Colo. Code Regs. 39-22-104(4)(i)

Current through Register Vol. 47, No. 23, December 10, 2024

Rule 39-22-104(4)(i) - Qualified State Tuition Program & ABLE Program Contributions Subtraction

Basis and Purpose. The bases for this rule are sections 39-21-112(1), 39-22-104(4)(i), and 39-22-539, C.R.S. The purpose of this rule is to clarify requirements and limitations relating to the subtraction allowed to individuals, estates, and trusts for payments and contributions made to a qualified state tuition program or a qualified ABLE program.

(1)General Rule. Subject to the limitations and restrictions in section 39-22-104(4)(i), C.R.S., and this rule, a subtraction from federal taxable income is allowed to an individual, estate, or trust who makes a qualifying payment or contribution to a qualified state tuition program or qualified ABLE program during the tax year. C corporations may not claim any subtraction for payments or contributions they make to a qualified state tuition program or qualified ABLE program.

(2)Employer Contributions.

(a)Employer Contribution Credits Under Section 39-22-539, C.R.S. An employer who claims a credit under section 39-22-539, C.R.S., for a contribution made to 529 qualified state tuition program account owned by an employee cannot also claim a subtraction under section 39-22-104(4)(i), C.R.S., for the same contribution, regardless of whether the employer is sole-proprietorship, partnership, or S corporation. In the case of a partnership or S corporation, the partners and shareholders also cannot claim a subtraction under section 39-22-104(4)(i), C.R.S., for any contribution for which a credit is claimed under section 39-22-539, C.R.S.

(b)Employees. An employee cannot claim a subtraction under section 39-22-104(4)(i), C.R.S., for any contribution made on their behalf by their employer. However, an employee may claim a subtraction under section 39-22-104(4)(o), C.R.S., for any amount received as employer matching contributions to an adult learner's individual trust account or savings account made pursuant to part 3 of article 3.1 of title 23, C.R.S.

(3)Limitations

(a) The limitation in section 39-22-104(4)(i)(II)(B), C.R.S., applies to the total of all payments or contributions made to accounts for the same beneficiary, regardless of whether the contributions are made to a qualified state tuition program or a qualified ABLE program.

(b) The per taxpayer per beneficiary limitation established in section 39-22-104(4)(i)(II)(B), C.R.S., applies jointly, rather than separately, for taxpayers filing a joint return.

(c) For the purpose of the limitation in section 39-22-104(4)(i)(II)(B),C.R.S., a taxpayer who files married filing separately or head of household on their federal income tax return is considered a single filer.

(4)Rollovers.

(a)Rollovers from an Out-of-State Plan. In the case of a rollover pursuant to sections 529(c)(3)(C)(i) and 529A(c)(1)(c)(i) of the Internal Revenue Code, in which an amount is transferred from a qualified tuition program or qualified ABLE program, respectively, established and maintained by another state to a Colorado qualified tuition program or qualified ABLE program, only the portion of the rollover that constituted investment in the account for federal income tax purposes shall be considered a qualifying contribution for purposes of section 39-22-104(4)(i), C.R.S., and this rule. Any subtraction claimed for a rollover from an out-of-state plan is, collectively, along with any other payments and contributions made by the taxpayer during the tax year, subject to the limitations established by section 39-22-104(4)(i)(II)(B), C.R.S.

(b)Rollovers from a Colorado Plan. When an amount is transferred from an account in a Colorado qualified tuition program or qualified ABLE program to another qualified tuition program or qualified ABLE program within Colorado, no portion of the rollover shall be considered a qualifying contribution for purposes of section 39-22-104(4)(i), C.R.S., and this rule.

(c)Change in Beneficiaries. A change of the designated beneficiary of an existing plan, pursuant to sections 529(c)(3)(C)(ii) and 529A(c)(1)(C)(ii) of the Internal Revenue Code, shall not be considered a qualifying contribution for purposes of section 39-22-104(4)(i), C.R.S., and this rule.

(4)Addition for Non-Qualifying Distributions.

(a) Except as provided in paragraph (4)(c) of this rule, if any distribution, refund, or any other withdrawal is made from a qualified state tuition program or qualified ABLE program for any reason other than the reasons listed in sections 39-22-104(4)(i)(III)(A) through (D), and 39-22-104(4)(i) (III.5)(A) through (C), C.R.S., the account holder must add to their federal taxable income for the taxable year of the distribution, refund, or withdrawal, the portion of the distribution, refund, or withdrawal that is considered investment for federal income tax purposes.

(b) Distributions, refunds, and withdrawals to which paragraph (4)(a) of this rule applies include, but are not limited to, any amounts distributed, refunded, or withdrawn from a qualified state tuition program to:

(i) pay expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, as described in section 529(c)(7) of the Internal Revenue Code;

(ii) pay principal or interest on a qualified education loan, as described in section 529(c)(9) of the Internal Revenue Code; or

(iii) transfer funds to a state tuition program maintained by a state other than Colorado in a rollover described in section 529(c)(3)(C)(i) of the Internal Revenue Code.

(c) In determining what portion of a non-qualifying distribution may be subject to the addition requirement:

(i) The total combined additions to federal taxable income an account holder must make pursuant to sections 39-22-104(4)(i)(III), or 39-22-104(4)(i) (III.5), C.R.S., and paragraph (4) of this rule for all tax years and all distributions, refunds, or withdrawals made from a single qualified state tuition program or a qualified ABLE program are limited to the total combined subtractions previously claimed by any taxpayers for payments and contributions made to that account.

(ii) In the event that a subtraction was not claimed for one or more of the payments or contributions made to the account, the account holder bears the burden of proving that a subtraction was not claimed by the taxpayer making the payment or contribution. Such proof must include a full accounting of the payments and contributions made to the account, the amount of each payment or contribution, and the name and taxpayer identification number for the taxpayer who made each payment or contribution.

39-22-104(4)(i)

46 CR 23, December 10, 2023, effective 12/30/2023