven't checked those years against each year's law.

Illinois and Ohio (#10195), New Jersey (#10198), Hawaii (#10200) and Arkansas (#10203) use the same federal input in their own PRs.

Household examples (2025, single, age 40)

Household	No repayment	With the repayment
Indiana: wages $40,000, repays $3,400 (Example 2), federal decrease $400	Federal $2,671.50; IN $1,170	Federal $2,271.50 (credit); IN $1,068 ($102 less: 3% of $3,400)
Indiana: wages $40,000, repays $2,000	IN $1,170	IN $1,110
Massachusetts: wages $60,000, repays $2,000	MA $2,680	MA $2,580
Massachusetts: wages $60,000, repays $10,000, federal decrease $2,200	Federal $5,071.50; MA $2,680	Federal $2,871.50 (credit); MA $2,180
West Virginia: wages $40,000, repays $10,000, federal decrease $2,200	Federal $2,671.50; WV $1,098.90	Federal $471.50; WV $765.90

Tests

Each YAML case takes its expected values from the cited form:

• gov/states/in/tax/income/deductions/in_claim_of_right_deduction.yaml, 11 cases. They cover Indiana's Examples 1 ($330) and 2 ($3,400), repaid Social Security, the standard-deduction filer under the federal deduction method, a joint return with a dependent, and another state. They also cover Indiana AGI and tax at 3%, the same $870 tax under each of three fixed federal methods, and the same $870 from the existing in_other_subtractions input.
• gov/states/ma/tax/income/deductions/ma_claim_of_right_deduction.yaml, 10 cases, including a $2,000 repayment and Part B taxable income ($2,000 FICA cap plus the deduction, $4,400 exemption). Others give the same $43,600 under each of three fixed federal methods and take Part B income to zero with a $60,000 repayment.
• gov/states/wv/tax/income/subtractions/wv_claim_of_right_subtraction.yaml, 11 cases, including repayments of $3,000 and $3,001, two spouses at $2,000 each, and WV AGI and taxable income. Others leave the senior modification at $8,000 (WV AGI then -$3,000, taxable income $0) and give the same $28,000 taxable income under each of three fixed federal methods.

Invariants the YAML asserts

1. Method independence. Each state's result stays the same with the federal credit method fixed, the deduction method fixed with itemizing, and the deduction method fixed with the standard deduction.
2. Amounts. Indiana's and Massachusetts's deductions equal the whole repayment at every amount, less what the state didn't tax. West Virginia's equals the whole repayment when the return's total exceeds $3,000, and zero otherwise.
3. Dollar for dollar. Indiana and West Virginia AGI fall by the deduction, and Massachusetts Part B income falls by the deduction until it reaches zero.
4. Differential. Indiana's tax with a repayment equals its tax with the same amount entered through the existing in_other_subtractions input.

Making West Virginia's threshold inclusive, raising it to $3,999, gating West Virginia on the federal method, dropping Massachusetts's deduction from Part B, or limiting Indiana's to repayments over $3,000 each fails the YAML.

test_claim_of_right_section_1341_properties.py now holds an explicit, sourced map of the states whose own relief applies under the federal credit method. Each listed state whose variable exists must lower the household's tax by more than $1, and every other state stays unchanged, apart from the three that deduct federal tax. #10195, #10198, #10200 and #10203 carry the identical file, so they merge in any order.

Microsimulation impact

We estimate no change in 2025. No record in the default dataset carries claim_of_right_repayment, and each new amount needs a repayment, so no record changes in in_agi, ma_part_b_taxable_income, wv_agi, state_income_tax, income_tax or household_net_income.

Axiom

axiom: TheAxiomFoundation/rulespec-us#1794 queued

No rulespec-us module encodes any of the three, and us-ma/statutes/62/3.yaml encodes the exemptions without (B)(a)(14). The corpus holds (a)(22) at us-in/statute/6-3-1-3.5 and (B)(a)(14) at us-ma/statute/62/3/block-2. The active rulespec-us corpus pin lacks West Virginia form scopes, so the IT-140 instruction row needs admission first.

impact: none in 2025; no record in the default dataset carries claim_of_right_repayment

🤖 Generated with Claude Code

David, 447056b resolves each item:

• Should 1: the description's Axiom section carries the queued line for rulespec-us#1794.
• Should 2: in_claim_of_right_repayment_excluded_from_income now gives the adjustment as the deduction claimed minus the deduction refigured ($73 − $58 = $15).
• Should 3: case 11 of wv_claim_of_right_subtraction.yaml expects $3,001 for a $3,001 repayment.
• Suggestion 1: ma_claim_of_right_deduction.py cites DOR's any-amount statement and TIR 06-4, and the design notes state both.
• The California item from #10038: main carries that fix, and this branch includes it.

[MaxGhenis]

Merging at 447056bcd0 as an admin squash with --match-head-commit, past the required-review gate.

• Checks: gh pr checks passes all 36 checks at this head, including pull request run 42582291485 (36 of 36 jobs). GitHub reports the PR MERGEABLE, and no change request stands: we dismissed DTrim99's review 5525181646 on 2026-11-09 with a mapping of each point to its fix.
• An independent review at 54b4984725, after the merges of Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038 and main, asked for one changelog fix: it sent users to a variable main had removed.
• An independent delta review approved 447056bcd0. The commits after 54b4984725 change the changelog, documentation in in_claim_of_right_deduction.py and source_conflicts/candidates.yaml, and no formula or expected value moved.
• On a tree that composes all five claim-of-right PRs on main at fc521b4f6c, the source-conflict guard (103 of 103) and the shared section 1341 property file (58 of 58) pass. So do the Indiana (11 of 11), Massachusetts (10 of 10) and West Virginia (11 of 11) cases.
• The review ran each mutation the description lists, and each household figure in the description matches a simulation to the cent.