# Calculating Inputs for the NBER V35 TAXSIM model, using the 2022 Consumer Expenditure Surveys (CE) Public Use Microdata (PUMD)

# Background:

TAXSIM is a FORTRAN program created and supported by NBER that estimates liabilities under the US Federal and State income tax laws from individual data. The program is updated annually for both current year tax code changes and improvements to previous years’ code. The 2022 CE PUMD utilizes the V35 TAXSIM model to produce estimated tax liabilities for each consumer unit in the CE Interview Survey. 

# Defining a Tax Unit:

The CE Tax Estimation process uses CE demographic and income from the CE Interview survey, to group each individual Consumer Unit (CU) into a Tax Unit (or multiple Tax units) by grouping CU members based upon being the tax head, spouse, or dependents. The primary tax unit will be defined as the tax unit which contains the reference person. All other tax units will be defined as secondary tax units. Tax Units income information is loaded into TAXSIM to produce the tax liability, by Federal and State, for both the current and previous tax year.

Each member of a CU will be identified as a dependent or a non-dependent based upon their income, age, relationship, and whether the member supports her/himself.

Then, each member of the CU is assigned to a tax unit either with other CU members or by themselves (by assigning a tax unit identification number TAX_UNIT). The TAX_UNIT will serve as the basis by which unique records are created in the NTAXI files.

There will be one or more tax units in a consumer unit. One tax unit will be defined as the primary tax unit that will include the reference person, and other members. Any other tax units will be defined as secondary tax units.

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# TAXSIM Inputs:

Each tax unit will be a data row that is input into the TAXSIM program. Data collected at the CU level in CE will be used to calculate the TAXSIM input variables only for the primary tax unit except where specified. Data collected at the member level in CE will be used to calculate the TAXSIM input variables for the tax unit containing that member. This member-specific information will be used for both the primary and secondary units. 

The income taxes are collected based upon a full 12 months (1 year) from the month of the interview. As such, the span of the 12 months includes months from both the current year, and from the year before. To accurately account for both years, the tax liability created for both previous and current years will be weighted based upon the months split. 

There are 35 variables that will need to be created for each tax unit. The TAXSIM program requires all 35 input variables to have a value in order to run. “Blanks” (valid or invalid) and tax information that the CE survey does not capture (i.e. Unemployment Compensation, Short term capital gains or losses, long term capital gains or losses) shall be set to zero. 

The four DEPCNT/DEPUNDxx variables count all children in the age category. For example, a 4-year-old will be counted for DEPCNT, DEPUND13, DEPUND 17, and DEPUND18. 

For most cases, there are specific CE variables that match the TAXSIM variables. In other cases, adjustments must be made to the CE variables (i.e. the creation of temporary variables for the purpose of inputting into TAXSIM, but not to be stored by CE). Moreover, two groups of TAXSIM variables information will be gathered for both the previous tax year (denoted by variables with “_PY” at the end) and the current tax year (denoted by variables with “_CY” at the end) surrounding the reference period.In addition to creating these variables for the TAXSIM program, the tax information will also be stored on the CE database in the NTAX tables.  

**Variable 1:**  Unique Tax ID

“TAXID” – this will identify the unique tax unit with a CU identifier (NEWID) and a tax unit identifier within the CU.  The tax unit identifier within the CU (“TAX_UNIT”) will be a number starting with 1, for the primary tax unit and incrementing with each tax unit.  TAXID will be a concatenation of the NEWID and TAX_UNIT  

	EX:   

Only TAXID will be input into the TAXSIM program, but TAX_UNIT should be maintained on the internal dataset to link the individual members to their appropriate tax unit.  

**Variable 2:**Tax Year “TAX_YR” 

This is the year that taxes will be calculated for.  Tax code and levels for that year will be used in the program.  

The program will run for each tax year in the reference period (i.e. current and prior years), defined as the previous 12 months from the interview month and year.  

**Variable 3:**SOI State “SOI_ST” 

The state parameter that is used in TAXSIM is the state code that is used in the IRS Statistics of Income (SOI) data.  

**Variable 4**:  Filing Status (or “Marital Status” in TAXSIM documentation) “FILESTAT.”

Filing status is determined for the tax unit by the members in that tax unit.  The Filing Status code is the code that will be used in the TAXSIM program.

· Single or Head of household (Filing Status = 1): Tax units that contain one member or tax units with a head and dependents, but no spouse. 

· Married filing jointly (Filing Status = 2): Tax units with a head and spouse, may or may not have dependents

· Separate (Filing Status = 6): Non-wage income and deductions are split equally

Note: The NBER TAXSIM model indicates ‘6’ for Separate filing, but still married.

However, this value will never be used in CE Tax Estimation because there is not enough information in the survey to assign any tax unit in CE the filing status of ‘*Married Filing Separately.’*

· Dependent Taxpayer (Filing Status = 8):  Tax unit that has a member who is a dependent of another tax unit. (Note:  This tax unit will be run through TAXSIM claiming no exemptions in Variable 7) 

**Variable 5:**Age of Taxpayer “AGE_TP”

****Age of primary taxpayer December 31st of the tax year (or zero). Taxpayer age variables determine eligibility for additional standard deductions, personal exemption, EITC and AMT exclusion.

**Variable 6:**Age of spouse (or zero). “AGE_SP”

**Variable 7**:  Dependent Exemptions “DEPCNT”

This is the count of dependents assigned to the tax unit. It summed across members in the same tax unit. Dependents should be assigned during the tax unit creation and should stay the same regardless of the year. Dependent taxpayers will count toward their initially assigned tax unit as a dependent and will have a value of zero for DEPCNT. 

**Variable 8:** Number of dependents under age 13 (for Dependent Care Credit) “DEPUND13”

Number of dependents in the tax unit whose ages are less than 13. 

**Variable 9:** Number of dependents under age 17 (for child credit) “DEPUND17”

Count of dependents in the tax unit whose ages are less than 17.

**Variable 10:** Number of dependents under age 18 (for child credit) “DEPUND18”

Count of dependents in the tax unit whose ages are less than 18.

**Variable 11:**Wage and salary income of taxpayer****“WAGE_HD”

Sum of the imputed salary (SALARYM) of the tax head, the positive imputed self-employment income (SEMPFRMM > 0). Otherwise, value is zero.

**Variable 12:**Wage and salary income of spouse “WAGE_SP”

Sum of the imputed salary (SALARYM) of the tax head spouse (if present), the positive imputed self-employment income (SEMPFRMM > 0). Otherwise, value is zero.

**Variable 13:**Self-employment income of taxpayer****“SEMP_HD”

The positive imputed self-employment income (SEMPFRMM > 0) of the tax head. Otherwise, value is zero.

**Variable 14:**Self-employment income of spouse****“SEMP_SP”

The positive imputed self-employment income (SEMPFRMM > 0) of the tax head spouse. Otherwise, value is zero.

**Variable 15:**Dividend income “DIVINC”

Dividend income cannot be isolated in CE data; therefore, all tax units will have zero for this variable. 

**Variable 16:**Interest Received “INT_RECVD”

Interest income cannot be isolated in CE data; therefore, all tax units will have zero for this variable. 

**Variable 17:** Short term capital gains or losses

· Zero for all tax units (not available in CE)

**Variable 18:** Long term capital gains or losses

· Zero for all tax units (not available in CE)

**Variable 19:**Other property income subject to NIIT “OTHTXINC”

Income from roomers and boarders and other rental income (NETRENTM) – primary tax unit only, zero for others

**Variable 20:**Other non-property income “OTH_NONPROP” 

This is a catch all for other income in the tax unit. For the primary tax unit, OTHTXINC will include the family and specific member level variables listed below; for the secondary unit, it will only contain the member level variables that apply to those members listed in the particular secondary unit.  

The value here will be the additions and subtractions of the below inputs.   

	Sum the following:

· Imputed interest and dividends paid (INTDRVXM) – primary tax unit only, zero for others.

· Other regular contributions, including alimony, child support, unemployment compensation and worker’s compensation (OTHREGXM) – primary tax unit only, zero for others.

· Negative imputed self-employment income (SEMPFRMM <0) – for tax unit head and spouse (Note: The amount should already be negative, so technically it’s adding the negative amount) 

· Lump sum financial income (LUMPSUMX) – primary tax unit only, zero for others

· Other income (OTHRINCM) – primary tax unit only, zero for others

Subtracting the following:

· Alimony paid (CONTEXPX where CONTCODE = “120” in ECNT) – primary tax unit only, zero for others

· Payments made to private pensions (ANPRVPNM) subject to specific thresholds and income limit that are recalculated each year.

· For tax unit head and spouse, payments made to individual retirement account (INDRETX) subject to specific thresholds and income limits recalculated each year and dependent on age and whether the individual made contributions to a retirement plan.

**Variable 21:**Taxable pensions “TAXPENS”

If there is more than one tax unit in the CU with retired members, then the imputed pension income at the CU level (RETSURVM) should be divided proportionally among the tax units that have retired members in the CU (Members where INCNONWK=1). If there are no retired persons in the CU, then the amount should be divided proportionally amongst the tax units that have disabled member in the CU (Members where INCNONWK=4). If there are no retired or disabled members, then the entire amount will be included in the Primary Tax Unit.

· Example: Consumer Unit has a Total Yearly Amount of $3,000.00 and 3 total retirees. $3000.00 / 3 retirees in CU = 1,000.00 for each retiree. The amounts will be dispersed among the Tax Units; TU1 has 1 retiree, TU 2 has 2 retirees so TU1 taxable pension value is $1,000, TU2 is $2,000 

**Variable 22:**Social Security benefits “SOSSECB”

Social security benefits at the member level (SOCRRXM) - for tax unit head and spouse. It summed across those members per tax unit.

**Variable 23:**Unemployment Compensation (“UNEMPCOMP”)

Unemployment compensation cannot be isolated in CE data; therefore, all tax units will have zero for this variable.

**Variable 25:**Other non-taxable transfer income such as welfare municipal bond interest, and child support (affects state estimated taxes only) “NONTXINC.”

 Sum the following:

· Imputed welfare (WELFAREM) - primary tax unit only, zero for others

**Variable 26:**Rent paid (used for calculating state property tax rebates) “RNTPAID.”

Annualized rent paid (QRT3MCMX*4) - primary tax unit only, zero for others.

**Variable 27:**Property taxes paid “PROPTXPD.”

Real estate tax for all owned properties (QADPTAX) - primary tax unit only, zero for others

**Variable 28:**Itemized deductions – Alternative Minimum Tax (AMT) preference “AMTDEDCT”

The deductions that can be used in AMT will go here. These will all be assigned only to the primary tax unit.  All other tax units will have a zero.

Sum of the following:

· Totaled medical expenses (MEDPMTX) that are between 7.5% and 10% of income (income = variable 11 + variable 12 + variable 13 +variable 17[everything except ‘refunds from state taxes paid’ {SLRFUNDX}] + variable 18 + variable 19 + variable 20 as defined above) 

· Personal property taxes for vehicles (VQBEXPX * 0.3 where VQBCODE = 420) 

· Miscellaneous taxes (MISCTAXX)

· Annualized, business adjusted home equity loan mortgage interest paid on first and second properties (using OPF record where LOANTYPE = 2). 

· Sum Interest paid (QADINT1X, QADINT2X, QADINT3X) *4

· Annualized, business adjusted home equity line of credit interest on first or second home (JINTPDX*4 in OPH)

**Variable 29:**Child/Dependent Care Expenses “CHLDCARE”

Annualized child or dependent care expense of the household (MISCEXPX*4 where MISCCODE= 225). Divide proportionally amongst tax units with dependent children less than thirteen years old. 

Example: Consumer Unit has a Total Quarterly Expense of $300.00 and 3 total kids. $300 * 4 = $1,200.00 / 3 kids in CU = 400.00 for each kid. This amount has to be dispersed among the Tax Units; TU1 has 1 kid, TU 2 has 2 kids, so TU1 child expense value is $400, TU2 is $800

**Variable 30: Mortgage,** non-AMT deductions “OTHDEDCT” 

These will be remaining deductions NOT included in Variable 16 (Itemized AMT deductions) but are available in CE data. These will all be assigned only to the primary tax unit.  All other tax units will have a zero. 

Sum the following:

· Annualized charitable giving to educational institutions, religious organizations, and charities (CONTEXPX*4 where CONTCODE IN ('130' '150' '160')).  If amount is a continuous expense (CONTMO=13), assume same amount given each month (multiply it by 12), otherwise assume same amount given each quarter (multiply it by 4)

· Annualized, business adjusted mortgage interest paid on first and second properties, excluding interest on home equity loans and lines of credit (using OPF record where LOANTYPE = 1). 

· Sum Interest paid (QADINT1X, QADINT2X, QADINT3X) *4

Totaled medical expenses (MEDPMTX) that are greater than 10% of income (income = variable 7 + variable 8 + variable 9 +variable 10 + variable 11 + variable 12 as defined above) 

**Variable 30:** Active S-Corp income (is SSTB) “SCORP”

· Zero for all tax units (not available in CE)

**Variable 32:**Primary Taxpayer's Qualified Business Income (QBI) subject to a preferential rate without phaseout and assuming sufficient wages paid or capital to be eligible for the full deduction. Subject to SECA and Medicare additional Earnings Tax “PBUSINC”.****

· Zero for all tax units (not available in CE)

**Variable 33:**Primary Taxpayer's Specialized Service Trade or Business service (SSTB) with a preferential rate subject to claw-back. Subject to SECA and Medicare Additional Earnings Tax “PPROFINC”.****

· Zero for all tax units (not available in CE)

**Variable 34:**Spouse's QBI. Must be zero for non-joint returns “SBUSINC”.****

· Zero for all tax units (not available in CE)

**Variable 35:**Spouse's SSTB. Must be zero for non-joint returns “SPROFINC”.****

· Zero for all tax units (not available in CE)