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AB-629 Personal Income Tax Law: deferred compensation: exclusions: long-term qualified tuition program.(2023-2024)

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Date Published: 04/25/2023 09:00 PM
AB629:v98#DOCUMENT

Amended  IN  Assembly  April 25, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill
No. 629

Introduced by Assembly Member Wallis

February 09, 2023

An act to amend Sections 17140 and 17501 17140.3 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 629, as amended, Wallis. Personal Income Tax Law: deferred compensation: exclusions: Golden State Scholarshare Trust. long-term qualified tuition program.
The Personal Income Tax Law, in conformity with federal income tax law, generally defines “gross income” as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income. Existing law, known as the Golden State Scholarshare Trust Act, establishes the Golden State Scholarshare College Savings Trust (Scholarshare trust), under the administration of the Scholarshare Investment Board, to provide financial aid for postsecondary education costs of participating students. Existing state and federal law generally includes in gross income distributions from a qualified tuition program, as defined to include the Scholarshare trust, except as provided. Existing
Existing federal law, the Consolidated Appropriations Act, 2023, excludes from gross income, for federal income tax purposes, distributions from a qualified tuition program that are made after December 31, 2023, and are paid in a direct trustee-to-trustee transfer to a Roth IRA, as described.
This bill would exempt from gross income distribution made from a Scholarshare trust account after December 31, 2023, long-term qualified tuition program during the taxable years beginning on or after January 1, 2024, and before January 1, 2029, that are paid in a direct trustee-to-trustee transfer to a Roth IRA. IRA, and would conform state tax law to those changes relating to federal law, as described above.

Existing Personal Income Tax Law conforms to federal law in its treatment of specified retirement accounts, including Roth IRAs. Existing state and federal law generally do not allow rollover contributions, as defined, unless they are qualified rollover contributions. Existing federal law, the Consolidated Appropriations Act, 2023, expands the definition of “qualified rollover contribution,” for contributions occurring after December 31, 2023, to include rollover contributions from a qualified tuition program, as specified.

This bill would expand the definition of qualified rollover contributions to include rollover contributions made after December 31, 2023, from a qualified tuition program.

Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would include additional information required for any bill authorizing a new tax expenditure.
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 17140 of the Revenue and Taxation Code is amended to read:

17140.
 (a) For purposes of this section, the following terms have the following meanings as provided in the Golden State Scholarshare Trust Act (Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code):
(1) “Beneficiary” has the meaning set forth in subdivision (c) of Section 69980 of the Education Code.
(2) “Benefit” has the meaning set forth in subdivision (d) of Section 69980 of the Education Code.
(3) “Participant” has the meaning set forth in subdivision (h) of Section 69980 of the Education Code.
(4) “Participation agreement” has the meaning set forth in subdivision (i) of Section 69980 of the Education Code.
(5) “Scholarshare trust” has the meaning set forth in subdivision (f) of Section 69980 of the Education Code.
(b) For taxable years beginning on or after January 1, 1998, and before January 1, 2002, except as otherwise provided in subdivision (c), gross income of a beneficiary or a participant does not include any of the following:
(1) Any distribution or earnings under a Scholarshare trust participation agreement, as provided in Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code.
(2) Any contribution to the Scholarshare trust on behalf of a beneficiary shall not be includable as gross income of that beneficiary.
(c) For taxable years beginning on or after January 1, 1998, and before January 1, 2002:
(1) Any distribution under a Scholarshare trust participation agreement shall be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code, as modified by Section 17085, to the extent not excluded from gross income under this part. For purposes of applying Section 72 of the Internal Revenue Code, the following apply:
(A) All Scholarshare trust accounts of which an individual is a beneficiary shall be treated as one account, except as otherwise provided.
(B) All distributions during a taxable year shall be treated as one distribution.
(C) The value of the participation agreement, income on the participation agreement, and investment in the participation agreement shall be computed as of the close of the calendar year in which the taxable year begins.
(2) A contribution by a for-profit or nonprofit entity, or by a state or local government agency, for the benefit of an owner or employee of that entity or a beneficiary whom the owner or employee has the power to designate, including the owner or employee’s minor children, shall be included in the gross income of that owner or employee in the year the contribution is made.
(3) For purposes of this subdivision, “distribution” includes any benefit furnished to a beneficiary under a participation agreement, as provided in Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code.
(4) (A) Paragraph (1) shall not apply to that portion of any distribution that, within 60 days of distribution, is transferred to the credit of another beneficiary under the Scholarshare trust who is a “member of the family,” as that term is used in Section 529(e)(2) of the Internal Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public Law 105-34), of the former beneficiary of that Scholarshare trust.
(B) Any change in the beneficiary of an interest in the Scholarshare trust shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is a “member of the family,” as that term is used in Section 529(e)(2) of the Internal Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public Law 105-34), of the former beneficiary of that Scholarshare trust.
(d) For taxable years beginning on or after January 1, 2002, Sections 529(c) and 529(e) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors and to other definitions and special rules, respectively, shall apply, except as otherwise provided in Part 11 (commencing with Section 23001) and this part.
(e) (1) The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.
(2) The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.
(3) The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.
(f) (1) The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.
(2) (A) The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.
(B) The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.
(C) In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), that would be treated for federal income tax purposes as a “qualified higher education expense” under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.
(D) Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.
(g) (1) The amendments made by Section 126(a) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(c) of the Internal Revenue Code, relating to special rollovers to Roth IRAs, IRAs from long-term qualified tuition programs, shall apply with respect to distributions made after December 31, 2023. during the taxable years beginning on or after January 1, 2024, and before January 1, 2029.
(2) The amendments made by Section 126(c) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(d), 529(d) of the Internal Revenue Code, relating to reporting, shall apply with respect to distributions made after December 31, 2023, in taxable years beginning on or after January 1, 2024, except that “Franchise Tax Board” shall be substituted for “Secretary.”
(3) For the purpose of complying with Section 41, the Legislature finds and declares the following with respect to the exclusions from income for distributions allowed by this section:
(A) The specific goal that the exclusion will achieve is to encourage additional savings for educational expenses and to conform to federal law to bring tax relief and ease return preparation for taxpayers who transfer funds under this subdivision.
(B) Detailed performance indicators for the Legislature to use in determining whether the exclusion meets the goal described in subparagraph (A) are the number of taxpayers that make the transfer permitted under this subdivision and the amount of additional savings added to Scholarshare trust accounts.
(h) (1) For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(a) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(8) of the Internal Revenue Code, relating to distributions for certain expenses associated with registered apprenticeship programs, shall apply.
(2) For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(b)(1) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(9) of the Internal Revenue Code, relating to distributions for qualified education loan repayments, shall apply.

SEC. 2.Section 17501 of the Revenue and Taxation Code is amended to read:
17501.

(a)Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to deferred compensation, shall apply, except as otherwise provided.

(b)Notwithstanding the specified date contained in paragraph (1) of subdivision (a) of Section 17024.5, Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to pension, profitsharing, stock bonus plans, etc., and Part III of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to rules relating to minimum funding standards and benefit limitations, shall apply, except as otherwise provided, without regard to taxable year to the same extent as applicable for federal income tax purposes.

(c)The maximum amount of elective deferrals (as defined in Section 402(g)(3)) for the taxable year that may be excluded from gross income under Section 402(g) of the Internal Revenue Code, as applicable for state purposes, shall not exceed the amount of elective deferrals that may be excluded from gross income under Section 402(g) of the Internal Revenue Code, as in effect on January 1, 2010, including additional elective deferrals under Section 414(v) of the Internal Revenue Code, as in effect on January 1, 2010.

(d)(1)For taxable years beginning on or after January 1, 2002, the basis of any person in the plan, account, or annuity shall be increased by the amount of elective deferrals not excluded as a result of the application of subdivision (c).

(2)Any basis described in paragraph (1) shall be recovered in the manner specified in Section 17085.

(e)Notwithstanding the limitations provided in subdivision (c), any income attributable to elective deferrals in taxable years beginning on or after January 1, 2002, in conformance with Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, as applicable for federal and state purposes, shall not be includable in the gross income of the individual for whose benefit the plan or account was established until distributed pursuant to the plan or by operation of law.

(f)The amendments made by Section 126(b) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 408A shall apply with respect to distributions made after December 31, 2023.

SEC. 2.

 Section 17140.3 of the Revenue and Taxation Code is amended to read:

17140.3.
 Section 529 of the Internal Revenue Code, relating to qualified state tuition programs, shall apply, except as otherwise provided.
(a) Section 529(a) of the Internal Revenue Code is modified as follows:
(1) By substituting the phrase “under this part and Part 11 (commencing with Section 23001)” in lieu of the phrase “under this subtitle.”
(2) By substituting “Article 2 (commencing with Section 23731)” in lieu of “Section 511.”
(b) A copy of the report required to be filed with the Secretary of the Treasury under Section 529(d) of the Internal Revenue Code shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
(c) (1) The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.
(2) The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.
(3) The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.
(d) (1) The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.
(2) (A) The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.
(B) The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.
(C) In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), that would be treated for federal income tax purposes as a “qualified higher education expense” under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.
(D) Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.
(e) (1) The amendments made by Section 126(a) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(c) of the Internal Revenue Code, relating to special rollovers to Roth IRAs from long-term qualified tuition programs, shall apply with respect to distributions made during the taxable years beginning on or after January 1, 2024, and before January 1, 2029.
(2) The amendments made by Section 126(c) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(d) of the Internal Revenue Code, relating to reporting, shall apply with respect to distributions made in taxable years beginning on or after January 1, 2024, except that “Franchise Tax Board” shall be substituted for “Secretary.”
(3) For the purpose of complying with Section 41, the Legislature finds and declares the following with respect to the exclusions from income for distributions allowed by this section:
(A) The specific goal that the exclusion will achieve is to encourage additional savings for educational expenses and to conform to federal law to bring tax relief and ease return preparation for taxpayers who transfer funds under this subdivision.
(B) Detailed performance indicators for the Legislature to use in determining whether the exclusion meets the goal described in subparagraph (A) are the number of taxpayers that make the transfer permitted under this subdivision and the amount of additional savings added to qualified tuition programs.

(e)

(f) (1) For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(a) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(8) of the Internal Revenue Code, relating to distributions for certain expenses associated with registered apprenticeship programs, shall apply.
(2) For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(b)(1) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(9) of the Internal Revenue Code, relating to distributions for qualified education loan repayments, shall apply.

SEC. 3.

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