STATE OF NEW YORK
________________________________________________________________________
5297
2019-2020 Regular Sessions
IN ASSEMBLY
February 8, 2019
___________
Introduced by M. of A. CRESPO -- Multi-Sponsored by -- M. of A. ARROYO,
DAVILA, DILAN, ENGLEBRIGHT, PICHARDO, RAMOS, RIVERA, RODRIGUEZ -- read
once and referred to the Committee on Higher Education
AN ACT to amend the education law, in relation to establishing the New
York college debt repayment program
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The education law is amended by adding a new section 355-d
2 to read as follows:
3 § 355-d. New York college debt repayment program. 1. A college debt
4 repayment program may be established by any resident of this state. The
5 earnings from the program shall grow federally and state tax-deferred
6 and withdrawals for qualified expenses shall not be subject to state or
7 federal income tax.
8 2. For purposes of this section:
9 (a) The term "college debt repayment program" means a program estab-
10 lished and maintained by this state or agency or instrumentality thereof
11 or by one or more eligible educational institutions under which a
12 person:
13 i. may pay off debt incurred by tuition credits or certificates on
14 behalf of a designated beneficiary which entitle the beneficiary to the
15 waiver or payment of debt incurred from higher education expenses of the
16 beneficiary, or
17 ii. in the case of a program established and maintained by this state
18 or agency or instrumentality thereof, may make contributions to an
19 account which is established for the purpose of meeting the debt
20 incurred by qualified higher education expenses of the designated bene-
21 ficiary of the account.
22 (b) The term "member of the family" means any spouse, child, grand-
23 child or first degree cousin of any designated beneficiary.
24 (c) The term "designated beneficiary" means:
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD05607-01-9
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1 i. the individual designated at the commencement of participation in
2 the college debt repayment program as the beneficiary of amounts paid
3 (or to be paid) to the program; or
4 ii. in the case of a change in beneficiaries, the individual who is
5 the new beneficiary.
6 (d) The term "qualified higher education expenses" means:
7 i. tuition, room and board, fees, books, supplies, and equipment
8 required for the enrollment or attendance of a designated beneficiary at
9 an eligible educational institution;
10 ii. expenses for special needs services in the case of a special needs
11 beneficiary which are incurred in connection with such enrollment or
12 attendance; or
13 iii. expenses paid or incurred in two thousand nine or two thousand
14 ten for the purchase of any computer technology or Internet access and
15 related services, if such technology, equipment, or services are to be
16 used by the beneficiary and the beneficiary's family during any of the
17 years the beneficiary is enrolled at an eligible educational institu-
18 tion.
19 (e) The term "eligible educational institution" means an institution
20 which is described in section 481 of the higher education act of 1965
21 (20 U.S.C. 1088), as in effect on the effective date of this paragraph.
22 (f) A program shall not be treated as a college debt repayment program
23 unless it provides that purchases or contributions may only be made in
24 cash.
25 (g) A program shall not be treated as a college debt repayment program
26 unless it provides separate accounting for each designated beneficiary.
27 (h) A program shall not be treated as a college debt repayment program
28 unless it provides that any contributor to, or designated beneficiary
29 under, such program may, directly or indirectly, direct the investment
30 of any contributions to the program (or any earnings thereon) no more
31 than two times in any calendar year.
32 (i) A program shall not be treated as a college debt repayment program
33 if it allows any interest in the program or any portion thereof to be
34 used as security for a loan.
35 (j) A program shall not be treated as a college debt repayment program
36 unless it provides adequate safeguards to prevent contributions on
37 behalf of a designated beneficiary in excess of those necessary to
38 provide for the debt incurred by the qualified higher education expenses
39 of the beneficiary.
40 3. (a) Except as otherwise provided in this subdivision, no amount
41 shall be includible in gross income of:
42 i. a designated beneficiary under a college debt repayment program; or
43 ii. a contributor to such program on behalf of a designated benefici-
44 ary, with respect to any distribution or earnings under such program.
45 (b) Any contribution to a college debt repayment program on behalf of
46 any designated beneficiary shall:
47 i. be treated as a completed gift to such beneficiary which is not a
48 future interest in property; and
49 ii. not be treated as a qualified transfer under section 2503(e) of
50 the internal revenue code.
51 (c) If the aggregate amount of contributions described in paragraph
52 (b) of this subdivision during the calendar year by a donor exceeds the
53 limitation for such year under section 2503(b) of the internal revenue
54 code, such aggregate amount shall, at the election of the donor, be
55 taken into account for purposes of such section ratably over the five
56 year period beginning with such calendar year.
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1 4. (a) Any distribution under a college debt repayment program shall
2 be includible in the gross income of the distributee in the manner as
3 provided under section 72 of the internal revenue code.
4 (b) No amount shall be includible in gross income under paragraph (a)
5 of this subdivision by reason of a distribution which consists of
6 providing a benefit to the distributee which, if paid for by the distri-
7 butee, would constitute payment of a qualified higher education expense.
8 (c) In the case of distributions not described in paragraph (b) of
9 this subdivision, if:
10 i. such distributions do not exceed the debt incurred by the qualified
11 higher education expenses (reduced by expenses described in paragraph
12 (b) of this subdivision), no amount shall be includible in gross income;
13 and
14 ii. in any other case, the amount otherwise includible in gross income
15 shall be reduced by an amount which bears the same ratio to such amount
16 as such expenses bear to such distributions.
17 (d) Any benefit furnished to a designated beneficiary under a college
18 debt repayment program shall be treated as a distribution to the benefi-
19 ciary for purposes of this subdivision.
20 (e) Paragraph (a) of this subdivision shall not apply to that portion
21 of any distribution which, within sixty days of such distribution, is
22 transferred:
23 i. to another college debt repayment program for the benefit of the
24 designated beneficiary; or
25 ii. to the credit of another designated beneficiary under a college
26 debt repayment program who is a member of the family of the designated
27 beneficiary with respect to which the distribution was made.
28 (f) Any change in the designated beneficiary of an interest in a
29 college debt repayment program shall not be treated as a distribution
30 for purposes of paragraph (a) of this subdivision if the new beneficiary
31 is a member of the family of the old beneficiary.
32 5. (a) All college debt repayment programs of which an individual is a
33 designated beneficiary shall be treated as one program;
34 (b) all distributions during a taxable year shall be treated as one
35 distribution; and
36 (c) the value of the contract, income on the contract, and investment
37 in the contract shall be computed as of the close of the calendar year
38 in which the taxable year begins.
39 6. (a) No amount shall be includible in the gross estate of any indi-
40 vidual for purposes of chapter 11 of the internal revenue code by reason
41 of an interest in a college debt repayment program.
42 (b) Paragraph (a) of this subdivision shall not apply to amounts
43 distributed on account of the death of a beneficiary.
44 (c) In the case of a donor who makes the election described in para-
45 graph (c) of subdivision three of this section and who dies before the
46 close of the five year period referred to in such paragraph, notwith-
47 standing paragraph (a) of this subdivision, the gross estate of the
48 donor shall include the portion of such contributions properly allocable
49 to periods after the date of death of the donor.
50 (d) Except as provided in paragraph (e) of this subdivision, in no
51 event shall a distribution from a college debt repayment program be
52 treated as a taxable gift.
53 (e) The taxes imposed by chapters 12 and 13 of the internal revenue
54 code shall apply to a transfer by reason of a change in the designated
55 beneficiary under the program (or a rollover to the account of a new
56 beneficiary) unless the new beneficiary is:
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1 i. assigned to the same generation as (or a higher generation than)
2 the old beneficiary (determined in accordance with section 2651 of the
3 internal revenue code); and
4 ii. a member of the family of the old beneficiary.
5 7. The tax imposed by section 530(d)(4) of the internal revenue code
6 shall apply to any payment or distribution from a college debt repayment
7 program in the same manner as such tax applies to a payment or distrib-
8 ution from a Coverdell education savings account. This subdivision shall
9 not apply to any payment or distribution in any taxable year beginning
10 before January first, two thousand four, which is includible in gross
11 income but used for qualified higher education expenses of the desig-
12 nated beneficiary.
13 8. A contributor shall make an initial investment of at least twenty-
14 five dollars and may contribute up to three hundred seventy-five thou-
15 sand dollars to a college debt repayment program.
16 9. Any designated beneficiary who withdraws funds to pay for nonquali-
17 fied expenses shall pay a ten percent penalty tax on earnings as well as
18 federal and state income tax.
19 10. The comptroller shall be authorized to offer age-based options for
20 participants of the program similar to those offered in this state's 529
21 college savings program.
22 11. (a) Individual taxpayers may deduct the contributions they make to
23 a college debt repayment program, up to five thousand dollars annually.
24 (b) Married individual taxpayers that file jointly may deduct the
25 contributions they make to a college debt repayment program, up to ten
26 thousand dollars annually.
27 § 2. This act shall take effect on the one hundred eightieth day after
28 it shall have become a law.
