Help All Americans Save for College Act of 2016

To amend the Internal Revenue Code of 1986 to exclude employer contributions to 529 plans from gross income and employment taxes and to allow a deduction for individual contributions to such plans. 1. Short title This Act may be cited as the Help All Americans Save for College Act of 2016 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 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 (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 ; or (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 ; and (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) or ; or (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 . (B) Net earnings from self-employment Section 211(a) of the Social Security Act ( 42 U.S.C. 411(a) and ; and (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 . (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 1 224. 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. 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) , 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 (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) 10 percent 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 (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.

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.