Income Tax – Decoupling From Federal Changes – Education Expenses
HB0930 would decouple Maryland income tax law from several recent federal education-related tax changes. The bill directs the Governor not to elect participation in the federal tax credit program for qualified elementary and secondary education scholarships under Section 25F of the Internal Revenue Code, which would prevent Maryland from opting into that program. It also updates Maryland income tax modifications to account for new federal provisions affecting education savings and employer-provided benefits.
More specifically, the bill adds an income tax addition for employer contributions to a federal “Trump account” that are excluded from an employee’s federal gross income, and it requires Maryland taxpayers to add back certain refunds or distributions from the Maryland Senator Edward J. Kasemeyer Prepaid College Trust and related college investment plans when those amounts are not used for qualified higher education expenses. At the same time, it narrows the Maryland subtraction for contributions to college investment accounts by denying the subtraction when plan funds are used for elementary or secondary education expenses, and it keeps the existing annual $2,500 per beneficiary limit with carryforward rules.
The bill would amend the State Government Article and the Tax-General Article to change how Maryland conforms to federal tax treatment of education-related accounts and benefits. It would affect taxpayers using Maryland’s prepaid college trust and college investment plans, employers making contributions to federally recognized accounts, and individuals claiming Maryland income tax subtractions for contributions to those plans. The changes would apply to taxable years beginning after December 31, 2025, and would increase Maryland taxable income in certain cases where federal law excludes amounts that Maryland would now tax.
The available context shows the bill was introduced and assigned to the House Ways and Means Committee, with a hearing scheduled, but there are no recorded committee transcripts or votes in the provided materials. Based on the bill’s sponsors and structure, the measure appears to be a technical tax-conformity bill aimed at limiting Maryland’s automatic adoption of certain federal education-related tax preferences while preserving existing state rules for college savings plans. No explicit opposition or support is documented in the supplied record.
The main points of contention are likely to be the bill’s treatment of federal education tax benefits and its decision to deny Maryland tax advantages when college savings funds are used for elementary or secondary education expenses. Supporters may view the bill as a necessary decoupling measure to preserve state tax policy and protect revenue, while critics may argue it reduces incentives for families saving for education and adds complexity for account holders and employers. The prohibition on the Governor opting into the federal scholarship tax credit program is another potentially controversial feature because it forecloses participation in a federal tax benefit program.