Fix PA employer-plan retirement exemption and NJ 529 deduction ordering (#8848, #8849); close #8830

[MaxGhenis]

Summary

Three state income-tax accuracy issues. Two are fixed here with dated, page-anchored parameters and tests; one is already correct on main and is documented below with evidence for closing.

Issue	State	Verdict
#8848	PA	Fixed — employer-plan (401(k), 403(b), SEP, Keogh) distributions now exempt post-retirement, like IRAs
#8849	NJ	Fixed — 529 deduction moved from gross-income subtractions to taxable-income deductions
#8830	OK	Already correct on main (PR #8911) — close with evidence

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#8848 — PA post-retirement employer-plan distributions

Law. 61 Pa. Code § 101.6 defines "Old Age or Retirement Benefit Plans" to include "Individual Retirement plans (IRA), Simplified Employee Pension Plans (SEP), Keogh plans, Federally qualified employe pension plans and similar old age or retirement benefit plans," and makes their distributions non-taxable when "made upon or after retirement from service after reaching a specific age or after a stated period of employment." The PA PIT Guide (Gross Compensation) and the PA DOR 1099-R FAQ (a_id 1470, Code 7 normal distribution) say the same: a distribution from an eligible PA plan is not taxable once the plan's age/service requirements for retirement are met.

Bug. taxable_401k_distributions, taxable_403b_distributions, taxable_sep_distributions, and keogh_distributions all sit in taxable_retirement_distributions — separate from taxable_pension_income (which the pension path already exempts via pa_nontaxable_pension_income). pa_nontaxable_retirement_distributions only excluded taxable_ira_distributions, so post-retirement 401(k)/403(b)/SEP/Keogh distributions stayed in pa_total_taxable_income and were taxed at 3.07%.

Fix. New parameter gov/states/pa/tax/income/nontaxable_retirement_distribution_sources lists all five eligible distribution sources; pa_nontaxable_retirement_distributions sums them and applies the existing retirement_age_threshold (59½) proxy, mirroring the IRA treatment the issue asks for. The previously-passing "Case 3" test that pinned the old behavior (401(k) at 67 → taxed) is corrected to the exempt result, and cases for 403(b)/SEP/Keogh plus the issue's reported household (PolicyBench scenario_085: PA single, age 67, $1,560 401(k)) are added.

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#8849 — NJ 529 deduction shifts the filing threshold

Law. NJ's filing-threshold zero-tax floor (N.J.S.A. 54A:2-4) tests gross income — Form NJ-1040 line 29 ("more than $20,000 … $10,000 if single/MFS"). The NJBEST 529 contribution deduction (N.J.S.A. 54A:3-13; P.L. 2021 c.419) is a New Jersey College Affordability Act deduction on line 37a, in the deductions block (lines 30–37c) between gross income (line 29) and taxable income (line 39) — the same 54A:3 family as the medical-expense deduction PE already models in nj_total_deductions.

Bug. nj_529_deduction was listed in subtractions.yaml, which feeds nj_total_income → nj_agi (PE's gross-income line). Away from the threshold this is harmless (the deduction lands either way), but at the boundary it netted into nj_agi and wrongly pulled 529 contributors just above $10k/$20k below the threshold, zeroing their tax and flipping nj_property_tax_deduction_eligible.

Fix. Remove nj_529_deduction from subtractions.yaml (collapsing the now-redundant 2022 breakpoint) and add it to nj_total_deductions alongside nj_medical_expense_deduction. Its income-limit test reads federal adjusted_gross_income, not nj_agi, so this creates no circular dependency. A boundary test confirms a single filer with $10,500 gross income and $10,000 of 529 contributions keeps nj_agi = 10,500 (above the threshold, unmoved by the deduction) with the deduction landing in nj_total_deductions.

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#8830 — OK §401 employer pensions in TY2021 (already fixed)

Fixed on main by PR #8911 (commit 1f61736c69). ok_pension_subtraction now excludes private-employer (IRC §401) pension income before 2022 via the dated boolean parameter private_pension_qualifies (2021 → false, 2022 → true), page-anchored to Form 511 Schedule 511-A line 6 for both years. The reported-household case is already covered by baseline tests: age 66 with taxable_private_pension_income: 20_000 yields ok_pension_subtraction: 0 in 2021 and 10,000 in 2022, with a companion case confirming government pensions still qualify in 2021. No code change needed; recommend closing #8830 with reference to #8911.

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Tests

All baseline state trees pass on this branch:

• PA: 360 (was 356; +4 net from expanded employer-plan and reported-household cases)
• NJ: 550 (was 549; +1 filing-threshold boundary test)
• OK: 187 (unchanged; already covers the Oklahoma retirement exclusion applied to IRC §401 employer pensions in TY2021, before OK added them (2022) #8830 year-boundary cases)

Run:

python -m policyengine_core.scripts.policyengine_command test \
  policyengine_us/tests/policy/baseline/gov/states/{pa,nj,ok}/ -c policyengine_us

Closes #8848, closes #8849, closes #8830.

🤖 Generated with Claude Code

[codecov]

Codecov Report

✅ All modified and coverable lines are covered by tests.
✅ Project coverage is 100.00%. Comparing base (f9e58e7) to head (c1d44a3).
⚠️ Report is 139 commits behind head on main.

Additional details and impacted files

@@            Coverage Diff            @@
##              main     #8922   +/-   ##
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  Coverage   100.00%   100.00%           
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  Files            3         2    -1     
  Lines           55        25   -30     
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- Hits            55        25   -30     

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

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