S. 335 would modify the tax treatment of college savings plans authorized under section 529 of the Internal Revenue Code. Under current law, income earned on amounts in those accounts accumulates on a tax-free basis, and the distribution of such income is not included in the taxable income of the recipient to the extent that it is used to pay certain higher education expenses. S. 335 would expand the qualifying expenses to include certain computer and related expenses. The bill would also modify the computation of the taxable portion of a distribution when the contributor has established multiple accounts for the student. In addition, S. 335 would allow beneficiaries to pay no tax in the event that they receive a refund from the educational institution (for example, after withdrawing from enrollment) and contribute the refunded amount back to the savings plan within 60 days.
The staff of the Joint Committee on Taxation (JCT) estimates that enacting S. 335 would reduce revenues, thus increasing federal deficits, by $51 million over the 2015-2025 period.
The Statutory Pay-As-You-Go Act of 2010 establishes budget-reporting and enforcement procedures for legislation affecting direct spending and revenues. Enacting S. 335 would result in revenue losses in each year beginning in 2015.
JCT has determined that the bill contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act.
On February 19, 2015, CBO transmitted a cost estimate of the budgetary effects of H.R. 529, as ordered reported by the House Committee on Ways and Means on February 12, 2015. The language of S. 335 is identical to that of H.R. 529, and therefore the estimated budgetary effects are also the same.