[MaxGhenis]

Summary

New Jersey has no section 1341 credit. A filer who repays income taxed in an earlier year instead offsets the repayment against income of the same category in the year of repayment. PolicyEngine had no such offset, so a repayment changed nothing in New Jersey. This PR adds it.

• nj_claim_of_right_repayment_category (person input, enum, default WAGES): the N.J.S.A. 54A:5-1 category of the repaid income: wages (a), interest (e), dividends (f), gambling winnings (g), pensions and annuities (j), alimony (n), another category the model doesn't offset (OTHER), or income New Jersey didn't tax when received (NOT_TAXED).
• nj_claim_of_right_offset (person): the reduction in New Jersey gross income, which nj_gross_income subtracts. nj_claim_of_right_pension_offset and nj_claim_of_right_wage_offset hold its pension and wage parts.
• nj_eligible_pension_income (the pension exclusion's base, NJ-1040 line 28a's "Line A. Amount from line 20a") nets out the pension part, and Worksheet D's $3,000 earnings test (line 4, "the amount from line 15") nets out the wage part.
• gov.states.nj.tax.income.gross_income.claim_of_right_category_sources.* lists the income sources in each category, matching the lines of non_negative_sources.

The law

N.J.S.A. 54A:5-2, as the Legislature reprinted it in S796 of 2012, lets losses within one category offset "other sources of gross income within the same category of gross income during the taxable year". The same section bars applying a net loss in one category against another.

TAM 2011-7, Claim of Right Repayment Refunds (IRC 1341), issued January 13, 2011, says the Gross Income Tax Act "does not contain provisions similar to IRC section 1341". It adds that "any repayment or deduction may be applied against other income earned in the same category and in the same tax year as the repayment". Its example adjusts 2011 wages for wages repaid in 2011 that the filer received in 2010. A filer whose offset produces a net loss "must report zero income in that category".

The TAM also says New Jersey doesn't let a filer amend the earlier year's return to recover the tax. The 2025 NJ-1040 instructions (PDF p. 9) state the same category rule and don't mention repayments.

The statute doesn't name repayments, so the model follows the TAM, which applies the section to them.

Design notes

• The repayer's income first, then the spouse's. A repayment offsets the repayer's own taxable income in its category first. On a joint return, whose category line combines both spouses, any excess offsets the other spouse's income in it. The return's offset in each category equals min(the head's and spouse's repayments in the category, their income in it), and no one's income in a category goes below zero. No source speaks to joint repayments, so we take the repayer first.
• The order changes the pension exclusion. The exclusion counts only an eligible spouse's pension (2025 instructions, Line A). A 70-year-old's exclusion falls by their own pension repayment, and by a younger spouse's only for the part that exceeds the younger spouse's own pension income. If each has a $20,000 pension and the younger repays $30,000, the older spouse's pension bears $10,000.
• The offset reaches gross income and the lines that read it. Total income (NJ-1040 line 27), the pension exclusion's income percentage, and ANCHOR's and property tax relief's gross income all see it. The pension exclusion's base (line 20a, 2025 instructions PDF p. 22) and Worksheet D's earnings test (line 15, p. 23) see its pension and wage parts. Without those two, the model would subtract $8,000 twice for a 70-year-old who repays $8,000 of a $50,000 pension.
• Exempt interest stays out of the offset. The model caps the interest category at the taxable-interest sources: federal taxable interest less interest on U.S. obligations, which New Jersey subtracts from gross income separately (claim_of_right_category_exempt_sources). New Jersey also taxes interest on other states' municipal obligations (2025 instructions, PDF pp. 10-12), which the model's New Jersey income leaves out, so a repayment can't offset it here.
• New Jersey applies no threshold and no federal method. The TAM and the statute have neither. Repaid income New Jersey didn't tax (unemployment compensation, Social Security) offsets nothing.
• The category takes a leaf input. The model can't derive the kind of income repaid, a fact about the earlier year. The input defaults to wages, the category of the TAM's example. A repayment of unemployment compensation or Social Security needs NOT_TAXED, and one of another category needs OTHER.
• Dependents file their own returns, so the offset leaves out their repayments and income. The model's nj_agi already adds every tax unit member's total income, dependents included, and this PR doesn't change that.

Illinois and Ohio (#10195), Indiana, Massachusetts and West Virginia (#10196), Hawaii (#10200) and Arkansas (#10203) use the same federal input in their own PRs.

Not modeled:

• More than one repayment category for the same person in a year. A person's entire claim_of_right_repayment takes the single category input, so the model can't represent one person repaying both wages and pension income.
• Interest on other states' municipal obligations, as above.
• Offsets in the other categories (prizes and awards, estates and trusts, gains, rents, partnership and S corporation income, and the rest). Enter them as OTHER.
• Repayments of income New Jersey taxed but federal AGI left out, such as alimony under a divorce executed after 2018 (New Jersey line 25 takes "any court-ordered alimony", 2025 instructions PDF p. 21). claim_of_right_repayment covers income included in federal AGI, so it can't carry them.
• Repayments deducted in arriving at AGI, such as repaid business income deducted on Schedule C.

Household example (2025, single, age 40)

Household	No repayment	With the repayment
A wage repayment like TAM 2011-7's example: wages $50,000, repays $8,000 of wages, earlier-year federal decrease $1,760	Federal $3,871.50; NJ $1,214.75	Federal $2,111.50 (credit); NJ $772.75 ($442 less: $8,000 at 5.525%)

Tests

gov/states/nj/tax/income/adjusted_gross_income/nj_claim_of_right_offset.yaml, 17 cases, with expected values from the cited sources:

• a wage repayment like the TAM's ($8,000 off $50,000), and a repayment above wages that reports wages as zero while interest stays;
• a repaid pension at age 70 offsetting pensions only, with the pension exclusion then zero and New Jersey AGI $10,000;
• repaid unemployment compensation (NOT_TAXED) and an OTHER category, each offsetting nothing;
• a joint return where the head's $6,000 wage repayment offsets the head's $2,000 of wages and then $4,000 of the spouse's;
• the federal credit method, and another state;
• a 70-year-old repaying $8,000 of a $50,000 pension (line 20a $42,000, exclusion $42,000, New Jersey AGI $30,000), and a 65-year-old whose wage repayment brings line 15 to $2,000, so Worksheet D's unused exclusion applies;
• a repayment of interest that finds only exempt Treasury interest, and an $8,000 interest repayment against $10,000 of interest, $5,000 of it Treasury interest, which offsets the $5,000 New Jersey taxes (gross income $35,000, total income $30,000);
• a couple of 70 and 40, each with a $20,000 pension, where an $8,000 pension repayment gives New Jersey AGI of $42,000 when the younger spouse repays and $50,000 when the older one does;
• dividends and gambling winnings against $5,000 of dividends and $4,000 of winnings, where $4,500 of dividends repaid gives a $4,500 offset and $4,500 of winnings repaid gives $4,000;
• $2,000 of alimony repaid against $1,500 of alimony, which gives $1,500.

tests/unit/test_nj_claim_of_right_properties.py (the Rest job's remaining group) needs Python because its main check compares against a separate simulation, on a grid that crosses ages, pensions and filing status.

Invariants

The property test runs a 576-return grid: category × repayment × head wages × head pension × head age 40 or 70 × filing type. Filing types cover single returns, joint returns with a same-age spouse with wages, and joint returns with an other-age spouse with a pension.

1. A repayment acts as less income in its category. New Jersey AGI and taxable income equal those of a simulation with no repayment and each filer's income in the repaid category lowered by the return's offset. That offset equals min(repayment, the filers' income in that category), taken from the repayer first and then the spouse. This reaches the pension exclusion, including for mixed-age couples, and Worksheet D. Both simulations pin the medical expense deduction, because lowering wages in the reference can qualify a couple over 65 for a Medicare Savings Program, which removes their Part B premiums, while the repayment doesn't.
2. Per-spouse bound. No filer's offset goes below zero or above their own income in the repaid category.
3. Method independence; never raises; monotone, on this grid. The grid's households have no federal child and dependent care credit. Their New Jersey income tax stays the same with the federal credit method fixed, never exceeds its no-repayment value, and never rises as the repayment grows. The offset itself doesn't read the federal method. New Jersey tax can otherwise depend on that method because Worksheet J starts from the federal child and dependent care credit as claimed (2025 instructions, PDF p. 45).
4. Sources. In every year block, the category lists together cover non_negative_sources except line 26's other income, without overlap, and the pension category equals the pension exclusion's sources.

Reverting the pension exclusion wiring, reverting the Worksheet D wiring, dropping the category cap, or sharing the offset proportionally between spouses each fails the property test. Counting exempt interest fails YAML cases 11 and 14, and an interest category that offsets nothing fails case 14. Swapping the dividends and gambling-winnings mappings and mapping alimony to wages fails the three category cases.

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, #10196, #10200 and #10203 carry the identical file, so they merge in any order.

Cost

At an earlier head, CI run 38545538935 took 15.3 s for this property file in Rest shard-1's remaining group, including 3.24 s of fixture setup and 12.07 s of teardown charged to the last test. That group ran 2,344 tests in 20:52 wall clock with a 7.49 GB peak on the 16 GB runner. The file builds four simulations of 576 returns and frees them at teardown.

Microsimulation impact

We estimate no change in 2025. No record in the default dataset carries claim_of_right_repayment, and the offset needs a repayment, so no record changes in nj_gross_income, nj_agi, state_income_tax, income_tax or household_net_income.

Axiom

axiom: TheAxiomFoundation/rulespec-us#1795 queued

rulespec-us has no us-nj/statutes/54a:5-2.yaml module, and us-nj/policies/income_tax/2026_resident_ordinary_core.yaml cites 54A:5-2 for the property-disposition (c) and rents (d) categories only. The current rulespec-us corpus pin reads us-nj/statute/54a:5-1 and us-nj/statute/54a:5-2. TAM 2011-7 needs an ingest and release inclusion, and the existing 2025 NJ-1040 instructions row needs release inclusion. TheAxiomFoundation/rulespec-us#1635 shares the destination and covers category (h)'s estate and trust loss isolation.

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

🤖 Generated with Claude Code

[codecov]

Codecov Report

✅ All modified and coverable lines are covered by tests.
✅ Project coverage is 100.00%. Comparing base (aae7f98) to head (9593b23).
⚠️ Report is 73 commits behind head on main.

Additional details and impacted files

@@            Coverage Diff             @@
##              main    #10198    +/-   ##
==========================================
  Coverage   100.00%   100.00%            
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  Files            1         7     +6     
  Lines           37       153   +116     
  Branches         0         2     +2     
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+ Hits            37       153   +116     

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unittests	100.00% <100.00%> (ø)

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David, 9593b23 resolves each item:

• Should 1: the description's Axiom section carries the queued line for rulespec-us#1795.
• Should 2: cases 15–17 of nj_claim_of_right_offset.yaml test dividends, gambling winnings and alimony with your amounts, and swapping those mappings fails them.
• Suggestion 1: the Cost section reports the CI figures, and the third invariant limits its tax claims to a grid with no federal child and dependent care credit.
• Suggestion 2: the six category lists link to page 2 of the form, and nj_eligible_pension_income and nj_other_retirement_income_exclusion link to pages 22 and 23 of the instructions.
• Suggestion 3: nj_claim_of_right_repayment_category documents that a person's whole repayment takes one category, and the description lists that limit under Not modeled.
• The California item from #10038: main carries that fix, and this branch includes it.

[MaxGhenis]

Merging at 9593b23716 as an admin squash with --match-head-commit, past the required-review gate.

• Checks: gh pr checks passes all 38 checks at this head, including pull request run 42582295226 (36 of 36 jobs). GitHub reports the PR MERGEABLE, and no change request stands: we dismissed DTrim99's review 5525742096 on 2026-11-09 with a mapping of each point to its fix.
• An independent review approved the code at 9412265d2b, 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.
• An independent delta review approved 9593b23716. The commits after 9412265d2b change 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 New Jersey cases (17 of 17) and property file (4 of 4).
• The review ran each mutation the description lists, and each household figure in the description matches a simulation to the cent.