Hawaii-2024-SB281-Amended

SECTION 1. In 1999, Act 81 was enacted to create a college savings program pursuant to chapter 256, Hawaii Revised Statutes, and section 529 of the Internal Revenue Code of 1986, as amended. In November 2007, the program was revised and renamed as "HI529-Hawaii's College Savings Program". The program assists and encourages families to save and invest funds for future higher education expenses. The investment income earned under the program is exempt from federal and state taxes; provided that the funds are used for qualified higher education expenses, including for apprenticeship programs and to pay student loans, as authorized by recent amendments to section 529 of the Internal Revenue Code of 1986.

The legislature further finds that most other states offer a state tax deduction or credit for contributions to state college savings programs as an incentive for their residents to participate. The legislature therefore finds that, as the cost of higher education continues to rise, it is appropriate for the State to provide a similar incentive to Hawaii taxpayers to participate in college savings programs, thus helping Hawaii families save for college instead of taking out educational loans.

The purpose of this Act is to provide a state income tax deduction for Hawaii taxpayers making contributions to a college savings program established under chapter 256 of the Hawaii Revised Statutes.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Hawaii's college and ABLE savings program. (a) There shall be allowed as a deduction from the Hawaii adjusted gross income of a qualified taxpayer, contributions made to an account in a college savings program established under chapter 256; provided that the annual deductions for the contributions shall be no more than:

(1) $4,000 for qualified taxpayers filing a single return and for married couples filing separate returns; provided further that each spouse may claim a deduction of no more than $4,000; and

(2) $8,000 for qualified taxpayers filing joint returns, heads of household, or surviving spouses; provided further that the deduction shall be available to married couples filing joint returns if at least one spouse is an account owner in a college savings program established under chapter 256;

provided further that only a qualified taxpayer who is an account owner in a college savings program established under chapter 256 shall be allowed to claim the applicable deduction for contributions made by the qualified taxpayer into the qualified taxpayer's account in the college savings program; provided further that any contributions made to the qualified taxpayer's account in the college savings program established under chapter 256 for a designated beneficiary shall be reduced by any withdrawals made for qualified higher education expenses during the same year for that designated beneficiary.

(b) In order to be deductible for a particular taxable year, a contribution shall be credited to the qualified taxpayer's account in the college savings program on or before the last day of that taxable year; provided that if a contribution is delivered by mail, it shall be postmarked on or before the last day of that taxable year.

(c) Rollovers from a state's college savings program into another state's college savings program shall not be considered as contributions eligible for the tax deduction under this section.

(d) If the amount of the contribution to the qualified taxpayer's account in a college savings program established under chapter 256 exceeds the maximum deduction for the taxable year in which the contribution is made pursuant to subsection (a), the excess deduction may be used as a deduction against the qualified taxpayer's Hawaii adjusted gross income for up to four subsequent taxable years or until the excess deduction is exhausted, whichever occurs first.

(e) Contributions to a college savings program that have been deducted from the qualified taxpayer's Hawaii adjusted gross income for prior taxable years shall be subject to recapture and penalties pursuant to section 529(c)(6) of the Internal Revenue Code of 1986, as amended, or successor legislation, if the qualified taxpayer makes a subsequent nonqualified withdrawal from a college savings program that results in an additional tax penalty under section 529(c)(6) of the Internal Revenue Code of 1986, as amended, or successor legislation. The contribution shall be recaptured by adding the amount previously deducted, not to exceed the amount of the nonqualified withdrawal, to the qualified taxpayer's Hawaii adjusted gross income for the taxable year in which the nonqualified withdrawal occurred.

(f) As used in this section:

"Contribution" means:

(1) Any payment directly allocated to a college savings program account for the benefit of a designated beneficiary, or used to pay administrative fees associated with the account; or

(2) The portion of any rollover amount treated as a contribution under section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation.

"Qualified higher education expenses" shall have the same meaning as in section 256-1.

"Qualified taxpayer" means an individual taxpayer or a married couple filing separate returns, whose income level qualifies to contribute to a Roth individual retirement account under section 408A(c)(3) of the Internal Revenue Code of 1986, as amended; or each member of a married couple filing a joint return, head of household, or surviving spouse qualifying to contribute to a Roth individual retirement account under section 408A(c)(3) of the Internal Revenue Code of 1986, as amended.

"Rollover" means a distribution or transfer from an account that is transferred to or deposited within sixty calendar days of the distribution into an account of the same person for the benefit of the same designated beneficiary or another person who is a member of the family of the designated beneficiary; provided that the transferee account was created under a college savings program maintained in accordance with section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation."

SECTION 3. Section 23-95, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) This section shall apply to the following:

(1) Section 235-5.5--Deduction for individual housing account deposit;

(2) Section 235-7(f)--Deduction of property loss due to a natural disaster;

(3) Section 235-16.5--Credit for cesspool upgrade, conversion, or connection;

(4) Section 235-19--Deduction for maintenance of an exceptional tree;

(5) Section 235-55.91--Credit for the employment of a vocational rehabilitation referral;

(6) Section 235-110.2--Credit for in-kind services contribution for public school repair and maintenance; [~~and~~]

(7) Sections 235-110.8 and 241-4.7--Credit for ownership of a qualified low-income housing building[.]; and

(8) Section 235- --Deduction for contributions to an account under the college savings program pursuant to chapter 256."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect on June 30, 3000; provided that section 2 shall apply to taxable years beginning after December 31, .

THE SENATE	S.B. NO.	281
THIRTY-SECOND LEGISLATURE, 2023		S.D. 2
STATE OF HAWAII		H.D. 1