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AB-2426 Income taxes: education savings accounts.(2013-2014)

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Amended  IN  Assembly  May 05, 2014
Amended  IN  Assembly  April 01, 2014

CALIFORNIA LEGISLATURE— 2013–2014 REGULAR SESSION

Assembly Bill
No. 2426

Introduced by Assembly Member Nestande
(Coauthor: Assembly Member Allen)(Coauthors: Assembly Members Allen, Bonilla, Grove, Harkey, Maienschein, and Olsen)
(Coauthor: Senator Cannella)

February 21, 2014

An act to add Section 17141.1 to amend Section 17072 of, and to add Section 17208 to, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 2426, as amended, Nestande. Income taxes: education savings accounts.
The Personal Income Tax Law excludes from gross income distributions from a Coverdell education savings account, provided the distributions are used for qualified education expenses, as provided Law, in modified conformity with federal income tax laws, allows various deductions in computing the income that is subject to the taxes imposed by that law.
This bill would allow as an exclusion from a deduction incomputing adjusted gross income for those amounts contributed to a Coverdell education savings account, up to $750 per taxable year, as provided. This bill would impose a penalty upon a taxpayer of 2.5% for unauthorized distributions from the account, as specified.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 17072 of the Revenue and Taxation Code is amended to read:

17072.
 (a) Section 62 of the Internal Revenue Code, relating to adjusted gross income defined, shall apply, except as otherwise provided.
(b) Section 62(a)(2)(D) of the Internal Revenue Code, relating to certain expenses of elementary and secondary school teachers, shall not apply.
(c) Section 62(a)(21) of the Internal Revenue Code, relating to attorneys fees relating to awards to whistleblowers, shall not apply.
(d) For taxable years beginning on or after January 1, 2014, Section 62(a) of the Internal Revenue Code is modified to provide that the deduction allowed under Section 17208 shall be allowed in determining adjusted gross income.

SECTION 1.SEC. 2.

 Section 17141.1 17208 is added to the Revenue and Taxation Code, to read:

17141.1.17208.
 (a) Notwithstanding any other provision of this part or Part 11 (commencing with Section 23001) to the contrary, any a deduction shall be allowed for an amount contributed by a taxpayer during the taxable year to a Coverdell education savings account, not to exceed seven hundred fifty dollars ($750) per taxable year, shall not be includable in the gross income of the taxpayer, except as otherwise provided in this section.

(b)For purposes of this section:

(1)“Coverdell education savings account” shall have the same meaning as that term is defined by Section 530 of the Internal Revenue Code.

(2)“Dependent” shall have the same meaning as that term is defined by Section 152 of the Internal Revenue Code.

(3)“Qualified education expenses” shall have the same meaning as that term is defined by Section 530 of the Internal Revenue Code.

(c)(1)Any amount withdrawn or distributed from a Coverdell education savings account shall subject the taxpayer to a penalty in an amount equal to 2.5 percent of the payment or distribution, unless the payment or distribution is made to pay for the qualified education expenses of the taxpayer that established the account or his or her spouse or their dependents.

(2)If the withdrawal or distribution from a Coverdell education savings account is not used to pay for qualified education expenses then any amount previously excluded from gross income pursuant to this section shall be included in a taxpayer’s gross income for the taxable year in which the amount was excluded and the taxpayer shall be liable for any increase in tax attributable to that inclusion.

(d)Notwithstanding any other provision of this part, the transfer of a taxpayer’s interest in a Coverdell education savings account to his or her former spouse under a dissolution decree or under a written instrument incident to a dissolution is not to be considered a taxable transfer made by that taxpayer, as long as the transferred moneys are deposited into another Coverdell education savings account established by the former spouse.

(b) For purposes of this section, “Coverdell education savings account” shall have the same meaning as that term is defined by Section 530 of the Internal Revenue Code, as modified by Section 23712.
(c) For purposes of applying Section 530 of the Internal Revenue Code, relating to Coverdell education savings accounts, the basis of the Coverdell education savings account shall be reduced by any amount deducted pursuant to this section.

SEC. 2.SEC. 3.

 This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.