Fix Arkansas military exemptions: active-duty and retirement

changelog_entry.yaml

@@ -0,0 +1,4 @@
+- bump: patch
+  changes:
+    fixed:
+    - Fix Stay NJ benefit formula order of operations and add Senior Freeze offset per P.L. 2024 c.88.

policyengine_us/parameters/gov/states/ar/tax/income/gross_income/sources/individual.yaml

@@ -3,7 +3,6 @@ values:
   2021-01-01:
     - irs_employment_income # Line 8
     - self_employment_income # Line 8
-    - military_service_income # Line 9
     - interest_income # Line 10
     - dividend_income # Line 11
     - alimony_income # Line 12

policyengine_us/parameters/gov/states/ar/tax/income/gross_income/sources/joint.yaml

@@ -3,7 +3,6 @@ values:
   2021-01-01:
     - irs_employment_income # Line 8
     - self_employment_income # Line 8
-    - military_service_income # Line 9
     - interest_income # Line 10
     - dividend_income # Line 11
     - alimony_income # Line 12

policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/ar_gross_income_indiv.yaml

@@ -0,0 +1,16 @@
+- name: Arkansas active-duty military service pay excluded from gross income
+  period: 2024
+  input:
+    people:
+      person1:
+        irs_employment_income: 50_000
+        military_service_income: 10_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: AR
+  output:
+    ar_gross_income_indiv: 50_000

policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/exemptions/ar_capped_retirement_or_disability_benefits_exemption_person.yaml

@@ -1,30 +1,81 @@
-- name: Arkansas capped exemption for retirement or disability benefits (below the cap)
+- name: Arkansas military retirement fully exempt, no pension
   period: 2021
   input:
     people:
       person1:
-        ar_retirement_or_disability_benefits_exemption_person: 5_000
+        ar_retirement_or_disability_benefits_exemption_person: 0
+        ar_military_retirement_income_person: 8_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: AR
+  output:
+    ar_capped_retirement_or_disability_benefits_exemption_person: 8_000
+
+- name: Arkansas military retirement $4K plus pension $1K (both under cap)
+  period: 2021
+  input:
+    people:
+      person1:
+        ar_retirement_or_disability_benefits_exemption_person: 1_000
         ar_military_retirement_income_person: 4_000
     tax_units:
       tax_unit:
-        members: [person1]  
+        members: [person1]
     households:
       household:
         members: [person1]
         state_code: AR
   output:
     ar_capped_retirement_or_disability_benefits_exemption_person: 5_000
 
-- name: Arkansas capped exemption for retirement or disability benefits (over the cap)
+- name: Arkansas military retirement $2K plus pension $3K (remaining cap allows full pension)
+  period: 2021
+  input:
+    people:
+      person1:
+        ar_retirement_or_disability_benefits_exemption_person: 3_000
+        ar_military_retirement_income_person: 2_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: AR
+  output:
+    ar_capped_retirement_or_disability_benefits_exemption_person: 5_000
+
+- name: Arkansas military retirement $8K consumes cap so pension capped at 0
+  period: 2021
+  input:
+    people:
+      person1:
+        ar_retirement_or_disability_benefits_exemption_person: 3_000
+        ar_military_retirement_income_person: 8_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: AR
+  output:
+    ar_capped_retirement_or_disability_benefits_exemption_person: 8_000
+
+- name: Arkansas pension only capped at $6K
   period: 2021
   input:
     people:
       person1:
         ar_retirement_or_disability_benefits_exemption_person: 7_000
-        ar_military_retirement_income_person: 4_000
+        ar_military_retirement_income_person: 0
     tax_units:
       tax_unit:
-        members: [person1]  
+        members: [person1]
     households:
       household:
         members: [person1]

policyengine_us/variables/gov/states/ar/tax/income/exemptions/ar_capped_retirement_or_disability_benefits_exemption_person.py

@@ -8,7 +8,7 @@ class ar_capped_retirement_or_disability_benefits_exemption_person(Variable):
     unit = USD
     definition_period = YEAR
     reference = "https://www.dfa.arkansas.gov/images/uploads/incomeTaxOffice/2022_AR1000F_and_AR1000NR_Instructions.pdf#page=13"
-    defined_for = "ar_retirement_or_disability_benefits_exemption_person"
+    defined_for = StateCode.AR
 
     def formula(person, period, parameters):
         p = parameters(
@@ -20,7 +20,8 @@ def formula(person, period, parameters):
         military_retirement_exemption = person(
             "ar_military_retirement_income_person", period
         )
-        larger_exemption = max_(
-            eligible_pension_income, military_retirement_exemption
-        )
-        return min_(larger_exemption, p.cap)
+        # Military retirement is fully exempt (no cap).
+        # The $6,000 cap applies to pension/IRA, reduced by military retirement.
+        remaining_cap = max_(p.cap - military_retirement_exemption, 0)
+        pension_exempt = min_(eligible_pension_income, remaining_cap)
+        return military_retirement_exemption + pension_exempt