Bill > A2534

Introduced Session

This bill establishes certain tax exclusions and credits for the use of lifelong learning accounts (account) in order to finance worker training and education. Generally, the bill consists of four parts: gross income tax (GIT) exclusions for employer-provided account contributions and account earnings; a GIT credit for personal account contributions; GIT and corporation business tax (CBT) credits for employers making account contributions for their employees; and administrative provisions concerning the maintenance of the accounts. The bill allows a taxpayer to exclude from taxable gross income, employer contributions to the taxpayer's account of up to $2,500 per year and earnings on account balances. Generally, distributions from an account are treated as taxable income under the GIT, except in the case of certain account rollovers and account adjustments made due to excess contributions. The bill provides a GIT credit for a taxpayer's own contributions to the taxpayer's account. Generally, the credit is for 50 percent of a taxpayer's first $500 of account contributions, or $1,000 for taxpayers filing jointly, and 25 percent for the taxpayer's account contributions exceeding $500, or $1,000 for taxpayers filing jointly. The maximum creditable contribution amount varies based on the taxpayer's filing status and annual income level. Generally, individual filers are allowed a maximum creditable contribution of $2,500, which is reduced by $1 for each $8 earned over $100,000. Creditable contributions are not allowed for individual filers with $120,000 of annual income or more. Generally, joint filers are allowed a maximum creditable contribution of $5,000 in the case of married individuals each of whom contributes to a lifelong learning account, which is reduced by $1 for each $8 earned over $200,000. Creditable contributions are not allowed for joint filers with $240,000 of annual income or more. Maximum creditable contributions are reduced by the amount of any employer-provided account contributions, which are excluded from the taxpayer's taxable income by this bill. Generally, the maximum credit amount is $750 for individuals and $1,500 for joint filers. Depending upon a taxpayer's liability and order of application of other potential credits, the GIT credit for taxpayer account contributions is refundable. The bill grants the Director of the Division of Taxation the authority to preclude rollovers between accounts from qualifying for credit. The bill allows GIT and CBT credits for employers making account contributions for their employees in an amount equal to 25 percent of account contributions. Per employee and per tax year, annual account contributions may not exceed $2,500. Small business employers are allowed an additional credit amount for 50 percent of the administrative costs associated with the credit for the tax year, but not exceeding $500 of credit for the tax year. The bill defines a small business as a taxpayer with no more than 100 employees, each with no less than $5,000 of annual compensation. The small business administrative cost credit is allowed only for the first and second tax years for which the employer is allowed the employer-provided employee account contribution credit. Both the employer-provided employee account contribution credit and the small business administrative cost credit are nonrefundable, but the amount of an unused credit may be carried forward one tax year and used as a deduction. The bill establishes certain requirements for the maintenance and use of the accounts. Accounts must be created or organized in New Jersey and for the exclusive benefit of the account beneficiary. For a tax year, total contributions, from whatever source, to lifelong learning accounts of a taxpayer may not exceed $2,500, except as to account rollovers. Account trustees must be a bank or other entity that demonstrates to the Director of the Division of Taxation that accounts will be maintained in accordance with the bill. An account beneficiary's interest in the account balance is nonforfeitable. The bill prohibits a trustee from investing account assets in life insurance contracts or collectibles and prohibits account assets from being commingled with other property, except as to common trust or investment funds. The bill gives the Director of the Division of Taxation rulemaking authority with regard to further account requirements. Generally, the bill restricts qualified use of accounts to taxpayers that are 18 to 70 years of age. Account funds are to be distributed for qualified education expenses incurred by the taxpayer or the taxpayer's spouse. Qualified education expenses are amounts paid and required for instructional courses, training courses, and apprenticeship programs, which include, but are not limited to, books, equipment, fees, information technology devices, supplies, tools, and tuition. Qualified education expenses do not include amounts paid for courses or programs taken for recreational or leisure purposes. The bill includes a penalty for nonqualified distributions in the form of additional tax liability in the amount of five percent of the nonqualified distribution. The bill's nonqualified distribution penalty does not apply to distributions on account of death, disability, divorce, or attaining the age of 71 as of the first day of the taxable year. The bill also contains exemptions from the nonqualified distribution penalties for distributions that are rollovers between accounts and account adjustments made due to excess annual account contributions.

AI Summary

Committee Categories

Daniel Benson (D)*,  Carol Murphy (D)*, 

Introduced, Referred to Assembly Higher Education Committee (on 02/14/2022)

Official Document