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2023 - 2024 LEGISLATURE
2023 ASSEMBLY BILL 793
December 8, 2023 - Introduced by Representatives BINSFELD, JOERS, ALLEN,
BEHNKE, BRANDTJEN, CALLAHAN, CONLEY, DITTRICH, GOEBEN, GOYKE, KITCHENS,
MACCO, MAXEY, MELOTIK, MURSAU, OHNSTAD, ORTIZ-VELEZ, PENTERMAN,
RATCLIFF and RETTINGER, cosponsored by Senators CABRAL-GUEVARA,
HESSELBEIN, L. JOHNSON, LARSON, NASS, SPREITZER and WIRCH. Referred to
Committee on Ways and Means.
***AUTHORS SUBJECT TO CHANGE***
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
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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:
SECTION 1. 71.05 (6) (a) 26. a. of the statutes is amended to read:1 - 3 -2023 - 2024 Legislature
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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.
SECTION 2. 71.05 (6) (a) 26. b. of the statutes is amended to read:
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.
SECTION 3. 71.05 (6) (a) 26. c. of the statutes is amended to read:
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.
SECTION 4. 71.05 (6) (b) 32. a. of the statutes is amended to read:
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
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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
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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.
SECTION 5. 71.05 (6) (b) 32. ae. of the statutes is amended to read:
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.
SECTION 6. 71.05 (6) (b) 32. am. of the statutes is amended to read:
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.
SECTION 7. 71.05 (6) (b) 32. ap. of the statutes is created to read:
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).
SECTION 8. 71.07 (10) (a) 1. of the statutes is amended to read:
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
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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).
SECTION 9. 71.07 (10) (a) 3. of the statutes is amended to read:
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.
SECTION 10. 71.07 (10) (b) of the statutes is amended to read:
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.
SECTION 11. 71.07 (10) (c) 2. of the statutes is amended to read:
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
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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.
SECTION 12. 71.07 (10) (c) 3. of the statutes is created to read:
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.
SECTION 13. 71.28 (10) (c) 2. of the statutes is amended to read:
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
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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.
SECTION 14. 71.28 (10) (c) 3. of the statutes is created to read:
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.
SECTION 15. 71.47 (10) (c) 2. of the statutes is amended to read:
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,
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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.
SECTION 16. 71.47 (10) (c) 3. of the statutes is created to read:
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.
SECTION 17. 71.98 (11) of the statutes is created to read:
71.98 (11) QUALIFIED TUITION PROGRAMS. For taxable years beginning after
December 31, 2021, sections 221 (e) (1) and 529 of the Internal Revenue Code as in
effect for federal purposes, relating to qualified tuition programs.
SECTION 18. 224.50 (2) (a) of the statutes is amended to read:
224.50 (2) (a) Except as provided in s. 224.51, establish and administer a
college savings program that allows an individual, trust, legal guardian, or entity
described under 26 USC 529 (e) (1) (C) to establish a college savings account to cover
tuition, fees, and the costs of room and board, books, supplies, and equipment
required for the enrollment or attendance of a beneficiary at an eligible educational
institution, as defined under 26 USC 529, and to cover tuition expenses in connection
with enrollment or attendance at an elementary or secondary public, private, or
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religious school, as described in section 11032 of P.L. 115-97, related to qualified
tuition programs under 26 USC 529, to cover the expenses for fees, books, supplies,
and equipment required for the participation of a beneficiary in an apprenticeship
program described in 26 USC 529 (c) (8), and to cover the amounts paid as principal
or interest on a qualified education loan, as defined in 26 USC 221 (d) (1), of the
beneficiary or a sibling of the beneficiary.
SECTION 19.0Initial applicability.
(1) ADDITION TO TAX FOR NONQUALIFIED WITHDRAWALS PREVIOUSLY DEDUCTED. The
treatment of s. 71.05 (6) (a) 26. a. that amends the definition of qualified higher
education expenses to include a cross-reference to 26 USC 529 (c) (7) first applies
retroactively to taxable years beginning after December 31, 2017. The treatment of
s. 71.05 (6) (a) 26. a. that amends the definition of qualified higher education
expenses to include a cross-reference to 26 USC 529 (c) (8) and (9) first applies
retroactively to taxable years beginning after December 31, 2018. The treatment of
s. 71.05 (6) (a) 26. a. to require the use of a first in, first out method of accounting and
to include a cross-reference to s. 71.05 (6) (b) 32m. first applies to taxable years
beginning on January 1 of the year in which this subsection takes effect, except that
if this subsection takes effect after July 31, the treatment first applies to taxable
years beginning on January 1 of the year following the year in which this subsection
takes effect.
(2) DEFINITION OF QUALIFIED HIGHER EDUCATION EXPENSES. The treatment of s.
71.05 (6) (b) 32. am. that amends the definition of qualified higher education
expenses to include a cross-reference to 26 USC 529 (c) (7) first applies retroactively
to taxable years beginning after December 31, 2017. The treatment of s. 71.05 (6)
(b) 32. am. that amends the definition of qualified higher education expenses to
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include a cross-reference to 26 USC 529 (c) (8) and (9) and the treatment of s. 224.50
(2) (a) first apply retroactively to taxable years beginning after December 31, 2018.
(3) TAX TREATMENT FOR CONTRIBUTIONS AND WITHDRAWALS; EMPLOYEE COLLEGE
SAVINGS ACCOUNT CONTRIBUTION CREDIT. The treatment of ss. 71.05 (6) (a) 26. b. and
c. and (b) 32. a., ae., and ap., 71.07 (10) (a) 1. and 3., (b), and (c) 2. and 3., 71.28 (10)
(c) 2. and 3., and 71.47 (10) (c) 2. and 3. first applies to taxable years beginning on
January 1, 2024.
(END)
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