Help All Americans Save for College Act of 2016

Summary: Help All Americans Save for College Act of 2016  This bill amends the Internal Revenue Code to modify the tax treatment of qualified tuition programs (known as 529 plans) and ABLE accounts. (Tax-favored ABLE [Achieving a Better Life Experience] accounts are designed to enable individuals with disabilities to save for and pay for disability-related expenses.)  The bill excludes employer contributions to an employee's 529 plan or ABLE account from the gross income of an individual, certain employment taxes, and taxes on self-employment earnings.  The exclusions are limited to the lesser of: (1) the compensation includible in the individual's gross income for the year, or (2) $5,000 ($10,000 in the case of a joint return) for each dependent of the taxpayer who is the designated beneficiary of a 529 plan.  The bill also allows an individual to deduct up to $5,000 of the aggregate contributions of the individual to a 529 plan and an ABLE account.  The bill revises the 10% additional tax for distributions from a 529 plan or an ABLE account that are not used for qualified purposes to change the rate to the greater of: (1) 10%, or (2) the highest rate of income tax applicable to the taxpayer. 

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Help All Americans Save for College 
Act of 2016''.

SEC. 2. TAX TREATMENT OF CONTRIBUTIONS TO 529 PLANS.

    (a) Exclusion From Gross Income for Employer Contributions.--
            (1) In general.--Part III of subchapter B of chapter 1 of 
        the Internal Revenue Code of 1986 is amended by inserting after 
        section 139E the following new section:

``SEC. 139F. EMPLOYER CONTRIBUTIONS TO 529 PLAN OR ABLE ACCOUNT.

    ``(a) In General.--In the case of an individual who is a qualified 
account owner, gross income shall not include the amount of any 
contribution to such account during the taxable year by the employer of 
the account owner.
    ``(b) Limitation.--The amount exempt from gross income by 
subsection (a) for a taxable year shall not exceed the lesser of--
            ``(1) an amount equal to the compensation includible in the 
        individual's gross income for such taxable year, or
            ``(2) $5,000 ($10,000 in the case of a joint return) for 
        each dependent who of the taxpayer is the designated 
        beneficiary of an account under section 529.
    ``(c) Qualified Account Owner.--For purposes of this section, the 
term `qualified account owner' means--
            ``(1) in the case of an account in connection with a 
        qualified tuition program, the account owner of an account of a 
        designated beneficiary under section 529, and
            ``(2) in the case of an ABLE account, the designated 
        beneficiary in connection with the ABLE account under section 
        529A(e)(3).''.
            (2) Cafeteria plan does not include employer contributions 
        to 529 plans or able accounts.--Section 125(d)(2) of such Code 
        is amended by adding at the end the following:
                    ``(E) Exception for contributions to 529 plan and 
                able accounts.--Subparagraph (A) shall not apply to a 
                plan to the extent of amounts which a covered employee 
                may elect to have the employer pay as contributions to 
                an account under section 529 or 529A.''.
            (3) Clerical amendment.--The table of sections for part III 
        of subchapter B of chapter 1 of such Code is amended by 
        inserting after the item relating to section 139E the following 
        new item:

``Sec. 139F. Employer contributions to 529 plan or ABLE account.''.
    (b) Federal Insurance Contributions.--
            (1) Wages.--Section 3121(a) of such Code is amended by 
        striking ``or'' at the end of paragraph (22), by striking the 
        period at the end of paragraph (23) and inserting ``; or'', and 
        by inserting after paragraph (23) the following:
            ``(24) the amount of any contribution made to or on behalf 
        of an employee if at the time of such contribution it is 
        reasonable to believe that the employee will be able to exclude 
        such contribution from income under section 139F.''.
            (2) Net earnings from self-employment.--Section 1402(a) of 
        such Code is amended by striking ``and'' at the end of 
        paragraph (16), by striking the period at the end of paragraph 
        (17) and inserting ``; and'', and inserting after paragraph 
        (17) the following:
            ``(18) there shall be excluded any contribution made to or 
        on behalf of an employee that is not includible in gross income 
        of the employee under section 139F.''.
            (3) Conforming amendments to social security act.--
                    (A) Wages.--Section 209(a) of the Social Security 
                Act (42 U.S.C. 409(a)) is amended by striking ``or'' at 
                the end of paragraph (19) and inserting a semicolon, by 
                striking the period at the end of paragraph (20) and 
                inserting ``; or'', and by inserting after paragraph 
                (20) the following:
            ``(21) The amount of any contribution made to or on behalf 
        of an employee that is not includible in gross income of the 
        employee under section 139F of the Internal Revenue Code of 
        1986.''.
                    (B) Net earnings from self-employment.--Section 
                211(a) of the Social Security Act (42 U.S.C. 411(a)) is 
                amended by striking ``and'' at the end of paragraph 
                (15), by striking the period at the end of paragraph 
                (16) and inserting ``; and'', and inserting after 
                paragraph (16) the following:
            ``(17) There shall be excluded any contribution made to or 
        on behalf of an employee that is not includible in gross income 
        of the employee under section 139F of the Internal Revenue Code 
        of 1986.''.
    (c) Railroad Retirement.--Section 3231(e) of such Code is amended 
by adding at the end the following:
            ``(13) Employer contributions to 529 plan or able 
        account.--The term compensation shall not include any 
        contribution made to or on behalf of an employee that is not 
        includible in gross income of the employee under section 
        139F.''.
    (d) Deduction for Individual Contributions.--
            (1) In general.--Part VII of subchapter B of chapter 1 of 
        the Internal Revenue Code of 1986 is amended by redesignating 
        section 224 as section 225 and by inserting after section 223 
        the following new section:

``SEC. 224. CONTRIBUTIONS TO 529 PLANS AND ABLE ACCOUNTS.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction for the taxable year an amount equal to 
the sum of--
            ``(1) the aggregate contributions made by such individual 
        to qualified tuition programs (as defined in section 529) 
        during such taxable year, and
            ``(2) the aggregate contributions made by such individual 
        to ABLE accounts (as defined in section 529A) during such 
        taxable year.
    ``(b) Limitation.--The amount allowed as a deduction by subsection 
(a) for a taxable year shall not exceed $5,000.''.
            (2) Clerical amendment.--The table of sections for part VII 
        of subchapter B of chapter 1 of such Code is amended by 
        redesignating the item relating to section 224 as an item 
        relating to section 225 and by inserting after the item 
        relating to section 223 the following new item:

``Sec. 224. Contributions to 529 plans and ABLE accounts.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to contributions made during taxable years beginning after the 
date of the enactment of this Act.

SEC. 3. ADDITIONAL TAX FOR DISTRIBUTIONS NOT USED FOR QUALIFIED 
              PURPOSES.

    (a) Qualified Tuition Programs.--
            (1) In general.--The first sentence of section 529(c)(6) of 
        the Internal Revenue Code of 1986 is amended by striking the 
        period at the end and inserting ``, except that the rate of 
        such tax shall be determined under subparagraph (B) of this 
        paragraph.''.
            (2) Rate.--Paragraph (6) of section 529(c) of such Code, as 
        amended by subsection (a), is amended--
                    (A) by striking ``The tax'' and inserting
                    ``(A) In general.--The tax'', and
                    (B) by adding at the end the following:
                    ``(B) Rate.--For purposes of subparagraph (A), the 
                tax rate determined under this subparagraph is the 
                greater of--
                            ``(i) 10 percent, and
                            ``(ii) the highest rate of income tax 
                        applicable to such person under this title.''.
    (b) Qualified ABLE Programs.--
            (1) In general.--Subparagraph (A) of section 529A(c)(3) of 
        the Internal Revenue Code of 1986 is amended by striking ``10 
        percent'' and inserting ``the applicable percentage''.
            (2) Applicable percentage.--Paragraph (3) of section 
        529A(c) of such Code is amended by adding at the end the 
        following:
                    ``(D) Applicable percentage.--For purposes of this 
                paragraph, the term `applicable percentage' means the 
                greater of--
                            ``(i) 10 percent, and
                            ``(ii) the highest rate of income tax 
                        applicable to such person under this title.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions made during taxable years beginning after the 
date of the enactment of this Act.