SB752: Bill Text

LRB-2133/1

JK:amn

2023 - 2024 LEGISLATURE

2023 Senate BILL 752

December 8, 2023 - Introduced by Senators Cabral-Guevara, Hesselbein, L. Johnson, Larson, Nass and Spreitzer, cosponsored by Representatives Binsfeld, Joers, Allen, Behnke, Brandtjen, Callahan, Conley, Dittrich, Goeben, Goyke, Kitchens, Macco, Maxey, Melotik, Mursau, Ohnstad, Ortiz-Velez, Penterman, Ratcliff and Rettinger. Referred to Committee on Financial Institutions and Sporting Heritage.

SB752,1,7 An Act 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. a., 71.05 (6) (b) 32. ae., 71.05 (6) (b) 32. am., 71.07 (10) (a) 1., 71.07 (10) (a) 3., 71.07 (10) (b), 71.07 (10) (c) 2., 71.28 (10) (c) 2., 71.47 (10) (c) 2. and 224.50 (2) (a); and to create 71.05 (6) (b) 32. ap., 71.07 (10) (c) 3., 71.28 (10) (c) 3., 71.47 (10) (c) 3. and 71.98 (11) of the statutes; relating to: modifying the tax treatment of college savings accounts and the employee college savings account contribution credit.

Analysis by the Legislative Reference Bureau

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 also specifies that sole proprietors may claim the credit and that the credit may only be claimed for a contribution to an employee's 529 account if the employee's compensation is reported, or required to be reported, on a W-2 form issued by the employer.

Because this bill relates to an exemption from state or local taxes, it may be referred to the Joint Survey Committee on Tax Exemptions for a report to be printed as an appendix to the bill.

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:

SB752,1 Section 1. 71.05 (6) (a) 26. a. of the statutes is amended to read:

SB752,3,7 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), (8), and (9) and (e) (3), and 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 shall apply to the account.

SB752,2 Section 2. 71.05 (6) (a) 26. b. of the statutes is amended to read:

SB752,3,13 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 shall apply to the account.

SB752,3 Section 3. 71.05 (6) (a) 26. c. of the statutes is amended to read:

SB752,3,21 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 to the account 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. For purposes of this subd. 26. c., a first in, first out method of accounting shall apply to the account.

SB752,4 Section 4. 71.05 (6) (b) 32. a. of the statutes is amended to read:

SB752,5,3 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 2024, 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 2023, 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.

SB752,5 Section 5. 71.05 (6) (b) 32. ae. of the statutes is amended to read:

SB752,5,10 71.05 (6) (b) 32. ae. No carryover carry-over that would otherwise be authorized under this subdivision may be allowed if the carryover carry-over amount was withdrawn from an account for any purpose and the withdrawal occurred within 365 days of the day on which the amount was contributed to the account. For purposes of this subd. 32. ae., a first in, first out method of accounting shall apply to the account.

SB752,6 Section 6. 71.05 (6) (b) 32. am. of the statutes is amended to read:

SB752,5,17 71.05 (6) (b) 32. am. Any carryover carry-over amount that is otherwise eligible for a subtraction under this subdivision shall be 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), (8), and (9) and (e) (3), to the extent that the withdrawn amount exceeds the amount that is added to income under par. (a) 26.

SB752,7 Section 7. 71.05 (6) (b) 32. ap. of the statutes is created to read:

SB752,5,21 71.05 (6) (b) 32. ap. No subtraction may be allowed under this subdivision for any amount contributed to an account for which a credit is claimed under s. 71.07 (10), 71.28 (10), or 71.47 (10).

SB752,8 Section 8. 71.07 (10) (a) 1. of the statutes is amended to read:

SB752,6,3 71.07 (10) (a) 1. “Claimant" means an individual who files a claim under this subsection and who is a sole proprietor and an employer and contributes to an employee's college savings account under par. (b). or who is a partner of a partnership, member of a limited liability company, or shareholder of a tax-option corporation that is an employer and that contributes to an employee's college savings account under par. (b).

SB752,9 Section 9. 71.07 (10) (a) 3. of the statutes is amended to read:

SB752,6,9 71.07 (10) (a) 3. “Employer” means an employer that is a partnership, as defined in s. 71.195, or a tax-option corporation, as defined in s. 71.34 (2) a person for whom an individual performs or performed any service as an employee of that person and who is required to furnish a W-2 form to the employee for federal income tax purposes.

SB752,10 Section 10. 71.07 (10) (b) of the statutes is amended to read:

SB752,6,16 71.07 (10) (b) Filing claims. Subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.02, up to the amount of those taxes, for each employee of an employer, the claimant's proportionate share, as computed under par. (c) 1., of an amount equal to the amount the employer paid into a college savings account owned by the employee in the taxable year in which the contribution is made.

SB752,11 Section 11. 71.07 (10) (c) 2. of the statutes is amended to read:

SB752,7,11 71.07 (10) (c) 2. The maximum amount of the credit per employee that a claimant may claim under this subsection is the claimant's proportionate share of an amount equal to 25 50 percent of the amount the employee's employer contributed to the employee's college savings account up to a maximum contribution equal to 25 percent of the maximum amount that an individual contributor may deduct under s. 71.05 (6) (b) 32. a. per beneficiary, not to exceed a maximum credit of $800. For taxable years beginning after December 31, 2024, the dollar amount in this subdivision 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 2023, 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. The amount that is revised under this subdivision 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 change in the dollar amount required under this subdivision and incorporate the change into the income tax forms and instructions.

SB752,12 Section 12. 71.07 (10) (c) 3. of the statutes is created to read:

SB752,7,15 71.07 (10) (c) 3. A credit may be claimed under par. (b) only if, for federal income tax purposes, the compensation of the employee described in par. (b) is reported, or required to be reported, on a W-2 form issued by the claimant.

SB752,13 Section 13. 71.28 (10) (c) 2. of the statutes is amended to read:

SB752,8,10 71.28 (10) (c) 2. The maximum amount of the credit per employee that a claimant may claim under this subsection is an amount equal to 25 50 percent of the amount the claimant contributed to the employee's college savings account up to a maximum contribution equal to 25 percent of the maximum amount that an individual contributor may deduct under s. 71.05 (6) (b) 32. a. per beneficiary, not to exceed a maximum credit of $800. For taxable years beginning after December 31, 2024, the dollar amount in this subdivision 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 2023, 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. The amount that is revised under this subdivision 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 change in the dollar amount required under this subdivision and incorporate the change into the income tax forms and instructions.

SB752,14 Section 14. 71.28 (10) (c) 3. of the statutes is created to read:

SB752,8,14 71.28 (10) (c) 3. A credit may be claimed under par. (b) only if, for federal income tax purposes, the compensation of the employee described in par. (b) is reported, or required to be reported, on a W-2 form issued by the claimant.

SB752,15 Section 15. 71.47 (10) (c) 2. of the statutes is amended to read:

SB752,9,9 71.47 (10) (c) 2. The maximum amount of the credit per employee that a claimant may claim under this subsection is an amount equal to 25 50 percent of the amount the claimant contributed to the employee's college savings account up to a maximum contribution equal to 25 percent of the maximum amount that an individual contributor may deduct under s. 71.05 (6) (b) 32. a. per beneficiary, not to exceed a maximum credit of $800. For taxable years beginning after December 31, 2024, the dollar amount in this subdivision 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 2023, 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. The amount that is revised under this subdivision 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 change in the dollar amount required under this subdivision and incorporate the change into the income tax forms and instructions.

SB752,16 Section 16. 71.47 (10) (c) 3. of the statutes is created to read:

SB752,9,13 71.47 (10) (c) 3. A credit may be claimed under par. (b) only if, for federal income tax purposes, the compensation of the employee described in par. (b) is reported, or required to be reported, on a W-2 form issued by the claimant.