February 16, 2022 - Introduced by Representatives Hesselbein, Sinicki, Hebl,
Hintz, Shelton, Vruwink, Spreitzer, Ohnstad, Considine, Brostoff, B.
Meyers, Haywood, L. Myers, Emerson and Subeck, cosponsored by Senators
Johnson, Kooyenga, Roys, Larson and Erpenbach. Referred to Committee on
Ways and Means.

AB1018,1,7 1An Act to amend 71.05 (6) (a) 26. a., 71.05 (6) (a) 26. b., 71.05 (6) (a) 26. c., 71.05
2(6) (b) 32. a., 71.05 (6) (b) 32. ae., 71.05 (6) (b) 32. am., 71.07 (10) (a) 1., 71.07
3(10) (a) 3., 71.07 (10) (b), 71.07 (10) (c) 2., 71.28 (10) (c) 2., 71.47 (10) (c) 2. and
4224.50 (2) (a); and to create 71.05 (6) (b) 32. ap., 71.07 (10) (c) 3., 71.28 (10) (c)
53., 71.47 (10) (c) 3. and 71.98 (11) of the statutes; relating to: modifying the tax
6treatment of college savings accounts and the employee college savings account
7contribution credit.

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 2021, is $3,380, which is reduced to $1,690 for a married individual
filing a separate return or, in the case of divorced parents, each former spouse. 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. For 2021, the maximum
credit is $211.25. 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.

AB1018,3,52 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

1(c) (6), any amount that was not used for qualified higher education expenses, as that
2term is defined in 26 USC 529 (c) (7), (8), and (9) and (e) (3), and was contributed to
3the account after December 31, 2013, except that this subd. 26. a. applies only to
4amounts for which a subtraction was made under par. (b) 32. or 32m. For purposes
5of this subd. 26. a., a first in, first out method of accounting shall apply to the account.

AB1018,3,117 71.05 (6) (a) 26. b. Any amount rolled over by an owner into another state's
8qualified tuition program, as described in 26 USC 529 (c) (3) (C) (i), to the extent that
9the amount was previously claimed as a deduction under par. (b) 32. or 32m. For
10purposes of this subd. 26. b., a first in, first out method of accounting shall apply to
11the account.