Amended in Assembly April 1, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2426

Introduced by Assembly Member Nestande

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(Coauthor: Assembly Member Allen)

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February 21, 2014

An act begin insert to add Section 17141.1 to the Revenue and Taxation Code, end insert relating to taxation begin insert , to take effect immediately, tax levy end insert .

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 begin delete Education Savings Account end delete begin insert education savings account end insert , provided the distributions are used for qualified education expenses, as provided.

This bill would begin delete state the intent of the Legislature to increase the benefits related to the exclusion for distributions from an education savings accounts by allowing a deduction for contributions to an education savings account, as provided end delete begin insert allow as an exclusion from gross income 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 end insert .

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This bill would take effect immediately as a tax levy.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

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

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begin insert SECTION end insert begin insert 1. end insert   

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begin insert Section 17141.1 is added to the end insert begin insert Revenue and
Taxation Code end insert begin insert , to read: end insert

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begin insert 17141.1. end insert   

(a) Notwithstanding any other provision of this part
or Part 11 (commencing with Section 23001) to the contrary, any
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.

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begin insert SEC. 2. end insert   

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

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SECTION 1.  

It is the intent of the Legislature to enact
legislation to increase the benefits of the current gross income
exclusion for individual taxpayers for distributions from a
Coverdell Education Savings Account, where the distributions are
spent on qualified educational expenses at public and private
schools, colleges, and universities that include tuition, fees, books,
supplies, equipment, and room and board, by allowing an
above-the-line deduction, not to exceed seven hundred fifty dollars
($750) per taxable year for each designated beneficiary, for
contributions made to an education savings account.

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