[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2458 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 2458

To amend the Internal Revenue Code of 1986 to encourage college savings 
  by providing a Federal income tax credit to match contributions to 
     Coverdell education savings accounts, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 27, 2006

 Ms. Stabenow introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to encourage college savings 
  by providing a Federal income tax credit to match contributions to 
     Coverdell education savings accounts, and for other purposes.

    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 ``Kick Start to College Act''.

SEC. 2. TAX CREDIT MATCH OF CONTRIBUTIONS TO COVERDELL EDUCATION 
              SAVINGS ACCOUNTS.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by redesignating section 36 as section 37 and by inserting 
after section 35 the following new section:

``SEC. 36. CREDIT MATCH OF CONTRIBUTIONS TO COVERDELL EDUCATION SAVINGS 
              ACCOUNTS.

    ``(a) In General.--There shall be allowed as a credit against the 
tax imposed by this subtitle an amount equal to the aggregate 
contributions of the taxpayer for the taxable year to a qualified 
higher education subaccount which is established for the benefit of any 
qualified beneficiary of the taxpayer.
    ``(b) Dollar Limitation.--
            ``(1) In general.--The credit allowed to a taxpayer by 
        subsection (a) with respect to each qualified beneficiary for 
        the taxable year shall not exceed the applicable amount.
            ``(2) Applicable amount.--For purposes of paragraph (1)--
                    ``(A) In general.--The applicable amount with 
                respect to each qualified beneficiary for any taxable 
                year is the lesser of--
                            ``(i) $1,000, or
                            ``(ii) $6,000, reduced (but not below zero) 
                        by the aggregate amount of the credits allowed 
                        under this section with respect to the 
                        qualified beneficiary for all preceding taxable 
                        years.
                In the case of a qualified beneficiary who has attained 
                the age of 7 before the close of the taxable year, 
                clause (ii) shall be applied by substituting `$5,000' 
                for `$6,000'. The preceding sentence shall not apply to 
                a qualified beneficiary who attains the age of 7 before 
                January 1, 2007.
                    ``(B) Reduction based on adjusted gross income.--
                The applicable amount determined under subparagraph (A) 
                for any taxable year shall be reduced (but not below 
                zero) by the amount which bears the same ratio to the 
                applicable amount as the--
                            ``(i) taxpayer's modified adjusted gross 
                        income (as defined in section 530(c)(2)) for 
                        such taxable year in excess of $95,000 
                        ($190,000 in the case of a joint return), bears 
                        to
                            ``(ii) $15,000 ($30,000 in the case of a 
                        joint return).
    ``(c) Qualified Beneficiary.--For purposes of this section, the 
term `qualified beneficiary' means the designated beneficiary of the 
Coverdell education savings account who is a qualifying child of the 
taxpayer (within the meaning of section 32(c)(3), determined without 
regard to subclause (II) of subparagraph (B)(i) thereof).
    ``(d) Payment of Credit.--
            ``(1) In general.--Notwithstanding any other provision of 
        this title, any amount allowed as a credit under subsection (a) 
        (determined without regard to paragraph (2)) with respect to 
        any contributions to a qualified higher education subaccount 
        established for the benefit of a qualified beneficiary shall be 
        deposited by the Secretary into the qualified higher education 
        subaccount.
            ``(2) Coordination with deposits.--With respect to any 
        taxable year, the aggregate amount which would (but for this 
        subsection) be allowed as a credit to the eligible taxpayer 
        under this section with respect to each qualified beneficiary 
        shall be reduced (but not below zero) by the aggregate amount 
        deposited under paragraph (1) with respect to such beneficiary 
        for such taxable year.
            ``(3) Required information.--With respect to each qualified 
        beneficiary, no credit shall be allowed under this section to a 
        taxpayer who does not include on the return of tax for the 
        taxable year--
                    ``(A) the identification number for any Coverdell 
                education savings account of the qualified beneficiary,
                    ``(B) such information regarding the administrator 
                of such account as the Secretary may prescribe, and
                    ``(C) the amount paid by the taxpayer during the 
                taxable year to any qualified higher education 
                subaccount established within the Coverdell education 
                savings accounts for the benefit of such qualified 
                beneficiary.
    ``(e) Marital Status; Certain Married Individuals Living Apart.--
Rules similar to the rules of paragraphs (2), (3), and (4) of section 
21(e) shall apply for purposes of this section.
    ``(f) Regulations.--The Secretary may prescribe such regulations 
and other guidance as may be necessary or appropriate to carry out this 
section.''.
    (b) Modifications to Coverdell Education Savings Account 
Provisions.--Section 530 of the Internal Revenue Code of 1986 (relating 
to Coverdell education savings accounts) is amended by adding at the 
end the following new subsection:
    ``(i) Qualified Higher-Education Subaccounts.--
            ``(1) In general.--The trustee of a Coverdell education 
        savings account may elect to allow individuals to elect to 
        establish, and make contributions to, a qualified higher 
        education subaccount within the account.
            ``(2) Treatment of subaccount.--
                    ``(A) In general.--Amounts in the subaccount shall 
                be treated in the same manner as amounts in the 
                Coverdell education savings account, except that such 
                amounts shall be held exclusively for the purpose of 
                paying qualified higher education expenses (as defined 
                in section 529(e)(3)), including amounts described in 
                subsection (b)(2)(B).
                    ``(B) Application of limit.--For purposes of 
                applying the limit under subsection (b)(1)(A)(iii)--
                            ``(i) contributions to a qualified higher 
                        education subaccount and other contributions to 
                        the Coverdell education savings account shall 
                        be aggregated, and
                            ``(ii) payments to the subaccount by the 
                        Secretary under section 36(d)(1) shall not be 
                        taken into account.
                    ``(C) Treatment of distributions.--For purposes of 
                subsection (d)--
                            ``(i) In general.--In determining whether 
                        distributions from a qualified higher education 
                        subaccount exceed the qualified education 
                        expenses of the designated beneficiary, only 
                        expenses described in subparagraph (A) shall be 
                        taken into account.
                            ``(ii) Rollovers.--Any amount paid or 
                        distributed out of a qualified higher education 
                        subaccount shall be treated as a rollover 
                        contribution under subsection (d)(5) only if it 
                        is paid to another such subaccount within the 
                        required time period.
                            ``(iii) Distributions not used for 
                        qualified expenses.--If any amount paid or 
                        distributed out of a qualified higher education 
                        subaccount which is allocable to a payment to 
                        the subaccount by the Secretary under section 
                        36(d)(1) (and earnings thereon) exceeds the 
                        qualified education expenses of the designated 
                        beneficiary (determined after application of 
                        clause (i))--
                                    ``(I) such amount shall not be 
                                includible in gross income, but
                                    ``(II) the tax imposed by this 
                                chapter for the taxable year of the 
                                taxpayer who receives the payment or 
                                distribution shall be increased by 100 
                                percent of the amount of the excess.
                        For purposes of the preceding sentence, 
                        payments or distributions shall be treated as 
                        having been made first from payments under 
                        section 36(d)(1) (and earnings thereon). This 
                        clause shall not apply to payments or 
                        distributions described in clause (i) or (ii) 
                        of subsection (d)(4)(B).''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``, or 
        from section 36 of such Code''.
            (2) The table of sections for subpart C of part IV of 
        chapter 1 of the Internal Revenue Code of 1986 is amended by 
        striking the last item and inserting the following new items:

``Sec. 36. Credit match of contributions to Coverdell education savings 
                            accounts.
``Sec. 37. Overpayments of tax.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.
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