SB704: Bill Text

LRB-5334/1

MES:emw&kjf

2019 - 2020 LEGISLATURE

2019 Senate BILL 704

January 24, 2020 - Introduced by Senators Kooyenga and Smith, cosponsored by Representatives Ballweg and Hesselbein. Referred to Committee on Agriculture, Revenue and Financial Institutions.

SB704,1,7 An Act to renumber and amend 71.05 (6) (b) 32. ae. and 71.05 (6) (b) 32m.; and to amend 71.05 (6) (a) 26. a., 71.05 (6) (a) 26. b., 71.05 (6) (a) 26. c., 71.05 (6) (b) 32. (intro.), 71.05 (6) (b) 32. a. and 71.05 (6) (b) 32. am. of the statutes; relating to: modifying the individual income tax treatment for contributions to and withdrawals from a college savings account and modifying an administrative rule of the Department of Financial Institutions related to the college savings program.

Analysis by the Legislative Reference Bureau

This bill modifies the individual income tax treatment for contributions to and withdrawals from a college savings account and modifies an administrative rule of the Department of Financial Institutions related to the college savings program.

Under current law, the College Savings Program Board, which is administratively attached to DFI, administers the state's college savings programs, commonly known as “Edvest” and “Tomorrow's Scholar.” The programs are qualified tuition programs authorized under federal law. Under the programs, anyone may contribute to an account, commonly called a “529 account,” for the benefit of a prospective student, regardless of the contributor's relationship to the beneficiary, and a prospective student may be the beneficiary of more than one account. Contributions to an account have certain tax advantages under federal and state law.

The bill makes the following changes to the state individual income tax treatment for contributions to and withdrawals from 529 accounts:

1. Increases the maximum contribution amount an individual may deduct from the contributor's income. Under current law, the maximum amount for 2018 is $3,200 (or $1,600 for each contributor who is married and files separately) and is indexed for inflation. The bill increases the maximum amount to $5,000 (or $2,500 for each contributor who is married and files separately) and eliminates indexing. The bill also eliminates a provision under current law that limits the maximum deduction amount for divorced parents to $1,600 for each former spouse.

2. Modifies the contribution deadline for state tax purposes. Under current law, a contribution made during a taxable year, or on or before April 15 following the end of the taxable year, may be deducted from the contributor's income for the taxable year. The bill provides that a contribution for a taxable year must be made on or before the date on which the contributor is required to file the contributor's state income tax return, not including any extension, for the taxable year.

3. Modifies the 365-day restriction under current law that applies to account withdrawals. Under current law, any amount withdrawn from an account within 365 days of the day on which the amount was contributed to the account must be added to income if the amount was previously deducted from income. The bill limits the 365-day restriction to apply only to withdrawn amounts that were rolled over to the account from another state's qualified tuition program within 365 days of withdrawal.

4. Modifies the 365-day restriction under current law with respect to carry-overs. Under current law, a contribution to an account in excess of the maximum deduction amount may be carried forward to future taxable years, but the carry-over is not allowed if the carry-over amount was withdrawn from the account within 365 days of the day on which the amount was contributed to the account and if the amount was previously deducted from income. The bill limits the 365-day restriction with respect to carry-overs to apply only to withdrawn amounts that were rolled over to the account from another state's qualified tuition program within 365 days of withdrawal.

5. Requires the use of a first in, first out method of accounting for purposes of the 365-day restrictions described under items 3 and 4 and for purposes of other additions to income under current law that relate to account withdrawals.

The federal Tax Cuts and Jobs Act of 2017 amended the definition of “qualified higher education expense” under federal law for purposes of state qualified tuition programs. Under the current federal definition, 529 accounts may be used to pay for expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school. The bill modifies the definition of “qualified higher education expense” in the state individual income tax law to conform to the definition under federal law. The bill also modifies an administrative rule of DFI to conform that definition to federal law.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB704,1 Section 1. 71.05 (6) (a) 26. a. of the statutes is amended to read:

SB704,3,8 71.05 (6) (a) 26. a. To the extent that the receipt of such the amounts by the owner or beneficiary of the account results in a penalty as provided in 26 USC 529 (c) (6), any amount that was not used for qualified higher education expenses, as that term is defined in 26 USC 529 (c) (7) and (e) (3), and that was contributed to the account after December 31, 2013, except that this subd. 26. a. applies only to amounts for which a subtraction was made under par. (b) 32. or 32m. For purposes of this subd. 26. a., a first in, first out method of accounting applies to the account.

SB704,2 Section 2 . 71.05 (6) (a) 26. b. of the statutes is amended to read:

SB704,3,14 71.05 (6) (a) 26. b. Any amount rolled over by an owner into another state's qualified tuition program, as described in 26 USC 529 (c) (3) (C) (i), to the extent that the amount was previously claimed as a deduction under par. (b) 32. or 32m. For purposes of this subd. 26. b., a first in, first out method of accounting applies to the account.

SB704,3 Section 3. 71.05 (6) (a) 26. c. of the statutes is amended to read:

SB704,4,2 71.05 (6) (a) 26. c. To the extent that an amount is not otherwise added back under this subdivision, any amount withdrawn from a college savings the account, as described in s. 224.50, for any purpose if the withdrawn amount was contributed rolled over to the account from another state's qualified tuition program, as described in 26 USC 529 (c) (3) (C) (i), within 365 days of the day on which the amount was withdrawn from such an the account and if the withdrawn amount was previously subtracted under par. (b) 32. 32m. For purposes of this subd. 26. c., a first in, first out method of accounting applies to the account.

SB704,4 Section 4. 71.05 (6) (b) 32. (intro.) of the statutes is amended to read:

SB704,4,12 71.05 (6) (b) 32. (intro.) An amount paid into a college savings account, as described in s. 224.50, by the account owner, as defined in s. 224.50 (1) (a), or by any other individual for the benefit of a beneficiary of the account in the taxable year in which the contribution is made or on or before the 15th day of the 4th month beginning after the close of a taxpayer's date on which the contributor is required to file a return under s. 71.03 (6), not including any extension, for the taxable year to which this subtraction relates, by the owner of the account or by any other individual, for the benefit of any beneficiary of an account, calculated as follows, except that each amount that is subtracted under this subdivision may be subtracted only once:

SB704,5 Section 5. 71.05 (6) (b) 32. a. of the statutes is amended to read:

SB704,5,19 71.05 (6) (b) 32. a. Except as otherwise provided in this subdivision, an amount equal to not more than $3,000 $5,000 per beneficiary, by each contributor, or $1,500 $2,500 by each contributor who is married and files separately, to an account for each year to which the claim relates, except that the total amount for which a deduction may be claimed under this subdivision and under subd. 33., per beneficiary by any claimant may not exceed $3,000 $5,000 each year, or $1,500 $2,500 each year by any claimant who is married and files separately. In the case of a married couple, the total deduction under this subdivision and under subd. 33., per beneficiary by the married couple may not exceed $3,000 $5,000 each year. In the case of divorced parents, the total deduction under this subdivision and under subd. 33., per beneficiary by the formerly married couple, may not exceed $3,000, and the maximum amount that may be deducted by each former spouse is $1,500, unless the divorce judgment specifies a different division of the $3,000 maximum that may be claimed by each former spouse. For taxable years beginning after December 31, 2013, the dollar amounts in this subd. 32. a., and the dollar amounts in subd. 33. a., shall be increased each year by a percentage equal to the percentage change between the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August of the previous year and the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August 2012, as determined by the federal department of labor, except that the adjustment may occur only if the resulting amount is greater than the corresponding amount that was calculated for the previous year. Each amount that is revised under this subd. 32. a. and under subd. 33. a. shall be rounded to the nearest multiple of $10 if the revised amount is not a multiple of $10 or, if the revised amount is a multiple of $5, such an amount shall be increased to the next higher multiple of $10. The department of revenue shall annually adjust the changes in dollar amounts required under this subd. 32. a. and incorporate the changes into the income tax forms and instructions. Any amount that is paid into an account under this subdivision that exceeds the maximum amount that may be subtracted under this subdivision may be carried forward to the next taxable year, and thereafter, subject to the limitations in this subdivision.

SB704,6 Section 6. 71.05 (6) (b) 32. ae. of the statutes is renumbered 71.05 (6) (b) 32m. b. and amended to read:

SB704,6,2 71.05 (6) (b) 32m. b. No carryover carry-over that would otherwise be authorized under this subdivision may be is allowed if the carryover carry-over amount was withdrawn from an a college savings account, as described in s. 224.50, for any purpose and the withdrawal occurred within 365 days of the day on which the amount was contributed rolled over to the account. For purposes of this subd. 32m. b., a first in, first out method of accounting applies to the account.

SB704,7 Section 7. 71.05 (6) (b) 32. am. of the statutes is amended to read:

SB704,6,9 71.05 (6) (b) 32. am. Any carryover carry-over amount that is otherwise eligible for a subtraction under this subdivision shall be is reduced by an amount equal to the amount of a withdrawal from an account that was not used for qualified higher education expenses, as that term is defined in 26 USC 529 (c) (7) and (e) (3), to the extent that the withdrawn amount exceeds the amount that is added to income under par. (a) 26.

SB704,8 Section 8. 71.05 (6) (b) 32m. of the statutes is renumbered 71.05 (6) (b) 32m. a. and amended to read:

SB704,6,19 71.05 (6) (b) 32m. a. Consistent with the limitations specified in subd. 32., for rollovers occurring after April 15, 2015, any principal amount rolled over to a college savings account, as described in s. 224.50, from another state's qualified tuition program, as described in 26 USC 529 (c) (3) (C) (i). Amounts Subject to subd. 32m. b., amounts eligible for the subtraction under this subdivision that are in excess of the annual limits specified under subd. 32. may be carried forward to future taxable years of the taxpayer without limitation, other than the limits specified in subd. 32. ae. and am.

SB704,9 Section 9. DFI-CSP 1.02 (17) of the administrative code is amended to read:

SB704,6,22 DFI-CSP 1.02 (17) “Qualified higher education expenses" has the meaning found given in section 529 (c) (7) and (e) (3) of the internal revenue code.

SB704,10 Section 10. Initial applicability.

SB704,7,8 (1) Addition to tax for nonqualified withdrawals previously deducted. The treatment of s. 71.05 (6) (a) 26. a. that amends the definition of qualified higher education expenses to include a cross-reference to 26 USC 529 (c) (7) first applies retroactively to taxable years beginning after December 31, 2017. The treatment of s. 71.05 (6) (a) 26. a. to include a cross-reference to s. 71.05 (6) (b) 32m. and to require the use of a first in, first out method of accounting first applies to taxable years beginning on January 1 of the year in which this subsection takes effect, except that if this subsection takes effect after July 31, the treatment first applies to taxable years beginning on January 1 of the year following the year in which this subsection takes effect.

SB704,7,11 (2) Definition of qualified higher education expense. The treatment of s. 71.05 (6) (b) 32. am. first applies retroactively to taxable years beginning after December 31, 2017.

SB704,7,17 (3) Tax treatment for contributions and withdrawals. The treatment of s. 71.05 (6) (a) 26. b. and c. and (b) 32. (intro.), a., and ae. and 32m. first applies to taxable years beginning on January 1 of the year in which this subsection takes effect, except that if this subsection takes effect after July 31, the treatment first applies to taxable years beginning on January 1 of the year following the year in which this subsection takes effect.

SB704,11 Section 11. Effective dates. This act takes effect on the day after publication, except as follows:

SB704,7,21 (1) The modification of administrative rules takes effect as provided in s. 227.265.

SB704,7,22 (End)