College saver's credit

(a)

Allowance of refundable credit

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:

36.

College saver's credit

(a)

Allowance of credit

In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to 50 percent of so much of the qualified college savings contributions made during the taxable year as do not exceed $2,000. (b)

Limitations

(1)

Limitation based on modified adjusted gross income

(A)

In general

The amount which would (but for this paragraph) be taken into account under subsection (a) for the taxable year shall be reduced (but not below zero) by the amount determined under subparagraph (B). (B)

Amount of reduction

The amount determined under this subparagraph is the amount which bears the same ratio to the amount which would be so taken into account as— (i)the excess of— (I)the taxpayer's modified adjusted gross income for the taxable year, over (II)the applicable amount, bears to (ii)the phaseout amount. (C)

Applicable amount; phaseout amount

For purposes of subparagraph (B), the applicable amount and the phaseout amount shall be determined as follows: The applicable amount is:The phaseout amount is: In the case of a joint return$60,000$10,000 In the case of a head of household$45,000$7,500 In any other case$30,000$5,000

(D)

Modified adjusted gross income

For purposes of this paragraph, the term modified adjusted gross income means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. (E)

Inflation adjustment

In the case of any taxable year beginning in a calendar year after 2008, each of the applicable amounts in the second column of the table in subparagraph (C) shall be increased by an amount equal to— (i)such dollar amount, multiplied by (ii)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2007 for calendar year 1992 in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $500.

(2)

Earned income limitation

The amount of the credit allowable under subsection (a) to any taxpayer for any taxable year shall not exceed the earned income (as defined by section 32(c)(2)) of such taxpayer for such taxable year. (c)

Eligible individual

For purposes of this section— (1)

In general

The term eligible individual means any individual if such individual has attained the age of 18 as of the close of the taxable year. (2)

Dependents not eligible

The term eligible individual shall not include any individual with respect to whom a deduction under section 151 is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins. (d)

Qualified college savings contributions

The term qualified college savings contributions means, with respect to any taxable year, the aggregate contributions made by the taxpayer to any account which— (1)is described in section 529(b)(1)(A)(ii), (2)is part of a qualified tuition program, and (3)is established for the benefit of— (A)the taxpayer, (B)the taxpayer’s spouse, or (C)any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151. (e)

Treatment of contributions by dependent

If a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins— (1)no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year, and (2)any qualified college savings contributions made by such individual during such taxable year shall be treated for purposes of this section as made by such other taxpayer.

(b)

Refundable amount credited to qualified tuition plan

(1)

Transfer of refund to qualified tuition plans

Section 6402 of the Internal Revenue Code of 1986 (relating to authority to make credits or refunds) is amended by adding at the end the following new subsection:

(l)

Special rule for overpayments attributable to college saver's credit

(1)

In general

In the case of any overpayment attributable to the credit allowed under section 36, the Secretary shall transfer such amount to the qualified tuition program to which the taxpayer made a qualified college savings contribution. (2)

Transfers to more than 1 qualified tuition program

If the taxpayer made qualified college savings contributions to more than 1 qualified tuition program, the Secretary shall transfer the overpayment described in paragraph (1) to each such qualified tuition program in an amount that bears the same ratio to the amount of such overpayment as— (A)the amount of qualified college savings contributions made by such taxpayer to such qualified tuition program, bears to (B)the amount of qualified college savings contribution made by such taxpayer to all qualified tuition programs. (3)

Qualified college savings contribution

For purposes of this subsection, the term qualified college savings contribution has the meaning given such term by section 36(d).

(2)

Separate accounting for refundable amounts

Section 529 of such Code is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:

(f)

Special rules for contributions attributable to college saver's credit

(1)

In general

A program shall not be treated as a qualified tuition program unless it provides separate accounting for contributions transferred by the Secretary under section 6402(l) to an account in the program. (2)

Special rules for distribution

In the case of a distribution under a qualified tuition program which includes any amount transferred by the Secretary under section 6402(l) (including any earnings attributable to such amount) and which is includible in gross income, the tax imposed by this chapter on the person receiving such distribution shall be increased by 100 percent of the amount so includible. (3)

Ordering rules

For purposes of applying this subsection to any distribution from a qualified tuition program— (A)

In general

Except as provided in subparagraph (B), such distribution shall be treated as made— (i)first from amounts contributed under the program, and (ii)second from amounts transferred by the Secretary under section 6402(l). (B)

Exception for distributions for qualified higher education expenses

In the case of a distribution described in subsection (c)(3), such distribution shall be treated as made— (i)first from amounts transferred by the Secretary under section 6402(l), and (ii)second from other amounts contributed under the program.

(c)

Conforming amendments

(1)Section 1324(b)(2) of title 31, United States Code, is amended by inserting before the period at the end , or enacted by the College Saver's Credit Act of 2007. (2)The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 36 and inserting the following:

Sec. 36. College saver's credit.

Sec. 37. Overpayments of tax.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2007.