A4972

An Act concerning the New Jersey Better Educational Savings Trust (NJBEST) program, supplementing N.J.S.18A:71B-35 et seq. and 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. A NJBEST account when it is initially opened shall be eligible for the following State credits to the account:

(1) a one-time grant of up to $250 in a dollar-for-dollar match of the initial deposit to the account; and

(2) a one-time grant of $50 if an automatic contribution plan is established for the account.

b. The authority shall promulgate rules pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), as it deems necessary for the appropriate administration and implementation of the provisions of this section, including a minimum length of time for participation in the NJBEST program in order to maintain eligibility for the credit established pursuant to this section.

2. (New section) a. A taxpayer shall be allowed a credit against the tax otherwise due for the taxable year under the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., in an amount equal to contributions made to one or more accounts established pursuant to the “New Jersey Better Educational Savings Trust (NJBEST) Program,” N.J.S.18A:71B-35 et seq., up to $600 for married individuals filing a joint return for federal tax purposes or up to $300 for married individuals filing separately or unmarried individuals.

b. The credit allowed pursuant to subsection a. of this section shall not reduce the tax liability otherwise due for the taxable year under the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq. to an amount less than zero. The amount of any unused credit resulting from the limitations of this subsection may be carried forward, if necessary, to the seven taxable years following the taxable year for which the credit was allowed. The form and method of carryforward shall be as prescribed by the Director of the Division of Taxation.

3. 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 a Coverdell

education savings account, a [qualified State] tuition program account, or a qualified ABLE 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 credit pursuant to section 2 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) "Coverdell education savings account" means a Coverdell education 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] 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.) 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 or a distribution from a qualified ABLE account that is used for qualified disability expenses as defined pursuant to paragraph (5) of subsection (e) of section 529A of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529 or 529A;

(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, if applicable, clause (i) of subparagraph (C) of paragraph (1) of subsection (c) of section 529A, or paragraph (5) of subsection (d) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529, 529A, or 530; or

(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, clause (ii) of subparagraph (C) of paragraph (1) of subsection (c) of section 529A, or paragraph (6) of subsection (d) of section 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529, 529A, or 530; and

(d) any other transfer involving a qualified ABLE account which is a qualified distribution for the purposes of section 529A of the federal Internal Revenue Code, 26 U.S.C. s.529A.

(4) "Qualified ABLE account" means an account established pursuant to P.L.2015, c.185 (C.52:18A-250 et al.) or an account established pursuant to any qualified State ABLE Program established pursuant to section 529A of the federal Internal Revenue Code of 1986, 26 U.S.C. s.529A.

d. The portion of a distribution from a Coverdell education savings account, a qualified ABLE account, or a [qualified State] tuition program account that is attributable to earnings and to contributions allowed as a credit pursuant to section 2 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, 529A, and 530 of the federal Internal Revenue Code of 1986, 26 U.S.C. ss.529, 529A, and 530.

(cf: P.L.2015, c.185, s.1)

4. This act shall take effect immediately and section 2 shall apply to contributions made for taxable years beginning on or after January 1 next following the date of enactment.

STATEMENT

This bill provides that a New Jersey Better Educational Savings Trust (NJBEST) program account when it is initially opened will be eligible for: (1) a one-time State grant of up to $250 in a dollar-for-dollar match of the initial deposit to the account; and (2) a one-time State grant of $50 if an automatic contribution plan is established for the account. The Higher Education Student Assistance Authority will promulgate rules related to the receipt of the grants, including a minimum length of time for participation in the NJBEST program in order to maintain eligibility for the grants.

The bill also allows a credit against an individual’s gross income tax for contributions to the NJBEST program. Under the bill, married individuals filing a joint return will be eligible for a credit of up to $600 of the taxpayer’s contributions for the taxable year, and for married individuals filing separately or unmarried individuals, the credit would be up to $300 of the taxpayer’s contributions.

The NJBEST program is New Jersey's qualified college savings program under section 529 of the federal Internal Revenue Code, 26 U.S.C. s.529. Federal tax law allows contributions of federally taxed income to accounts established for the beneficiary’s qualified higher education expenses. Account investment earnings are not federally taxed until withdrawn, and if the earnings are used for qualified higher educational expenses, they are never taxed. Currently, New Jersey matches those federal tax advantages.

This bill establishes several financial incentives for participation in the NJBEST program as a means of assisting families in meeting the escalating costs of higher education.