Summary

Update the Arizona income tax model for tax year 2025. This includes updating parameter values, adding 2025 references to all parameters, and implementing new modelable programs.

Primary Source: 2025 Arizona Form 140 Resident Personal Income Tax Booklet (Instructions: https://azdor.gov/sites/default/files/document/FORMS_INDIVIDUAL_2025_140i.pdf)

1. Parameter Value Updates Required

Standard Deductions (Instructions Page ~12, Line 18)

File: policyengine_us/parameters/gov/states/az/tax/income/deductions/standard/amount.yaml

Increased Standard Deduction for Charitable Contributions Rate

File: policyengine_us/parameters/gov/states/az/tax/income/deductions/standard/increased/rate.yaml

2. Parameters Requiring 2025 Reference Updates (No Value Change)

All parameters below need a 2025 reference added (with page number and line number) even if values haven't changed:

Tax Rate Parameters

• main/single.yaml - Tax rate: 2.5% flat (Line 46)
• main/joint.yaml - Tax rate: 2.5% flat (Line 46)
• main/head_of_household.yaml - Tax rate: 2.5% flat (Line 46)
• main/separate.yaml - Tax rate: 2.5% flat (Line 46)

Exemption Parameters

• exemptions/aged.yaml - $2,100 per person age 65+ (Box 8)
• exemptions/blind.yaml - $1,500 per blind person (Box 9)
• exemptions/stillborn.yaml - $2,300 per stillborn child (Line 40)
• exemptions/parent_grandparent/amount.yaml - $10,000 per qualifying parent/grandparent (Box 11a, Line 41)
• exemptions/parent_grandparent/cost_rate.yaml - >50% cost support requirement
• exemptions/parent_grandparent/min_age.yaml - Age 65+ requirement

Dependent Tax Credit Parameters

• credits/dependent_credit/amount.yaml - $100 under 17, $25 age 17+ (Line 49)
• credits/dependent_credit/reduction/start.yaml - $200k single, $400k joint threshold (Line 49)
• credits/dependent_credit/reduction/percentage.yaml - 5% reduction per $1,000 increment
• credits/dependent_credit/reduction/increment.yaml - $1,000 increment

Family Tax Credit Parameters (Line 50)

• credits/family_tax_credits/amount/per_person.yaml - $40 per person
• credits/family_tax_credits/amount/cap.yaml - $240 MFJ/HOH, $120 Single/MFS
• credits/family_tax_credits/income_limit/single.yaml - $10,000 threshold
• credits/family_tax_credits/income_limit/joint.yaml - $20k-$31k based on dependents
• credits/family_tax_credits/income_limit/head_of_household.yaml - $20k-$26,575 based on dependents
• credits/family_tax_credits/income_limit/separate.yaml

Increased Excise Tax Credit Parameters (Line 56)

• credits/increased_excise/amount.yaml - $25 per person
• credits/increased_excise/max_amount.yaml - $100 maximum
• credits/increased_excise/income_threshold.yaml - $12,500 single, $25,000 joint/HOH

Property Tax Credit Parameters (Line 57)

• credits/property_tax/age_threshold.yaml - Age 65+ or SSI recipient
• credits/property_tax/amount/living_alone.yaml - Income threshold $3,751
• credits/property_tax/amount/cohabitating.yaml - Income threshold $5,501

Subtraction Parameters

• subtractions/capital_gains/rate.yaml - 25% of net LTCG (Line 24)
• subtractions/pension/public_pension_cap.yaml - $2,500 cap (Line 29a)
• subtractions/college_savings/cap.yaml - $2,000/$4,000 per beneficiary (Line 34a)

Charitable Contribution Credit Parameters

• credits/charitable_contribution/ceiling/qualifying_organization.yaml - Update with uprated 2025 values
• credits/charitable_contribution/ceiling/qualifying_foster.yaml - Update with uprated 2025 values

3. New Programs to Implement

High Priority (Can model with existing variables)

3.1 529A ABLE Account Contributions Subtraction (Line 34b)

• Amount: $2,000 per beneficiary ($4,000 MFJ)
• Similar structure to 529 college savings plan subtraction
• Requires new parameter and variable

3.2 Adoption Expenses Subtraction (Other Subtractions - Item D)

• Amount: Up to $40,000 per adoption (year final order granted)
• Includes: medical/hospital costs, counseling, legal/agency fees, nonrecurring costs
• Requires new parameter and variable, plus input variable for adoption expenses

3.3 Qualified Wood Stove/Fireplace Conversion Subtraction (Other Subtractions - Item E)

• Amount: Up to $500 for converting existing fireplace
• Requires new parameter and input variable

3.4 Arizona Families Tax Rebate Subtraction (Line 36, Item U)

• Subtract 2025 rebate amount if included in federal gross income
• Requires new variable

3.5 Filing Requirement Thresholds

Add parameters for gross income filing thresholds:

Medium Priority (More complex implementation)

3.6 Legal Tender Exchange Capital Gains Subtraction

• Net gain/loss from exchanging legal tender (coins with precious metal content)
• May require specialized input variables

3.7 Virtual Currency/NFT Airdrop Subtraction

• Value at time of airdrop (not subsequent appreciation)
• Gas fees not included in basis also subtractable
• Requires specialized input variables

3.8 Form 301 Nonrefundable Tax Credits (Partial List)

These credits could potentially be modeled:

• Solar Energy Devices (Form 310) - residential solar installations
• Public School Contributions (Form 322) - contributions/fees to AZ public schools
• Private School Tuition Organizations (Form 323) - scholarship contributions
• Military Family Relief Fund (Form 340) - cash contributions
• Qualifying Foster Care Charitable Organizations (Form 352) - already partially implemented

4. Tests Required

4.1 Update Existing Tests for 2025

All existing test files need 2025 test cases:

• az_base_standard_deduction.yaml - Test new 2025 deduction amounts
• az_increased_standard_deduction_for_charitable_contributions.yaml - Test 34% rate
• All credit and exemption tests with 2025 period

4.2 New Tests for New Programs

• az_529a_able_account_subtraction.yaml
• az_adoption_expense_subtraction.yaml
• az_wood_stove_conversion_subtraction.yaml
• az_families_tax_rebate_subtraction.yaml

4.3 Integration Tests

• End-to-end tax calculation for 2025
• Verify interactions between new subtractions and existing credits

5. Reference Format

All 2025 references should follow this format:

- title: 2025 Arizona Form 140 Resident Personal Income Tax Booklet Page XX, Line YY
  href: https://azdor.gov/sites/default/files/document/FORMS_INDIVIDUAL_2025_140i.pdf

Checklist

• Update standard deduction values for 2025
• Update charitable contributions rate to 34%
• Add 2025 references to all 38+ parameter files
• Implement 529A ABLE Account Subtraction
• Implement Adoption Expenses Subtraction
• Implement Wood Stove/Fireplace Conversion Subtraction
• Add filing requirement threshold parameters
• Create 2025 test cases for all updated parameters
• Create integration test for 2025 tax year
• Run make format and make test