New Jersey-2020-A3096-Introduced

An Act allowing gross income tax deductions for contributions to, or purchases of credits from, a federally qualified tuition program, supplementing Title 54A of the New Jersey Statutes and amending P.L.1997, c.237.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. (New section) A taxpayer shall be allowed a deduction from the taxpayer's gross income for the taxable year in the amount of the taxpayer's contribution for the taxable year to an account established pursuant to the "New Jersey Better Educational Savings Trust (NJBEST) Program," (N.J.S.18A:71B-35 et seq.), or an account established pursuant to a program established in compliance with subsection (b) of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529, or for the cost of a tuition credit or certificate purchased during the taxable year pursuant to any such program.

2. Section 13 of P.L.1997, c.237 (C.54A:6-25) is amended to read as follows:

13. a. Gross income shall not include earnings on a Coverdell education savings account, [a qualified State] an eligible tuition program account, or a qualified ABLE account until the earnings are distributed from the account, at which time [they] the amount of the distribution attributable to earnings on the account and the amount of the distribution attributable to contributions allowed as a deduction pursuant to section 1 of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be includible in the gross income of the distributee except as provided in this section.

b. Gross income shall not include qualified distributions as defined in paragraph (3) of subsection c. of this section.

c. For purposes of this section:

(1) "Coverdell education savings account" means a Coverdell education savings account as defined pursuant to paragraph (1) of subsection (b) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.530.

(2) ["Qualified State] "Eligible tuition program account" means an account established pursuant to the "New Jersey Better Educational Savings Trust (NJBEST) Program," (N.J.S.18A:71B-35 et seq.) or an account established pursuant to any [qualified State] tuition program [, as defined pursuant to] established in compliance with subsection (b) of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529 or a tuition credit or certificate purchased pursuant to any such program.

(3) "Qualified distribution" means any of the following:

(a) a distribution from [a qualified State] an eligible tuition program account that is used for qualified higher education expenses as defined pursuant to paragraph (3) of subsection (e) of section 529 or a distribution from a qualified ABLE account that is used for qualified disability expenses as defined pursuant to paragraph (5) of subsection (e) of section 529A of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529 or 529A;

(b) a rollover from one account to another account as described in clause (i) of subparagraph (C) of paragraph (3) of subsection (c) of section 529 if applicable, clause (i) of subparagraph (C) of paragraph (1) of subsection (c) of section 529A, or paragraph (5) of subsection (d) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529, 529A, or 530; or

(c) a change in designated beneficiaries of an account as described in clause (ii) of subparagraph (C) of paragraph (3) of subsection (c) of section 529, clause (ii) of subparagraph (C) of paragraph (1) of subsection (c) of section 529A, or paragraph (6) of subsection (d) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529, 529A, or 530; and

(d) any other transfer involving a qualified ABLE account which is a qualified distribution for the purposes of section 529A of the federal Internal Revenue Code, 26 U.S.C. s.529A.

(4) "Qualified ABLE account" means an account established pursuant to P.L.2015, c.185 (C.52:18A-250 et al.) or an account established pursuant to any qualified State ABLE Program established pursuant to section 529A of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529A.

d. The portion of a distribution from a Coverdell education savings account, a qualified ABLE account, or [a qualified State] an eligible tuition program account that is attributable to earnings and the amount of the distribution attributable to contributions allowed as a deduction pursuant to section 1 of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be determined in accordance with the principles of section 72 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.72, as applied for purposes of sections 529, 529A, and 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. ss.529, 529A, and 530.

(cf: P.L.2015, c.185, s.1)

3. This act shall take effect immediately and section 1 shall apply to contributions made or costs incurred for taxable years beginning after enactment.

STATEMENT

This bill allows a gross income tax deduction for amounts contributed to the tuition savings programs and tuition credit purchase programs that are managed by states and institutions of higher education.

Federal Internal Revenue code section 529 allows states to establish "qualified tuition programs," which can take either the form of tuition credit advance purchases (the form used, for example, by Pennsylvania) or of savings accounts for college costs (the form used by New Jersey under the NJ BEST program). The bill applies to both forms of plan, and will also apply to the savings and credit purchase plans that were authorized to be established by institutions of higher education under the federal "Economic Growth and Tax Relief Reconciliation Act of 2001" (Pub.L.107-16).

Under federal tax law, contributors make contributions of federally taxed income to accounts established for beneficiaries for the beneficiaries' qualified higher education expenses. Account investment earnings, when earned, are not federally taxed. When amounts are distributed from the program, the amount of earnings is included in the federal taxable income of the beneficiary unless amounts are expended for qualified educational expenses.

Currently, New Jersey allows the distributions from qualified state tuition program accounts, whether from the New Jersey program or the program of any other state, to be excluded from taxation if used for valid higher education purposes.

This bill provides further tax incentives for higher education savings by allowing taxpayers to deduct from taxable income all of their contributions to a tuition savings program or a tuition credit purchase program, whether from the New Jersey program, the program of any other state, or a program managed by a higher educational institution.