NOTE: This article supersedes the article titled "Changes to Tax Treatment of College Savings Accounts for 2014" published in the January 2015 Wisconsin Tax Bulletin #187.
Subtraction Amount Increased:
The Wisconsin subtraction from income for contributions to an EdVest or Tomorrow's Scholar college savings account is increased for 2014. The subtraction is equal to the lesser of the amount contributed to the account for 2014 or $3,050 ($1,520 if married filing separate or a divorced parent).
In prior years, the maximum subtraction was $3,000 or $1,500 if married filing separate or a divorced parent. Effective for taxable years beginning in 2014 and thereafter, 2013 Wisconsin Act 227 provides that the maximum subtraction amounts are to be adjusted each year based on changes in the Consumer Price Index.
Extended Time to Make Contributions:
The contribution date for a specific year is extended to April 15 of the following year for contributions to an EdVest or Tomorrow's Scholar college savings account. For example, 2014 contributions must be made during 2014 or by April 15, 2015.
Anybody Can Qualify for the Subtraction:
The owner of the college savings account may authorize any other individual to contribute to the account for the benefit of the beneficiary. In prior years, the owner could only authorize the parent, grandparent, great grandparent, aunt, or uncle of the beneficiary to contribute to the account.
Carryover of Excess Contribution:
The excess of the amount contributed to the college savings account over the amount allowed as a subtraction may be carried forward to future years and claimed as a subtraction subject to the yearly limitations. This applies only to amounts contributed for 2014 and thereafter.
For the 2014 and prior taxable years, the department will allow rollover amounts to be claimed as a subtraction from income (subject to applicable yearly limitations). Taxpayers may amend their 2014 tax returns to claim a subtraction from income for a rollover amount if they have already filed their returns and did not report the amount from the rollover on line 2 of Schedule CS.
For the 2015 and following taxable years, rollovers into a Wisconsin college savings account are
not eligible for the subtraction from income. A rollover is not eligible for the subtraction from income since the amount of the rollover is not included in federal adjusted gross income. Note: This supersedes guidance in Wisconsin Tax Bulletin 128 in January 2002. Rollovers made for the 2014 taxable year on or before April 15, 2015 that were in excess of the amount allowed as a subtraction in 2014 may be carried forward to future years and claimed as a subtraction subject to the yearly limitations.
Distributions May Be Taxable:
For distributions from a college savings account received on or after June 1, 2014, the owner of the account may have to include an amount in income if the distribution was not used for qualified higher education expenses. The amount to be added to income is limited to the amount contributed to the account for 2014. Also, if the distribution is rolled over to another state's qualified program, the amount of the distribution that was previously claimed as a subtraction from income by the owner or other contributors to the account, must be added to the owner's Wisconsin income.
New Schedule CS:
Further information can be found on
Schedule CS, College Savings Accounts, which must be included with the Wisconsin income tax return.