OBBBA temporary tax deductions continue after 2028 in current-law parameters

[MaxGhenis]

Summary

PolicyEngine-US current-law parameters appear to continue several temporary OBBBA deductions after their statutory sunset.

Public Law 119-21 sunsets these provisions for taxable years beginning after December 31, 2028:

• Section 70103: temporary senior deduction
• Section 70201: qualified tips deduction
• Section 70202: qualified overtime compensation deduction
• Section 70203: qualified passenger vehicle loan interest deduction, limited to taxable years 2025 through 2028

In policyengine[us]==4.4.4, the corresponding parameters remain positive in 2029.

Reproduction

from policyengine_us import Microsimulation

p = Microsimulation().tax_benefit_system.parameters
checks = {
    "tip cap": p.gov.irs.deductions.tip_income.cap,
    "overtime joint cap": p.gov.irs.deductions.overtime_income.cap.JOINT,
    "overtime single cap": p.gov.irs.deductions.overtime_income.cap.SINGLE,
    "senior deduction": p.gov.irs.deductions.senior_deduction.amount,
    "auto loan cap": p.gov.irs.deductions.auto_loan_interest.cap,
}

for label, param in checks.items():
    print(label, {year: param(f"{year}-01-01") for year in (2025, 2026, 2028, 2029)})

Observed in policyengine[us]==4.4.4:

tip cap {2025: 25000, 2026: 25000, 2028: 25000, 2029: 25000}
overtime joint cap {2025: 25000, 2026: 25000, 2028: 25000, 2029: 25000}
overtime single cap {2025: 12500, 2026: 12500, 2028: 12500, 2029: 12500}
senior deduction {2025: 6000, 2026: 6000, 2028: 6000, 2029: 6000}
auto loan cap {2025: 10000, 2026: 10000, 2028: 10000, 2029: 10000}

Expected: the temporary deduction amounts/caps should be zero for 2029 and later, absent a separate extension.

Likely paths

• policyengine_us/parameters/gov/irs/deductions/tip_income/cap.yaml
• policyengine_us/parameters/gov/irs/deductions/overtime_income/cap.yaml
• policyengine_us/parameters/gov/irs/deductions/senior_deduction/amount.yaml
• policyengine_us/parameters/gov/irs/deductions/auto_loan_interest/cap.yaml

Sources

• Public Law 119-21, Section 70103: temporary senior deduction, taxable years before 2029
• Public Law 119-21, Section 70201(h): no tips deduction for taxable years beginning after December 31, 2028
• Public Law 119-21, Section 70202(g): no overtime deduction for taxable years beginning after December 31, 2028
• Public Law 119-21, Section 70203(a): car loan interest special rule applies to taxable years beginning after December 31, 2024, and before January 1, 2029

Official text: https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm

[MaxGhenis]

Deeper check after looking through the deduction plumbing:

Federal taxable income is not affected in 2029 because these variables are removed from both federal deduction lists at 2029-01-01:

• gov.irs.deductions.deductions_if_itemizing
• gov.irs.deductions.deductions_if_not_itemizing

So the positive 2029 caps/amounts do not leak into federal taxable_income or income_tax through the normal federal deduction path.

However, they do still have an actual state effect in Idaho. Idaho directly adds these variables in id_qualified_business_income_and_federal_schedule_1a_deductions:

• tip_income_deduction
• overtime_income_deduction
• auto_loan_interest_deduction
• id_additional_senior_deduction -> additional_senior_deduction

Reproduction in policyengine[us]==4.4.4, tax year 2029, Idaho, single filer with $120k employment income:

base age64:
  federal taxable_income = 102800
  federal income_tax = 16958.5
  id conformity deductions = 0
  id_taxable_income = 102800
  state_income_tax = 5014.286

+ $10k tip income:
  tip_income_deduction = 10000
  federal taxable_income delta = 0
  federal income_tax delta = 0
  id conformity deductions delta = +10000
  id_taxable_income delta = -10000
  state_income_tax delta = -530

+ $10k overtime premium:
  overtime_income_deduction = 10000
  federal taxable_income delta = 0
  federal income_tax delta = 0
  id conformity deductions delta = +10000
  id_taxable_income delta = -10000
  state_income_tax delta = -530

+ $10k auto loan interest:
  auto_loan_interest_deduction = 6000
  federal taxable_income delta = 0
  federal income_tax delta = 0
  id conformity deductions delta = +6000
  id_taxable_income delta = -6000
  state_income_tax delta = -318

age66 senior case:
  additional_senior_deduction = 3300
  id conformity deductions includes +3300 in 2029

Indiana has similar direct variables, but its deduction list removes them after 2026, so I did not find a 2029 Indiana effect in the same check.

So the refined issue is: the positive post-2028 federal deduction variables are harmless for federal tax through the normal federal list, but they remain unsafe because direct consumers can still add them. Idaho currently does.

Potential fixes:

1. Add 2029 zero values to the underlying temporary deduction amount/cap parameters. This prevents both federal and direct state-consumer leaks.
2. Or gate Idaho's Schedule 1-A conformity deductions by the federal effective window. This is narrower but leaves the underlying variables positive after sunset.

[MaxGhenis]

Correction to the suggested fix above: PolicyEngine generally should not model this kind of statutory sunset by setting the underlying amounts/caps to zero when the law repeals/removes the deduction. The federal side already models the repeal correctly by removing these variables from deductions_if_itemizing and deductions_if_not_itemizing at 2029-01-01.

The remaining issue is narrower: direct consumers such as Idaho should not bypass that repeal by adding the federal deduction variables after they have been removed from the federal deduction lists. A better fix is to gate Idaho's Schedule 1-A conformity additions through a periodized inclusion list, or otherwise remove the temporary OBBBA deduction variables from Idaho's direct add path after the relevant sunset. That keeps the underlying federal parameters intact while preserving the law's repeal mechanism.