SB 752

This bill modifies the individual income tax treatment for contributions to and

withdrawals from college savings accounts and the employee college savings account

contribution credit.

Under current law, the College Savings Program Board, which is attached to

the Department of Financial Institutions, administers the state's college savings

programs. These programs, known as “Edvest” and “Tomorrow's Scholar,” 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. For state income tax purposes, individuals may

deduct their contributions to accounts established under the Wisconsin qualified

tuition programs. Withdrawals from an account are tax-free if used for qualified

educational expenses but subject to negative federal and state tax consequences if

used for nonqualified expenses.

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 amount that may be deducted. Under current law,

the maximum amount that a contributor may deduct is annually indexed for

inflation and, in 2022 is $3,560, which is reduced to $1,780 for a married individual

filing a separate return or, in the case of divorced parents, each former spouse. The

maximum amount in 2023 is $3,860, reduced to $1,930. The bill increases these

amounts to $5,000 and $2,500, which are indexed annually for inflation, and repeals

the limitation for divorced parents.

2. Requires the use of a first in, first out method of accounting for purposes of

provisions in current law requiring that account withdrawals be added to income for

state tax purposes and restricting carry-overs of contributions in excess of the

maximum deduction threshold if the carry-over amount was withdrawn from the

account within 365 days of being contributed.

3. Conforms the definition of “qualified higher education expense” to federal

law. In recent years, the federal definition of “qualified higher education expense”

has been expanded to include tuition expenses for elementary and secondary schools,

expenses for apprenticeship programs, and qualified education loan repayments.

The bill conforms state law to the federal definition.

Additionally, the bill modifies the tax credit that may be claimed by an employer

for contributions to an employee's 529 account. Under current law, the maximum

credit per employee is 25 percent of the amount the employer contributes to the 529

account, up to a maximum contribution that is 25 percent of the maximum amount

that an individual contributor may deduct under state law. The maximum credit is

$222.50 for 2022 and $241.25 for 2023. Under the bill, the maximum credit per

employee is 50 percent of the amount the employer contributes to the 529 account,

not exceeding a maximum credit of $800, adjusted annually for inflation. The bill