109th CONGRESS
2d Session
S. 2458
To amend the Internal Revenue Code of 1986 to encourage college
savings by providing a Federal income tax credit to match contributions
to Coverdell education savings accounts, and for other purposes.
IN THE SENATE OF THE UNITED STATES
March 27, 2006
Ms. STABENOW introduced the following bill; which was read twice and referred
to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to encourage college
savings by providing a Federal income tax credit to match contributions
to Coverdell education savings accounts, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `Kick Start to College Act'.
SEC. 2. TAX CREDIT MATCH OF CONTRIBUTIONS TO COVERDELL EDUCATION SAVINGS
ACCOUNTS.
(a) In General- Subpart C of part IV of subchapter A of chapter 1 of the
Internal Revenue Code of 1986 (relating to refundable credits) is amended
by redesignating section 36 as section 37 and by inserting after section
35 the following new section:
`SEC. 36. CREDIT MATCH OF CONTRIBUTIONS TO COVERDELL EDUCATION SAVINGS
ACCOUNTS.
`(a) In General- There shall be allowed as a credit against the tax imposed
by this subtitle an amount equal to the aggregate contributions of the taxpayer
for the taxable year to a qualified higher education subaccount which is
established for the benefit of any qualified beneficiary of the taxpayer.
`(1) IN GENERAL- The credit allowed to a taxpayer by subsection (a) with
respect to each qualified beneficiary for the taxable year shall not exceed
the applicable amount.
`(2) APPLICABLE AMOUNT- For purposes of paragraph (1)--
`(A) IN GENERAL- The applicable amount with respect to each qualified
beneficiary for any taxable year is the lesser of--
`(ii) $6,000, reduced (but not below zero) by the aggregate amount
of the credits allowed under this section with respect to the qualified
beneficiary for all preceding taxable years.
In the case of a qualified beneficiary who has attained the age of 7
before the close of the taxable year, clause (ii) shall be applied by
substituting `$5,000' for `$6,000'. The preceding sentence shall not
apply to a qualified beneficiary who attains the age of 7 before January
1, 2007.
`(B) REDUCTION BASED ON ADJUSTED GROSS INCOME- The applicable amount
determined under subparagraph (A) for any taxable year shall be reduced
(but not below zero) by the amount which bears the same ratio to the
applicable amount as the--
`(i) taxpayer's modified adjusted gross income (as defined in section
530(c)(2)) for such taxable year in excess of $95,000 ($190,000 in
the case of a joint return), bears to
`(ii) $15,000 ($30,000 in the case of a joint return).
`(c) Qualified Beneficiary- For purposes of this section, the term `qualified
beneficiary' means the designated beneficiary of the Coverdell education
savings account who is a qualifying child of the taxpayer (within the meaning
of section 32(c)(3), determined without regard to subclause (II) of subparagraph
(B)(i) thereof).
`(1) IN GENERAL- Notwithstanding any other provision of this title, any
amount allowed as a credit under subsection (a) (determined without regard
to paragraph (2)) with respect to any contributions to a qualified higher
education subaccount established for the benefit of a qualified beneficiary
shall be deposited by the Secretary into the qualified higher education
subaccount.
`(2) COORDINATION WITH DEPOSITS- With respect to any taxable year, the
aggregate amount which would (but for this subsection) be allowed as a
credit to the eligible taxpayer under this section with respect to each
qualified beneficiary shall be reduced (but not below zero) by the aggregate
amount deposited under paragraph (1) with respect to such beneficiary
for such taxable year.
`(3) REQUIRED INFORMATION- With respect to each qualified beneficiary,
no credit shall be allowed under this section to a taxpayer who does not
include on the return of tax for the taxable year--
`(A) the identification number for any Coverdell education savings account
of the qualified beneficiary,
`(B) such information regarding the administrator of such account as
the Secretary may prescribe, and
`(C) the amount paid by the taxpayer during the taxable year to any
qualified higher education subaccount established within the Coverdell
education savings accounts for the benefit of such qualified beneficiary.
`(e) Marital Status; Certain Married Individuals Living Apart- Rules similar
to the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply
for purposes of this section.
`(f) Regulations- The Secretary may prescribe such regulations and other
guidance as may be necessary or appropriate to carry out this section.'.
(b) Modifications to Coverdell Education Savings Account Provisions- Section
530 of the Internal Revenue Code of 1986 (relating to Coverdell education
savings accounts) is amended by adding at the end the following new subsection:
`(i) Qualified Higher-Education Subaccounts-
`(1) IN GENERAL- The trustee of a Coverdell education savings account
may elect to allow individuals to elect to establish, and make contributions
to, a qualified higher education subaccount within the account.
`(2) TREATMENT OF SUBACCOUNT-
`(A) IN GENERAL- Amounts in the subaccount shall be treated in the same
manner as amounts in the Coverdell education savings account, except
that such amounts shall be held exclusively for the purpose of paying
qualified higher education expenses (as defined in section 529(e)(3)),
including amounts described in subsection (b)(2)(B).
`(B) APPLICATION OF LIMIT- For purposes of applying the limit under
subsection (b)(1)(A)(iii)--
`(i) contributions to a qualified higher education subaccount and
other contributions to the Coverdell education savings account shall
be aggregated, and
`(ii) payments to the subaccount by the Secretary under section 36(d)(1)
shall not be taken into account.
`(C) TREATMENT OF DISTRIBUTIONS- For purposes of subsection (d)--
`(i) IN GENERAL- In determining whether distributions from a qualified
higher education subaccount exceed the qualified education expenses
of the designated beneficiary, only expenses described in subparagraph
(A) shall be taken into account.
`(ii) ROLLOVERS- Any amount paid or distributed out of a qualified
higher education subaccount shall be treated as a rollover contribution
under subsection (d)(5) only if it is paid to another such subaccount
within the required time period.
`(iii) DISTRIBUTIONS NOT USED FOR QUALIFIED EXPENSES- If any amount
paid or distributed out of a qualified higher education subaccount
which is allocable to a payment to the subaccount by the Secretary
under section 36(d)(1) (and earnings thereon) exceeds the qualified
education expenses of the designated beneficiary (determined after
application of clause (i))--
`(I) such amount shall not be includible in gross income, but
`(II) the tax imposed by this chapter for the taxable year of the
taxpayer who receives the payment or distribution shall be increased
by 100 percent of the amount of the excess.
For purposes of the preceding sentence, payments or distributions
shall be treated as having been made first from payments under section
36(d)(1) (and earnings thereon). This clause shall not apply to payments
or distributions described in clause (i) or (ii) of subsection (d)(4)(B).'.
(c) Conforming Amendments-
(1) Paragraph (2) of section 1324(b) of title 31, United States Code,
is amended by inserting before the period `, or from section 36 of such
Code'.
(2) The table of sections for subpart C of part IV of chapter 1 of the
Internal Revenue Code of 1986 is amended by striking the last item and
inserting the following new items:
`Sec. 36. Credit match of contributions to Coverdell education savings
accounts.
`Sec. 37. Overpayments of tax.'.
(d) Effective Date- The amendments made by this section shall apply to taxable
years beginning after December 31, 2006.
END
