STATE OF NEW YORK
________________________________________________________________________
9626
IN ASSEMBLY
January 28, 2020
___________
Introduced by M. of A. SOLAGES -- read once and referred to the Commit-
tee on Ways and Means
AN ACT to amend the tax law, in relation to establishing the New York
state early childcare savings program
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The tax law is amended by adding a new article 24-A to read
2 as follows:
3 ARTICLE 24-A
4 NEW YORK STATE EARLY CHILDCARE
5 SAVINGS PROGRAM
6 Section 860. Program established.
7 861. Purposes.
8 862. Definitions.
9 863. Functions of the comptroller.
10 864. Powers of the comptroller.
11 865. Program requirements; early childcare savings account.
12 866. Program limitations; early childcare savings.
13 § 860. Program established. There is hereby established the New York
14 state early childcare savings program.
15 § 861. Purposes. The purposes of the program shall be to authorize the
16 establishment of early childcare savings accounts and to provide guide-
17 lines for the maintenance of such accounts to:
18 1. Enable residents of this state to benefit from the tax incentive
19 provided for qualified early childcare savings accounts under section
20 six hundred twelve of this chapter;
21 2. Allow more residents to stay in the workforce by providing a means
22 to save and pay for childcare; and
23 3. Provide opportunities for all children to receive quality child-
24 care.
25 § 862. Definitions. As used in this article, the following terms shall
26 have the following meanings:
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD14228-01-9
A. 9626 2
1 1. "Account" or "early childcare savings account" shall mean an indi-
2 vidual savings account established in accordance with the provisions of
3 this article.
4 2. "Account owner" shall mean a taxpayer who enters into an early
5 childcare savings agreement pursuant to the provisions of this article,
6 including a person who enters into such an agreement as a fiduciary or
7 agent on behalf of a trust, estate, partnership, association, company or
8 corporation.
9 3. "Designated beneficiary" shall mean, with respect to an account or
10 accounts, the designated individual whose early childcare expenses are
11 expected to be paid from the account or accounts.
12 4. "Financial organization" shall mean an organization authorized to
13 do business in the state, and (a) which is an authorized fiduciary to
14 act as a trustee pursuant to the provisions of an act of congress enti-
15 tled "Employee Retirement Income Security Act of 1974", as such
16 provisions may be amended from time to time, or an insurance company;
17 and (b)(i) is licensed or chartered by the department of financial
18 services, (ii) is chartered by an agency of the federal government,
19 (iii) is subject to the jurisdiction and regulation of the securities
20 and exchange commission of the federal government, (iv) is any other
21 entity otherwise authorized to act in this state as a trustee pursuant
22 to the provisions of an act of congress entitled "Employee Retirement
23 Income Security Act of 1974", as such provisions may be amended from
24 time to time, or (v) is any banking organization as defined in subdivi-
25 sion eleven of section two of the banking law, national banking associ-
26 ation, state chartered credit union, federal mutual savings bank, feder-
27 al savings and loan association or federal credit union.
28 5. "Eligible childcare facilities" shall mean any licensed full-day
29 childcare and early education program and centers, licensed part time
30 childcare and early education program and centers; family childcare
31 homes; and afterschool programs for children aged five through twelve.
32 6. "Program" shall mean the New York early childcare savings program
33 established pursuant to this article.
34 7. "Qualified early childcare expenses" shall mean monies applied for
35 the services of a licensed child day care center, group family day care
36 home, family day care home and school age child care as such terms are
37 defined in section three hundred ninety of the social services law.
38 8. "Qualified withdrawal" shall mean a withdrawal from an account to
39 pay the qualified early childcare expense of the designated beneficiary
40 of the account.
41 9. "Nonqualified withdrawal" shall mean a withdrawal from an account
42 including but not limited to expenses for primary, secondary, or post-
43 secondary education, but shall not include:
44 (a) a qualified withdrawal;
45 (b) a withdrawal made as the result of death;
46 (c) an unforeseeable emergency; or
47 (d) need based upon qualifying for military service in the armed forc-
48 es of the United States as determined by rules and regulations promul-
49 gated by the comptroller.
50 10. "Management contract" shall mean the contract executed by the
51 comptroller and a financial organization selected to act as a depository
52 and manager of the program.
53 11. "Early childcare savings agreement" shall mean an agreement
54 between the comptroller or a financial organization and the account
55 owner.
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1 12. "Program manager" shall mean a financial organization selected by
2 the comptroller to act as a depository and manager of the program.
3 § 863. Functions of the comptroller. 1. The comptroller shall imple-
4 ment the program under the terms and conditions established by this
5 article and a memorandum of understanding with the commissioner relating
6 to any terms or conditions not otherwise expressly provided for in this
7 article.
8 2. In furtherance of such implementation the comptroller shall:
9 (a) develop and implement the program in a manner consistent with the
10 provisions of this article through rules and regulations established in
11 accordance with the state administrative procedure act;
12 (b) engage the services of consultants on a contract basis for render-
13 ing professional and technical assistance and advice;
14 (c) make changes to the program required for the participants in the
15 program to obtain the state income tax benefits or treatment provided by
16 this article;
17 (d) charge, impose and collect administrative fees and service charges
18 in connection with any agreement, contract or transaction relating to
19 the program;
20 (e) develop marketing plans and promotion materials;
21 (f) establish the methods by which the funds held in such accounts be
22 dispersed;
23 (g) establish the method by which funds shall be allocated to pay for
24 administrative costs; and
25 (h) do all things necessary and proper to carry out the purposes of
26 this article.
27 § 864. Powers of the comptroller. 1. The comptroller may implement the
28 program through use of financial organizations as account depositories
29 and managers. Under the program, an account owner may establish accounts
30 directly with an account depository.
31 2. The comptroller may solicit proposals from financial organizations
32 to act as depositories and managers of the program. Financial organiza-
33 tions submitting proposals shall describe the investment instrument
34 which will be held in accounts. The comptroller shall select as program
35 depositories and managers the financial organization, from among the
36 bidding financial organizations that demonstrates the most advantageous
37 combination, both to potential program participants and this state, of
38 the following factors:
39 (a) financial stability and integrity of the financial organization;
40 (b) the safety of the investment instrument being offered;
41 (c) the ability of the financial organization to satisfy recordkeeping
42 and reporting requirements;
43 (d) the financial organization's plan for promoting the program and
44 the investment it is willing to make to promote the program;
45 (e) the fees, if any, proposed to be charged to persons for opening
46 accounts;
47 (f) the minimum initial deposit and minimum contributions that the
48 financial organization will require;
49 (g) the ability of banking organizations to accept electronic with-
50 drawals, including payroll deduction plans; and
51 (h) other benefits to the state or its residents included in the
52 proposal, including fees payable to the state to cover expenses of oper-
53 ation of the program.
54 3. The comptroller may enter into a contract with a financial organ-
55 ization. Such financial organization management may provide one or more
56 types of investment instrument.
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1 4. The comptroller may select more than one financial organization for
2 the program.
3 5. A management contract shall include, at a minimum, terms requiring
4 the financial organization to:
5 (a) take any action required to keep the program in compliance with
6 requirements of section eight hundred sixty-five of this article and any
7 actions not contrary to its contract to manage the program to qualify as
8 an "early childcare savings account" under this article;
9 (b) keep adequate records of each account, keep each account segre-
10 gated from each other account, and provide the comptroller with the
11 information necessary to prepare the statements required by section
12 eight hundred sixty-five of this article;
13 (c) compile and total information contained in statements required to
14 be prepared under subsection fifteen of section eight hundred sixty-five
15 of this article and provide such compilations to the comptroller;
16 (d) if there is more than one program manager, provide the comptroller
17 with such information necessary to determine compliance with section
18 eight hundred sixty-five of this article;
19 (e) provide the comptroller or his or her designee access to the books
20 and records of the program manager to the extent needed to determine
21 compliance with the contract;
22 (f) hold all accounts for the benefit of the account owner;
23 (g) be audited at least annually by a firm of certified public
24 accountants selected by the program manager and that the results of such
25 audit be provided to the comptroller;
26 (h) provide the comptroller with copies of all regulatory filings and
27 reports made by it during the term of the management contract or while
28 it is holding any accounts, other than confidential filings or reports
29 that will not become part of the program. The program manager shall make
30 available for review by the comptroller the results of any periodic
31 examination of such manager by any state or federal banking, insurance
32 or securities commission, except to the extent that such report or
33 reports may not be disclosed under applicable law or the rules of such
34 commission; and
35 (i) ensure that any description of the program, whether in writing or
36 through the use of any media, is consistent with the marketing plan as
37 developed pursuant to the provisions of section eight hundred sixty-
38 three of this article.
39 6. The comptroller may provide that an audit shall be conducted of the
40 operations and financial position of the program depository and manager
41 at any time if the comptroller has any reason to be concerned about the
42 financial position, the recordkeeping practices, or the status of
43 accounts of such program depository and manager.
44 7. During the term of any contract with a program manager, the comp-
45 troller shall conduct an examination of such manager and its handling of
46 accounts. Such examination shall be conducted at least biennially if
47 such manager is not otherwise subject to periodic examination by the
48 superintendent of financial services, the federal deposit insurance
49 corporation or other similar entity.
50 8. (a) If selection of a financial organization as a program manager
51 or depository is not renewed, after the end of its term:
52 (i) accounts previously established and held in investment instruments
53 at such financial organization may be terminated;
54 (ii) additional contributions may be made to such accounts;
55 (iii) no new accounts may be placed with such financial organization;
56 and
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1 (iv) existing accounts held by such depository shall remain subject to
2 all oversight and reporting requirements established by the comptroller.
3 (b) If the comptroller terminates a financial organization as a
4 program manager or depository, he or she shall take custody of accounts
5 held by such financial organization and shall seek to promptly transfer
6 such accounts to another financial organization that is selected as a
7 program manager or depository and into investment instruments as similar
8 to the original instruments as possible.
9 9. The comptroller may enter into such contracts as it deems necessary
10 and proper for the implementation of the program.
11 § 865. Program requirements; early childcare savings account. 1. Early
12 childcare savings accounts established pursuant to the provisions of
13 this article shall be governed by the provisions of this section.
14 2. An early childcare savings account may be opened by any person who
15 desires to save money for the payment of the qualified early childcare
16 expenses of the designated beneficiary. An account owner may designate
17 another person as successor owner of the account in the event of the
18 death of the original account owner. Such person who opens an account or
19 any successor owner shall be considered the account owner.
20 (a) An application for such account shall be in the form prescribed by
21 the program and contain the following:
22 (i) the name, address and social security number or employer identifi-
23 cation number of the account owner;
24 (ii) the designation of a designated beneficiary;
25 (iii) the name, address, and social security number of the designated
26 beneficiary; and
27 (iv) such other information as the program may require.
28 (b) The comptroller and the corporation may establish a nominal fee
29 for such application.
30 3. Any person, including the account owner, may make contributions to
31 the account after the account is opened.
32 4. Contributions to accounts may be made only in cash.
33 5. An account owner may withdraw all or part of the balance from an
34 account as authorized under rules governing the program. Such rules
35 shall include provisions that will generally enable the determination as
36 to whether a withdrawal is a nonqualified withdrawal or a qualified
37 withdrawal.
38 6. (a) An account owner may change the designated beneficiary of an
39 account in accordance with procedures established by the memorandum of
40 understanding pursuant to the provisions of section eight hundred
41 sixty-three of this article.
42 (b) An account owner may transfer all or a portion of an account to
43 another early childcare savings account.
44 (c) Changes in designated beneficiaries and transfers under this
45 subdivision shall not be permitted to the extent that they would cause
46 all accounts for the same beneficiary to exceed the permitted aggregate
47 maximum account balance.
48 7. The program shall provide separate accounting for each designated
49 beneficiary.
50 8. No account owner or designated beneficiary of any account shall be
51 permitted to direct the investment of any contributions to an account or
52 the earnings thereon more than two times in any calendar year.
53 9. Neither an account owner nor a designated beneficiary may use an
54 interest in an account as security for a loan. Any pledge of an interest
55 in an account shall be of no force and effect.
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1 10. The comptroller shall promulgate rules or regulations to prevent
2 contributions on behalf of a designated beneficiary in excess of an
3 amount that would cause the aggregate account balance for all accounts
4 for a designated beneficiary to exceed a maximum account balance, as
5 established from time to time by the comptroller.
6 11. Contributions to an early childcare savings account shall be
7 limited to one hundred thousand dollars per account. This amount shall
8 not take into consideration any gain or loss to the principal investment
9 into the account.
10 12. In the event that an individual makes a "nonqualified withdrawal"
11 of monies from the early childcare savings account such individual shall
12 have the entire account taxed, including any interest, as though it was
13 income at the account owner's federal tax rate in the tax years the
14 monies were withdrawn, and incur an additional ten percent state penalty
15 on the amount of earnings. The penalty shall be in addition to any taxes
16 due pursuant to a nonqualified withdrawal from an early childcare
17 savings account.
18 13. Penalties may be waived by the commissioner if the individual can
19 show proof that the reason the individual did not use the qualified
20 childcare expenses was due to either:
21 (a) an employment relocation outside the state and such relocation
22 required the individual to become a resident of another state;
23 (b) an unforeseeable emergency;
24 (c) an absence due to qualifying military service; or
25 (d) death.
26 For purposes of this subdivision, an "unforeseeable emergency" shall
27 mean a severe financial hardship resulting from illness, accident or
28 property loss to the account owner, or his or her dependents resulting
29 in circumstances beyond their control. The circumstances that constitute
30 an unforeseeable financial emergency will depend on the facts of each
31 case, however, withdrawal of account funds may not be made, without
32 penalty, to the extent that such hardship is or may be relieved by
33 either:
34 (i) reimbursement or compensation by insurance or otherwise; or
35 (ii) liquidation of the individual's assets to the extent the liqui-
36 dation of such assets would not itself cause severe financial hardship.
37 14. The commissioner and the comptroller are directed to promulgate
38 all rules and regulations necessary to implement the provisions of this
39 subsection and are hereby directed to establish, supervise and regulate
40 early childcare savings accounts authorized to be created by this
41 section.
42 15. (a) If there is any distribution from an early childcare savings
43 account to any individual or for the benefit of any individual during a
44 calendar year, such distribution shall be reported to the department and
45 the account owner, the designated beneficiary, or the distributee to the
46 extent required by law or regulation.
47 (b) Statements shall be provided to each account owner at least once
48 each year within sixty days after the end of the twelve-month period to
49 which they relate. The statement shall identify the contributions made
50 during a preceding twelve-month period, the total contributions made to
51 the account through the end of the period, the value of the account at
52 the end of such period, distributions made during such period and any
53 other information that the comptroller shall require to be reported to
54 the account owner.
55 (c) Statements and information relating to accounts shall be prepared
56 and filed to the extent required by this chapter.
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1 16. An annual fee may be imposed upon the account owner for the main-
2 tenance of the account.
3 17. The program shall disclose the following information in writing to
4 each account owner of an early childcare savings account:
5 (a) the terms and conditions for establishing an early childcare
6 savings account;
7 (b) any restrictions on the substitution of beneficiaries;
8 (c) the person or entity entitled to terminate the early childcare
9 savings agreement;
10 (d) the period of time during which a beneficiary may receive benefits
11 under the early childcare savings agreement;
12 (e) the terms and conditions under which money may be wholly or
13 partially withdrawn from the program, including, but not limited to, any
14 reasonable charges and fees that may be imposed for withdrawal;
15 (f) the probable tax consequences associated with contributions to and
16 distributions from accounts; and
17 (g) all other rights and obligations pursuant to early childcare
18 savings agreements, and any other terms, conditions, and provisions
19 deemed necessary and appropriate by the terms of the memorandum of
20 understanding entered into pursuant to section eight hundred sixty-three
21 of this article.
22 18. Early childcare savings agreements shall be subject to section
23 fourteen-c of the banking law and the "truth-in-savings" regulations
24 promulgated thereunder.
25 19. Nothing in this article or in any early childcare savings agree-
26 ment entered into pursuant to this article shall be construed as a guar-
27 antee by the state that the account owner or designated beneficiary will
28 be admitted to a licensed childcare, early education program, family
29 childcare home, or after school program.
30 20. Monies withdrawn from early childcare savings accounts and any
31 interest which has accrued shall not be considered as taxable income to
32 the account owner for state personal income taxation purposes, so long
33 as the monies are applied for the qualified early childcare expenses by
34 the account owner or designated beneficiary of the account.
35 § 866. Program limitations; early childcare savings. 1. Nothing in
36 this article shall be construed to:
37 (a) give any designated beneficiary any rights or legal interest with
38 respect to an account unless the designated beneficiary is the account
39 owner;
40 (b) create state residency for an individual merely because the indi-
41 vidual is a designated beneficiary; or
42 (c) guarantee that amounts saved pursuant to the program will be
43 sufficient to cover the qualified early childcare expenses of a desig-
44 nated beneficiary.
45 2. (a) Nothing in this article shall create or be construed to create
46 any obligation of the comptroller, the state, or any agency or instru-
47 mentality of the state to guarantee for the benefit of the account owner
48 or designated beneficiary with respect to:
49 (i) the rate of interest or other return on any account; or
50 (ii) the payment of interest or other return on any account.
51 (b) The comptroller shall, by rule or regulation, provide that every
52 contract, application, deposit slip or other similar document that may
53 be used in connection with a contribution to an account clearly indicate
54 that the account is not insured by the state and neither the principal
55 deposited nor the investment return is guaranteed by the state.
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1 § 2. Subsection (b) of section 612 of the tax law is amended by adding
2 a new paragraph 43 to read as follows:
3 (43) (A) Excess distributions received during the taxable year by a
4 distributee of an early childcare savings account established under the
5 New York state early childcare savings program provided for under arti-
6 cle twenty-four-A of this chapter, to the extent such excess distrib-
7 utions are deemed attributable to the deductible contributions under
8 paragraph forty-five of subsection (c) of this section.
9 (B) (i) The term "excess distributions" means distributions which are
10 not:
11 (I) qualified withdrawals within the meaning of subsection eight of
12 section eight hundred sixty-two of this chapter;
13 (II) withdrawals made as a result of the death or disability of the
14 designated beneficiary within the meaning of subsection three of section
15 eight hundred sixty-two of this chapter; or
16 (III) transfers described in paragraph (b) of subsection six of
17 section eight hundred sixty-five of this chapter.
18 (ii) Excess distributions shall be deemed attributable to deductible
19 contributions to the extent the amount of any such excess distribution,
20 when added to all previous excess distributions from the account,
21 exceeds the aggregate of all nondeductible contributions to the account.
22 § 3. Subsection (c) of section 612 of the tax law is amended by adding
23 two new paragraphs 44 and 45 to read as follows:
24 (44) Contributions made during the taxable year by an account owner to
25 one or more early childcare savings accounts established under the New
26 York state early childcare savings program provided for under article
27 twenty-four-A of this chapter, to the extent not deductible or eligible
28 for credit for federal income tax purposes; provided, however, the
29 exclusion provided for in this paragraph shall not exceed five thousand
30 dollars for an individual or head of household, and for married couples
31 who file joint tax returns, shall not exceed ten thousand dollars;
32 provided, further that such exclusion shall be available only to the
33 account owner and not to any other person.
34 (45) Distributions from a family early childcare savings account
35 established under the New York state early childcare savings program
36 provided for under article twenty-four-A of this chapter, to the extent
37 includible in gross income for federal income tax purposes.
38 § 4. This act shall take effect on the one hundred eightieth day after
39 it shall have become a law, and shall apply to taxable years commencing
40 on or after the first of January next succeeding the date on which it
41 shall have become a law; provided, however, that effective immediately,
42 the commissioner of taxation and finance and the comptroller are author-
43 ized and directed to promulgate any rules or regulations necessary to
44 implement the provisions of this act on its effective date on or before
45 such date.
