To amend the Internal Revenue Code of 1986 to exclude from gross income employer contributions to college tuition plans and education savings accounts.

October 16, 2003

Mr. PORTER (for himself, Mr. GERLACH, Mr. COLE, Mr. CARTER, Mr. WILSON of South Carolina, Mr. PAUL, Mr. BARRETT of South Carolina, Mr. NUNES, Mr. ROGERS of Michigan, Mr. PLATTS, Mr. BURNS, Mr. KING of Iowa, Mr. GARRETT of New Jersey, and Mrs. MUSGRAVE) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to exclude from gross income employer contributions to college tuition plans and education savings accounts.

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 `Education Savings Act of 2003'.

SEC. 2. EXCLUSION FROM GROSS INCOME FOR CONTRIBUTIONS TO EDUCATION SAVINGS ENTITIES.

(a) IN GENERAL- Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is amended by inserting after section 127 the following new section:

`SEC. 127A. CONTRIBUTIONS TO EDUCATION SAVINGS ENTITIES.

`(a) IN GENERAL- Gross income of an employee does not include amounts paid by the employer as contributions to an education savings entity held by the employee or spouse of the employee if the contributions are made pursuant to a program which is described in subsection (b).

`(b) EDUCATIONAL ASSISTANCE PROGRAM- For purposes of this section, an educational assistance program is a separate written plan of an employer for the benefit of such employer's employees--

`(1) under which the employer makes contributions to education savings entities of such employees or spouses of employees, and

`(2) which meets requirements similar to the requirements of paragraphs (2), (3), (4), (5), and (6) of section 127(b).

`(c) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) EDUCATION SAVINGS ENTITY- The term `education savings entity' means--

`(A) a qualified tuition program (as defined in section 529(b)), and

`(B) a Coverdell education savings account (as defined in section 530(b)).

`(2) EMPLOYEE AND EMPLOYER- The terms `employee' and `employer' shall have the meaning given such terms by paragraphs (2) and (3), respectively, of section 127(c).

`(3) APPLICABLE RULES- Rules similar to the rules of paragraphs (4), (5), (6), and (7) of section 127(c) shall apply.

`(d) CROSS REFERENCE- For reporting and recordkeeping requirements, see section 6039D.'.

(b) EXCLUSION FROM EMPLOYMENT TAXES-

(1) Section 3121(a)(18) of such Code is amended by striking `or 129' and inserting `, 127A, or 129'.

(2) Section 3231(e)(6) of such Code is amended by striking `section 127' and inserting `section 127 or 127A'.

(3) Section 3306(b)(13) of such Code is amended by striking `or 129' and inserting `, 127A, or 129'.

(4) Section 3401(a)(18) of such Code is amended by striking `or 129' and inserting `, 127A, or 129'.

(c) REPORTING AND RECORDKEEPING REQUIREMENTS- Section 6039D(d)(1) of such Code is amended by inserting `127A,' after `127,'.

(d) OTHER CONFORMING AMENDMENTS-

(1) Section 51A(b)(5)(B) of such Code is amended by striking `or' at the end of clause (iii), by redesignating clause (iv) as clause (v), and by inserting after clause (iii) the following new clause:

`(iv) section 127A (relating to contributions to education savings entities), but only to the extent paid or incurred to a person not related to the employer, or'.

(2) Section 125(f) of such Code is amended by inserting `127A,' after `127,'.

(3) Section 132(j)(8) of such Code is amended by striking `section 127' and inserting `section 127 or 127A'.

(4) Section 414(n)(3)(C) of such Code is amended by inserting `127A,' after `127,'.

(5) Section 414(t)(2) of such Code is amended by inserting `127A,' after `127,'.

(6) Section 1397(a)(2)(A) of such Code is amended by inserting at the end the following new clause:

`(iii) Any amount paid or incurred by an employer which is excludable from the gross income of an employee under section 127A, but only to the extent paid or incurred to a person not related to the employer.'.

(7) Section 209(15) of the Social Security Act (42 U.S.C. 409(15)) is amended by striking `or 129' and inserting `, 127A, or 129'.

(e) CLERICAL AMENDMENT- The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 127 the following new item:

`Sec. 127A. Contributions to education savings entities.'.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to remuneration paid after December 31, 2003.

END