A3959

An Act allowing gross income tax deductions for certain contributions to the New Jersey Better Educational Savings Trust (NJBEST) Program, supplementing Title 54A of the New Jersey Statutes and amending P.L.1997, c.237.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. (New section) A taxpayer shall be allowed a deduction from the taxpayer's gross income for the taxable year, not to exceed $2,000, $1,000 for a married person filing separately, for each beneficiary for whom contributions are made for the taxable year to an account established pursuant to the "New Jersey Better Educational Savings Trust (NJBEST) Program," N.J.S.18A:71B-35 et seq.

2. Section 13 of P.L.1997, c.237 (C.54A:6-25) is amended to read as follows:

13. a. Gross income shall not include earnings on [an] a Coverdell education [individual retirement] savings account or a qualified [State] tuition program account until the earnings are distributed from the account, at which time [they] the amount of the distribution attributable to earnings on the account and the amount of the distribution attributable to contributions allowed as a deduction pursuant to section 1 of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be includible in the gross income of the distributee except as provided in this section.

b. Gross income shall not include qualified distributions as defined in paragraph (3) of subsection c. of this section.

c. For purposes of this section:

(1) "[Education individual retirement] Coverdell education savings account" means an education [retirement] savings account as defined pursuant to paragraph (1) of subsection (b) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.530.

(2) "Qualified [State] tuition program account" means an account established pursuant to the "New Jersey Better Educational Savings Trust (NJBEST) Program," (N.J.S.18A:71B-35 et seq.), an account established pursuant to the "New Jersey Prepaid Higher Education Expense Program," P.L.2001, c.262 (C.18A:71B-64 et seq.) or an account established pursuant to any qualified [State] tuition program [, as defined pursuant to] established in compliance with subsection (b) of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529 or a tuition credit or certificate purchased pursuant to any such program.

(3) "Qualified distribution" means any of the following:

(a) a distribution from a qualified [State] tuition program account that is used for qualified higher education expenses as defined pursuant to paragraph (3) of subsection (e) of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529;

(b) a rollover from one account to another account as described in clause (i) of subparagraph (C) of paragraph (3) of subsection (c) of section 529 or paragraph (5) of subsection (d) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529 or 530;

(c) a change in designated beneficiaries of an account as described in clause (ii) of subparagraph (C) of paragraph (3) of subsection (c) of section 529 or paragraph (6) of subsection (d) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529 or 530;

d. The portion of a distribution from [an] a Coverdell education [individual retirement] savings account or a qualified [State] tuition program account that is attributable to earnings and to contributions deducted pursuant to section 1 of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be determined in accordance with the principles of section 72 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.72, as applied for purposes of sections 529 and 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. ss.529 and 530.

(cf: P.L.2001, c.262, s.21)

3. This act shall take effect immediately and apply to taxable years beginning on or after January 1, 2013.

STATEMENT

This bill allows a taxpayer to deduct amounts of the taxpayer’s contribution to accounts created under the New Jersey Better Educational Savings Trust (NJBEST) Program, New Jersey’s federally qualified tuition program, from the taxpayer’s gross income. The bill allows a taxpayer to deduct up to $2,000 per taxable year for each beneficiary ($1,000 per beneficiary for a married taxpayer filing separately) for whom the taxpayer makes contributions. This deduction will serve as an incentive for participation in the NJBEST Program and participation will help taxpayers meet the ever-increasing costs of higher education.

A number of states currently offer special state tax benefits for the state’s own federally-qualified tuition program.