Mass. poised to approve tax break for college savings
BOSTON >> Massachusetts could soon join the 34 other states that allow families to take a deduction on their income taxes for money put into a college savings account as lawmakers appear poised to break from their reluctance to consider tax policy changes.
In addition to endorsements from two joint House-Senate committees, the college savings tax deduction has now been included by two House committees in a version of Gov. Charlie Baker's economic development bill that will hit the House floor for debate and a vote on Thursday.
The deduction has now been recommended by joint committees that examine revenue and economic development matters, as well as the powerful House Ways and Means Committee, and Baker has voiced support for the concept.
It is also the second measure moving in the final weeks of the Legislature's formal sessions intended to help families plan for and afford college tuition. The annual state budget Baker is currently reviewing includes a $350,000 pilot program that would provide a state match of up to $500 per family for every dollar put into a college savings account by a low-income family in select cities across the state.
The proposal in the economic development bill, which was released by the House Ways and Means Committee on Tuesday morning with a favorable recommendation, would allow individuals to take a $1,000 tax deduction on contributions into a college savings program, sometimes known as 529 plans. Married couples would be able to deduct $2,000 from their taxable income.
At a time when tax collection estimates have diminished, forcing lawmakers and the administration to pare back state spending, the estimated $8.2 million cost to the state from offering the tax deductions would be almost fully offset by restricting existing tax breaks for college tuition payments to full-time Massachusetts residents only.
The change, according to supporters, would save an estimated $7 million, or about 13 percent of the $54.2 million in deductions taken in connection with college tuition payments in fiscal 2016.
Supporters of the new tax break have said all but eight of the 42 states that have an income tax allow families and individuals to take a tax deduction on savings for college.
According to the Association of Independent Colleges and Universities of Massachusetts, the value of the deductions range from $500 to $1,000 in Rhode Island and $2,500 to $5,000 in North Carolina to $5,000 to $10,000 in Connecticut and New York and $10,000 to $20,000 in Illinois and Oklahoma.
Baker in April attended an association board meeting at the Union Club where he encouraged the organization to approach lawmakers about adding the tax break proposal to his nearly $1 billion jobs bill.
"I thought that was something that sounded consistent with some of the human capital development ideas that were part of our bill already and if they wanted to take that up with the Legislature, that would be fine by us," Baker confirmed to the News Service about his dinner with the association board at the time.
And that's exactly what happened.
The Joint Committee on Revenue this spring reported out a standalone bill that had been revised from an earlier version filed by Sen. Eileen Donoghue, of Lowell, to include the lower deduction values. Donoghue had proposed a $5,000 individual deduction and $10,000 for families.
The Joint Committee on Economic Development then wrapped the proposal into its rewrite of Gov. Baker's jobs bill, which has now moved favorably through both the House Bonding Committee and the House Ways and Means Committee.
Association President Richard Doherty, after the release of the Economic Development Committee version that included the tax deduction, said incentivizing college savings encourages families to start planning financially for college earlier and makes it more likely students will attend college.
"Not only are college savings tax incentives the right thing to do for students and families, but the whole state benefits when students graduate with manageable student loans and are able to invest more of their post-college earnings back into the economy," Doherty said in a statement.
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