11/17/2023 0 Comments Nys 529 eligible expenses 2015Most importantly, more than 30 states offer state-level tax deductions or credits, which can be claimed on each year’s state tax return, for those who put money into the plans. All but two states, Washington State and Wyoming, offer 529 plans. The federal tax code defines 529s and the expenses they may be used for, but states run the plans. The Joint Committee on Taxation (JCT) estimates the loss to the Federal Treasury will be a modest $600 million over 10 years. 1 However, the time period between putting money into a 529 plan and withdrawing it for K-12 tuition will typically be far shorter. When earnings from 529 contributions accrue over long time periods as they do, for example, when parents establish and fund a 529 plan when their child is young and begin to draw it down when that child enters college, the financial benefit of exemption from federal taxes can be substantial. The key benefit of 529 plans is that earnings on contributions are not subject to federal taxes when withdrawn to pay for tuition and other select college expenses. Here we consider the potential costs of the program to states whether the financial benefits that flow to parents will be equitably and efficiently delivered the extent to which the program is likely to achieve its intent of expanding the proportion of the K-12 student population attending private schools and some of the choices states have in adapting their state plans to the new federal law. This change, which was added to the bill in the 11th hour (it was previously proposed and then reemerged as an amendment on final passage), is intended to promote private school choice, a goal that Congress had displayed little appetite for tackling head on. Funds from 529 accounts, which formerly could only be used for college expenses, can now be used to pay tuition for students attending private K-12 schools – up to $10,000 per year per student. The Tax Cuts and Jobs Act of 2017 (TCJA) made a dramatic change in education-related federal tax law with serious consequences for many states. A simple roll-back of state tax breaks, and/or direct investment in school choice end up as the most straightforward ways to achieve these goals. We discuss some ways that states might respond to promote progressive tax policy and expand private school choice. Our overall assessment of the likely impact in these three areas is that the 529 expansion to private K-12 schools will primarily benefit affluent families, produce limited incentives for promoting private school choice, and come at a nontrivial cost to states. In this paper, we examine the potential impact of the 529 expansion on the distribution of benefits across families, on the promotion of private school choice, and on possible fiscal implications for individual states. This federal change in the definition of qualified expenses will impact many states, particularly those that offer 529 tax deductions and credits. In an effort to promote school choice, the Act expanded the list of eligible 529 expenses to include K-12 private school tuition. The Tax Cuts and Jobs Act substantively changed 529 college savings plans.
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