House File 2456 - Introduced HOUSE FILE 2456 BY WILLEMS , STECKMAN , KELLEY , BERRY , WOLFE , WESSEL-KROESCHELL , COHOON , M. SMITH , KRESSIG , GASKILL , H. MILLER , R. OLSON , THOMAS , HALL , T. TAYLOR , WITTNEBEN , GAINES , KAJTAZOVIC , JACOBY , MUHLBAUER , WENTHE , OLDSON , ISENHART , RUNNING-MARQUARDT , HANSON , and T. OLSON A BILL FOR An Act creating an individual income tax credit for 1 contributions to an Iowa educational savings plan, 2 promoting the use of such plans, and including retroactive 3 applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5080YH (4) 84 mm/sc

H.F. 2456 DIVISION I 1 IOWA EDUCATIONAL SAVINGS PLAN TAX CREDIT 2 Section 1. Section 12D.3, subsection 1, paragraph a, Code 3 2011, is amended to read as follows: 4 a. Each participation agreement may require a participant 5 to agree to invest a specific amount of money in the trust 6 for a specific period of time for the benefit of a specific 7 beneficiary. A participant shall not be required to make an 8 annual contribution on behalf of a beneficiary. The maximum 9 contribution that may be deducted for Iowa income tax purposes 10 shall not exceed two thousand dollars per beneficiary per year 11 adjusted annually to reflect increases in the consumer price 12 index. The maximum contribution that may be taken as a credit 13 against income tax liability for Iowa income tax purposes 14 shall not exceed two thousand dollars per participant per 15 year adjusted annually to reflect increases in the consumer 16 price index. The treasurer of state shall set an account 17 balance limit to maintain compliance with section 529 of the 18 Internal Revenue Code. A contribution shall not be permitted 19 to the extent it causes the aggregate balance of all accounts 20 established for the same beneficiary to exceed the applicable 21 account balance limit. 22 Sec. 2. Section 12D.9, subsection 2, Code 2011, is amended 23 to read as follows: 24 2. State income tax treatment of the Iowa educational 25 savings plan trust shall be as provided in section 422.7 , 26 subsections 32 and 33 , and section 422.11I . 27 Sec. 3. NEW SECTION . 422.11I Iowa educational savings plan 28 tax credit. 29 1. The taxes imposed under this division, less the credits 30 allowed under section 422.12, shall be reduced by an Iowa 31 educational savings plan tax credit. The credit shall be an 32 amount equal to the lesser of the following: 33 a. Twenty-five percent of the annual contributions made on 34 behalf of a beneficiary or beneficiaries to an Iowa educational 35 -1- LSB 5080YH (4) 84 mm/sc 1/ 5

H.F. 2456 savings plan trust established pursuant to chapter 12D. 1 b. The maximum annual Iowa income tax credit allowed as a 2 participant in the Iowa educational savings plan trust pursuant 3 to section 12D.3, subsection 1, paragraph “a” . 4 2. In order to be eligible, all of the following must apply: 5 a. The taxable income of the taxpayer, computed without 6 regard to section 422.7, subsection 32, paragraph “a” , must 7 not exceed three hundred percent of the United States poverty 8 level as defined by the most recently revised poverty income 9 guidelines by the United States department of health and human 10 services. Married taxpayers who file separate returns or file 11 separately on a combined return form must determine taxable 12 income for purposes of this paragraph based upon their combined 13 income. 14 b. The taxpayer must not make the adjustment under section 15 422.7, subsection 32, paragraph “a” , in the same year as a 16 credit is claimed under this section. 17 3. Any credit in excess of the tax liability shall be 18 refunded. In lieu of claiming a refund, the taxpayer may 19 elect to have the overpayment shown on the taxpayer’s final, 20 completed return credited to the tax liability for the 21 following tax year. 22 4. Amounts refunded to the taxpayer resulting from the 23 cancellation of a participation agreement shall first be repaid 24 to the department to the extent previously claimed as a tax 25 credit under this section and shall then, if applicable, be 26 treated as an addition to net income under section 422.7, 27 subsection 32, paragraph “b” . 28 5. Withdrawals made by a taxpayer from the Iowa educational 29 savings plan trust for purposes other than the payment of 30 qualified education expenses shall first be repaid to the 31 department to the extent previously claimed as a tax credit 32 under this section and shall then, if applicable, be treated 33 as an addition to net income under section 422.7, subsection 34 32, paragraph “c” . 35 -2- LSB 5080YH (4) 84 mm/sc 2/ 5

H.F. 2456 Sec. 4. RETROACTIVE APPLICABILITY. This division of this 1 Act applies retroactively to January 1, 2012, for tax years 2 beginning on or after that date. 3 DIVISION II 4 INFORMATIONAL MATERIAL RELATED TO IOWA EDUCATIONAL SAVINGS PLAN 5 TRUST 6 Sec. 5. NEW SECTION . 12G.3 Iowa educational savings plan 7 informational material. 8 1. The Iowa financial literacy program shall create a 9 written informational and promotional pamphlet to promote 10 the creation and use of Iowa educational savings plans under 11 chapter 12D. The pamphlet shall contain, at a minimum, a 12 detailed explanation of an Iowa educational savings plan, 13 instructions for opening an Iowa educational savings plan, and 14 the tax and other benefits of an Iowa educational savings plan. 15 2. The Iowa financial literacy program shall provide 16 the written informational and promotional pamphlet to the 17 department of education for dissemination as provided in 18 section 256.24. 19 Sec. 6. NEW SECTION . 256.24 Iowa educational savings plan 20 informational material. 21 The department shall provide to the parent or guardian of 22 each child registering for kindergarten in this state a copy of 23 the Iowa educational savings plan informational and promotional 24 pamphlet created and provided to the department by the Iowa 25 financial literacy program pursuant to section 12G.3. 26 EXPLANATION 27 This bill creates an Iowa educational savings plan tax 28 credit and provides for the promotion of Iowa educational 29 savings plans. 30 Division I of the bill relates to the Iowa educational 31 savings plan tax credit. Under current Code section 422.7, 32 subsection 32, a participant in an Iowa educational savings 33 plan is allowed an exemption from the computation of the 34 individual state income tax for certain amounts contributed to 35 -3- LSB 5080YH (4) 84 mm/sc 3/ 5

H.F. 2456 a plan. The bill creates an individual income tax credit equal 1 to the lesser of 25 percent of the annual contributions made 2 to an Iowa educational savings plan or $2,000 per participant 3 adjusted annually to reflect increases in the consumer price 4 index. 5 In order to qualify for the credit, a taxpayer’s taxable 6 income must not exceed 300 percent of the United States poverty 7 level as defined by the most recently revised poverty income 8 guidelines by the United States health and human services, and 9 the taxpayer must not claim the individual income tax exemption 10 mentioned above. In determining taxable income for purposes 11 of eligibility for the tax credit, married taxpayers who file 12 separate returns or file separately on a combined return form 13 must determine taxable income based upon their combined income. 14 The tax credit is refundable to the extent it exceeds 15 tax liability. In lieu of claiming a refund, a taxpayer 16 may elect to have the overpayment shown on the taxpayer’s 17 final, completed return credited to the tax liability for the 18 following tax year. 19 The bill establishes a hierarchy for the tax treatment 20 of amounts received by a taxpayer from the cancellation of a 21 participation agreement or withdrawn from a plan for purposes 22 other than the payment of qualified education expenses. Those 23 amounts shall first be repaid to the department of revenue 24 to the extent previously claimed as a tax credit. Next, if 25 applicable, the amounts shall be treated as an addition to net 26 income under Code section 422.7, subsection 32, paragraph “b” 27 or “c”. 28 Division II of the bill relates to the promotion of Iowa 29 educational savings plans. The bill directs the Iowa financial 30 literacy program, which is a program within the office of 31 the treasurer of state, to create a written informational 32 and promotional pamphlet for the purpose of promoting the 33 creation and use of Iowa educational savings plans. The 34 pamphlet shall contain, at a minimum, a detailed explanation 35 -4- LSB 5080YH (4) 84 mm/sc 4/ 5

H.F. 2456 of an Iowa educational savings plan, instructions for opening 1 a plan, and the tax and other benefits of a plan. The Iowa 2 financial literacy program is required to provide the pamphlet 3 to the department of education. The department of education 4 is required to provide a copy of the pamphlet to the parent or 5 guardian of each child registering for kindergarten in this 6 state. 7 -5- LSB 5080YH (4) 84 mm/sc 5/ 5