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 contribution amount an individual may deduct from
the contributor's income. Under current law, the maximum amount for 2019 is
$3,280 (or $1,640 for each contributor who is married and files separately) and is
indexed for inflation. The bill increases the maximum amount to $5,000 (or $2,500
for each contributor who is married and files separately) and eliminates indexing.
The bill also eliminates a provision under current law that limits the maximum
deduction amount for divorced parents to $1,640 for each former spouse.
2. Modifies the contribution deadline for state tax purposes. Under current
law, a contribution made during a taxable year, or on or before April 15 following the
end of the taxable year, may be deducted from the contributor's income for the
taxable year. The bill provides that a contribution for a taxable year must be made
on or before the date on which the contributor is required to file the contributor's
state income tax return, not including any extension, for the taxable year.
3. Modifies the 365-day restriction under current law that applies to account
withdrawals. Under current law, any amount withdrawn from an account within
365 days of the day on which the amount was contributed to the account must be
added to income if the amount was previously deducted from income. The bill limits
the 365-day restriction to apply only to withdrawn amounts that were rolled over to
the account from another state's qualified tuition program within 365 days of
withdrawal.
4. Modifies the 365-day restriction under current law with respect to
carry-overs. Under current law, a contribution to an account in excess of the
maximum deduction amount may be carried forward to future taxable years, but the
carry-over is not allowed if the carry-over amount was withdrawn from the account
within 365 days of the day on which the amount was contributed to the account and
if the amount was previously deducted from income. The bill limits the 365-day
restriction with respect to carry-overs to apply only to withdrawn amounts that were
rolled over to the account from another state's qualified tuition program within 365
days of withdrawal.
5. Requires the use of a first in, first out method of accounting for purposes of
the 365-day restrictions described under items 3 and 4 and for purposes of other
additions to income under current law that relate to account withdrawals.
The federal Tax Cuts and Jobs Act of 2017 amended the definition of “qualified
higher education expense” under federal law for purposes of state qualified tuition
programs. Under the current federal definition, 529 accounts may be used to pay for
expenses for tuition in connection with enrollment or attendance at an elementary
or secondary public, private, or religious school. The bill modifies the definition of
“qualified higher education expense” in the state individual income tax law to
conform to the definition under federal law. The bill also modifies an administrative
rule of DFI to conform that definition to federal law.
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:
AB769,1
1Section
1. 71.05 (6) (a) 26. a. of the statutes is amended to read:
AB769,3,82
71.05
(6) (a) 26. a. To the extent that the receipt of
such the amounts by the
3owner or beneficiary of the account results in a penalty as provided in
26 USC 529 4(c) (6), any amount that was not used for qualified higher education expenses, as
that
5term is defined in
26 USC 529 (c) (7) and (e) (3), and
that was contributed to the
6account after December 31, 2013, except that this subd. 26. a. applies only to amounts
7for which a subtraction was made under par. (b) 32.
or 32m. For purposes of this
8subd. 26. a., a first in, first out method of accounting applies to the account.
AB769,2
9Section 2
. 71.05 (6) (a) 26. b. of the statutes is amended to read:
AB769,3,1410
71.05
(6) (a) 26. b. Any amount rolled over by an owner into another state's
11qualified tuition program, as described in
26 USC 529 (c) (3) (C) (i), to the extent that
12the amount was previously claimed as a deduction under par. (b) 32.
or 32m. For
13purposes of this subd. 26. b., a first in, first out method of accounting applies to the
14account.
AB769,3
15Section
3. 71.05 (6) (a) 26. c. of the statutes is amended to read:
AB769,4,216
71.05
(6) (a) 26. c. To the extent that an amount is not otherwise added back
17under this subdivision, any amount withdrawn from
a college savings the account
,
18as described in s. 224.50, for any purpose if the withdrawn amount was
contributed 19rolled over to the account
from another state's qualified tuition program, as described
20in 26 USC 529 (c) (3) (C) (i), within 365 days of the day on which the amount was
21withdrawn from
such an the account and if the withdrawn amount was previously
1subtracted under par. (b)
32. 32m. For purposes of this subd. 26. c., a first in, first
2out method of accounting applies to the account.
AB769,4
3Section
4. 71.05 (6) (b) 32. (intro.) of the statutes is amended to read:
AB769,4,124
71.05
(6) (b) 32. (intro.) An amount paid into a college savings account, as
5described in s. 224.50,
by the account owner, as defined in s. 224.50 (1) (a), or by any
6other individual for the benefit of a beneficiary of the account in the taxable year in
7which the contribution is made or on or before the
15th day of the 4th month
8beginning after the close of a taxpayer's date on which the contributor is required to
9file a return under s. 71.03 (6), not including any extension, for the taxable year to
10which this subtraction relates,
by the owner of the account or by any other individual,
11for the benefit of any beneficiary of an account, calculated as follows, except that each
12amount that is subtracted under this subdivision may be subtracted only once:
AB769,5
13Section
5. 71.05 (6) (b) 32. a. of the statutes is amended to read:
AB769,5,1914
71.05
(6) (b) 32. a. Except as otherwise provided in this subdivision, an amount
15equal to not more than
$3,000 $5,000 per beneficiary, by each contributor, or
$1,500 16$2,500 by each contributor who is married and files separately, to an account for each
17year to which the claim relates, except that the total amount for which a deduction
18may be claimed under this subdivision and under subd. 33., per beneficiary by any
19claimant may not exceed
$3,000 $5,000 each year, or
$1,500 $2,500 each year by any
20claimant who is married and files separately. In the case of a married couple, the
21total deduction under this subdivision and under subd. 33., per beneficiary by the
22married couple may not exceed
$3,000 $5,000 each year.
In the case of divorced
23parents, the total deduction under this subdivision and under subd. 33., per
24beneficiary by the formerly married couple, may not exceed $3,000, and the
25maximum amount that may be deducted by each former spouse is $1,500, unless the
1divorce judgment specifies a different division of the $3,000 maximum that may be
2claimed by each former spouse. For taxable years beginning after December 31,
32013, the dollar amounts in this subd. 32. a., and the dollar amounts in subd. 33. a.,
4shall be increased each year by a percentage equal to the percentage change between
5the U.S. consumer price index for all urban consumers, U.S. city average, for the
6month of August of the previous year and the U.S. consumer price index for all urban
7consumers, U.S. city average, for the month of August 2012, as determined by the
8federal department of labor, except that the adjustment may occur only if the
9resulting amount is greater than the corresponding amount that was calculated for
10the previous year. Each amount that is revised under this subd. 32. a. and under
11subd. 33. a. shall be rounded to the nearest multiple of $10 if the revised amount is
12not a multiple of $10 or, if the revised amount is a multiple of $5, such an amount
13shall be increased to the next higher multiple of $10. The department of revenue
14shall annually adjust the changes in dollar amounts required under this subd. 32.
15a. and incorporate the changes into the income tax forms and instructions. Any
16amount that is paid into an account under this subdivision that exceeds the
17maximum amount that may be subtracted under this subdivision may be carried
18forward to the next taxable year, and thereafter, subject to the limitations in this
19subdivision.
AB769,6
20Section
6. 71.05 (6) (b) 32. ae. of the statutes is renumbered 71.05 (6) (b) 32m.
21b. and amended to read:
AB769,6,222
71.05
(6) (b) 32m. b. No
carryover carry-over that would otherwise be
23authorized under this subdivision
may be is allowed if the
carryover carry-over 24amount was withdrawn from
an a college savings account
, as described in s. 224.50, 25for any purpose
and the withdrawal occurred within 365 days of the day on which
1the amount was
contributed rolled over to the account.
For purposes of this subd.
232m. b., a first in, first out method of accounting applies to the account.
AB769,7
3Section
7. 71.05 (6) (b) 32. am. of the statutes is amended to read:
AB769,6,94
71.05
(6) (b) 32. am. Any
carryover carry-over amount that is otherwise eligible
5for a subtraction under this subdivision
shall be
is reduced by an amount equal to
6the amount of a withdrawal from an account that was not used for qualified higher
7education expenses, as
that term is defined in
26 USC 529 (c) (7) and (e) (3), to the
8extent that the withdrawn amount exceeds the amount that is added to income under
9par. (a) 26.
AB769,8
10Section
8. 71.05 (6) (b) 32m. of the statutes is renumbered 71.05 (6) (b) 32m.
11a. and amended to read:
AB769,6,1912
71.05
(6) (b) 32m. a. Consistent with the limitations specified in subd. 32., for
13rollovers occurring after April 15, 2015, any principal amount rolled over to a college
14savings account, as described in s. 224.50, from another state's qualified tuition
15program, as described in
26 USC 529 (c) (3) (C) (i).
Amounts Subject to subd. 32m.
16b., amounts eligible for the subtraction under this subdivision that are in excess of
17the annual limits specified under subd. 32. may be carried forward to future taxable
18years of the taxpayer without limitation, other than the limits specified in subd. 32.
19ae. and am.
AB769,9
20Section
9. DFI-CSP 1.02 (17) of the administrative code is amended to read:
AB769,6,2221
DFI-CSP 1.02
(17) “Qualified higher education expenses" has the meaning
22found given in section
529
(c) (7) and (e) (3) of the internal revenue code.
AB769,10
23Section
10.
Initial applicability.
AB769,7,824
(1)
Addition to tax for nonqualified withdrawals previously deducted. The
25treatment of s. 71.05 (6) (a) 26. a. that amends the definition of qualified higher
1education expenses to include a cross-reference to
26 USC 529 (c) (7) first applies
2retroactively to taxable years beginning after December 31, 2017. The treatment of
3s. 71.05 (6) (a) 26. a. to include a cross-reference to s. 71.05 (6) (b) 32m. and to require
4the use of a first in, first out method of accounting first applies to taxable years
5beginning on January 1 of the year in which this subsection takes effect, except that
6if this subsection takes effect after July 31, the treatment first applies to taxable
7years beginning on January 1 of the year following the year in which this subsection
8takes effect.
AB769,7,119
(2)
Definition of qualified higher education expense. The treatment of s.
1071.05 (6) (b) 32. am. first applies retroactively to taxable years beginning after
11December 31, 2017.
AB769,7,1712
(3)
Tax treatment for contributions and withdrawals. The treatment of s.
1371.05 (6) (a) 26. b. and c. and (b) 32. (intro.), a., and ae. and 32m. first applies to
14taxable years beginning on January 1 of the year in which this subsection takes
15effect, except that if this subsection takes effect after July 31, the treatment first
16applies to taxable years beginning on January 1 of the year following the year in
17which this subsection takes effect.
AB769,11
18Section
11.
Effective dates. This act takes effect on the day after publication,
19except as follows:
AB769,7,2120
(1)
The modification of administrative rules takes effect as provided in s.
21227.265.