New Jersey-2014-S1584-Introduced

An Act allowing gross income tax deductions for contributions to the New Jersey Better Educational Savings Trust (NJBEST) 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 one or more accounts established pursuant to the "New Jersey Better Educational Savings Trust (NJBEST) Program," (N.J.S.18A:71B-35 et seq.); provided however, that the deduction allowed for a taxable year shall not exceed $10,000 for a taxable year for married individuals filing a joint return for federal tax purposes and shall not exceed $5,000 for a taxable year for married individuals filing separately or for unmarried individuals.

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 an education [individual retirement] savings account or a qualified [State] tuition program 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. ) (now 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) "Education [individual retirement] savings account" means an education [retirement] 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 tuition] 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] tuition program account that is used for qualified higher education expenses as defined pursuant to paragraph (3) of subsection (e) of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529;

(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, or paragraph (5) of subsection (d) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529 or 530;

(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 or paragraph (6) of subsection (d) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529 or 530;

d. The portion of a distribution from an education [individual retirement] savings account or a [qualified State] tuition program account that is attributable to earnings and to contributions allowed as a deduction pursuant to section 1 of P.L. , c. (C. ) (now 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 and 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. ss.529 and 530.

(P.L.2001, c.262, s.21)

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

STATEMENT

This bill allows a gross income tax deduction for amounts contributed to the New Jersey Better Educational Savings Trust (NJBEST) Program. The bill allows a gross income tax deduction of up to $10,000 annually for married couples filing jointly, or $5,000 annually for other taxpayers, for contributions to one or more NJBEST accounts.

NJBEST is New Jersey's IRC Section 529 qualified college savings program. Federal tax law allows contributions of federally taxed income to accounts established for the beneficiaries' qualified higher education expenses. Account investment earnings are not federally taxed until withdrawn, and if the earnings are used for qualified higher educational expenses they are never taxed. Currently, New Jersey matches those federal tax advantages. Additionally, New Jersey currently allows $25,000 of NJBEST college savings to be excluded from a financial need evaluation of the student, and awards students who pursue higher education in New Jersey a scholarship of up to $1,500 for participating in the program.