Overview
Title
To amend the Internal Revenue Code of 1986 to provide for lifelong learning accounts, and for other purposes.
ELI5 AI
The Skills Investment Act of 2025 wants to help people keep learning new things by letting them use special savings accounts not just for school, but also for other learning activities as they grow up. It also wants to encourage bosses to help their workers keep learning by giving them money for their accounts and making sure everyone knows the new rules.
Summary AI
H. R. 464, known as the "Skills Investment Act of 2025", proposes changes to the Internal Revenue Code to rename and expand the use of Coverdell education savings accounts, calling them Coverdell lifelong learning accounts. The bill allows these accounts to cover not just traditional educational expenses but also skill development and career-related activities for individuals over 16. It introduces changes to age restrictions, allowing contributions until age 70, and offers increased account and contribution limits for those over age 30. Additionally, the bill creates tax incentives for employers contributing to these accounts for their employees.
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AnalysisAI
General Summary of the Bill
The proposed legislation, titled the "Skills Investment Act of 2025," is designed to amend the Internal Revenue Code of 1986 to facilitate the creation and use of Coverdell lifelong learning accounts. These accounts aim to expand beyond traditional education savings accounts to support lifelong learning and skills development. The bill introduces new tax benefits and modifications to existing rules, offering a broader application for educational and skill development expenses and incentivizing employer contributions with tax credits. The changes are intended to promote individual investment in lifelong education and skills improvement by allowing for certain contributions to be tax-deductible and increasing the types of expenses that can be covered.
Summary of Significant Issues
One of the more prominent issues with the bill involves its complexity, particularly regarding the renaming and expansion of the Coverdell accounts. The bill repurposes the existing "Coverdell education savings accounts," renaming them to "Coverdell lifelong learning accounts," which could potentially confuse individuals familiar with the previous designation. Additionally, the bill outlines complex definitions and rules around "qualified educational or skill development expenses," which might lead to misunderstandings about eligible uses of funds.
Moreover, the bill increases the additional tax from 10 percent to 20 percent on certain unauthorized distributions, which may not be immediately clear to taxpayers and could result in unintentional non-compliance. This increase necessitates clear communication from the IRS and financial advisors to ensure compliance.
The bill also includes provisions that exclude certain employees from benefitting from employer contributions, such as significant shareholders or owners, which could raise questions of fairness and equal treatment in workplace benefits.
The text uses highly technical and specialized language that might be difficult for individuals without a tax or legal background to grasp fully, thus impacting understanding and compliance.
Potential Impact on the Public
Broadly, this bill aims to encourage lifelong learning and skill development, which is increasingly important in today's constantly evolving job market. By offering tax advantages for both employers and individuals, it could incentivize more people to invest in their education, thereby benefiting the workforce overall.
However, the successful implementation of these provisions largely depends on clear communication and understanding. If individuals are not well-informed about the changes, especially retirees or those nearing retirement, they might inadvertently face new tax liabilities. This underlines the importance of targeted education and outreach from policymakers and financial institutions.
Impact on Specific Stakeholders
For employers, this bill offers potential tax credits for contributions made to employees' lifelong learning accounts. This incentive could lead to increased investment in workforce development. However, certain exclusions within the bill, particularly for business owners and their relatives, could lead to frustration if these stakeholders feel unfairly excluded from benefits.
For account holders such as students, workers seeking new skills, or lifelong learners, the expanded scope of account uses offers enhanced financial flexibility. However, those unfamiliar with tax intricacies might find the increased complexity a deterrent rather than a benefit.
Furthermore, while certain employees might gain significantly from this bill, there is a risk that those excluded by technical definitions may perceive it as unequal, possibly affecting workplace morale or participation rates in lifelong learning programs.
Overall, while the "Skills Investment Act of 2025" could positively impact education and workforce development, clarity and education are paramount to prevent negative outcomes stemming from its complexity and technical nature. The government, employers, and financial advisors all have a role to play in ensuring this transition is well understood and effectively implemented.
Financial Assessment
The bill, known as the Skills Investment Act of 2025, introduces various financial elements that aim to promote lifelong learning and skill development through tax-advantaged accounts. These changes primarily revolve around renaming Coverdell education savings accounts to Coverdell lifelong learning accounts, broadening their usage, and making adjustments to contribution limits and taxation rules.
Financial Implications
1. Expanded Use and Contribution Limits:
The bill expands the eligibility criteria for what funds in these accounts can be used for, now encompassing qualified educational or skill development expenses. These encompass expenses such as training services, career and technical education activities, and associated expenses like transportation and necessary technology. This broadening aims to encourage continued education and skill development beyond formal schooling.
Moreover, the bill increases the maximum contribution limit for individuals over the age of 30 to $4,000, up from the previous $2,000. This enhancement provides a more robust financial incentive for older individuals to continue contributing to their accounts as they advance in age, which aligns with promoting lifelong learning.
2. Employer Contributions and Tax Credits:
Employers are incentivized to contribute to their employees' lifelong learning accounts through a 25% tax credit on nonelective contributions, termed as Employee educational skills and development expenses. This provision could encourage more employers to support the educational advancement of their workforce, promoting a culture of continuous learning in the workplace. Notably, certain employees are excluded from this provision, potentially creating perceptions of unequal benefit distribution.
3. Age and Balance Restrictions:
The bill imposes a balance limit of $10,000 on accounts for individuals over the age of 30, preventing excessive accumulation in these accounts which are primarily intended for educational purposes. Additionally, contributions are allowed until the age of 70, significantly increasing the age limit from the previous 18 years. This change acknowledges that learning and skill development are lifelong processes and attempts to support individuals financially throughout their careers.
Issues and Concerns
The renaming of accounts and expanded definitions of eligible expenses risk creating confusion among current and potential account holders. While the bill introduces broader usage and benefits, it also increases the additional tax from 10% to 20% on certain distributions. This steeper penalty could dissuade early withdrawals but also potentially catch individuals unaware, highlighting the need for clear communication and guidance regarding these new terms.
Also, the aggregation rules treating multiple employers as a single entity in terms of contributions could complicate compliance for employers, particularly those with complex organizational structures. These rules aim to prevent manipulation of contribution limits but might also result in unintended administrative challenges.
In summary, the Skills Investment Act of 2025 endeavors to support lifelong learning through financial incentives and broadened account usage but introduces complexities that necessitate clear guidance for both taxpayers and employers to avoid inadvertent errors or inequities.
Issues
The renaming of 'Coverdell education savings accounts' to 'Coverdell lifelong learning accounts' in Section 2 could lead to confusion among individuals familiar with the existing terminology. Without clear guidance, this change might disrupt understanding and implementation. (Section 2)
The increase in the additional tax from 10 percent to 20 percent on certain distributions, as stated in Section 224, may not be immediately understood by taxpayers. This change could lead to unintentional non-compliance and financial penalties for individuals, thus necessitating effective communication and clarity. (Section 224)
The definition of 'qualified educational or skill development expenses' in Section 2 is complex. This complexity could lead to confusion or misinterpretation about what qualifies as an eligible expense, impacting taxpayer compliance and fairness in the application of these accounts. (Section 2)
The exclusion of certain employees, such as 2-percent shareholders of an S corporation and 5-percent owners of a taxpayer in Section 45BB, might lead to unequal treatment or benefit exclusion, raising concerns of favoritism or discrimination. (Section 45BB)
The aggregation rules in Section 45BB, treating all employers as a single entity, could create complexities in determining eligible employment structures. This might cause confusion or difficulties in compliance for employers and employees alike. (Section 45BB)
The complex technical language used in Section 45BB and elsewhere might make it challenging for individuals without a tax or legal background to understand the rules and their implications, potentially affecting widespread understanding and compliance. (Section 45BB)
The potential ambiguity in limitations imposed on account balances and contributions for individuals over the age of 30 in Section 2 could lead to misunderstandings about application and enforcement, impacting financial planning and retirement savings. (Section 2)
The procedural clarity regarding the transition of existing accounts to the 'lifelong learning' designation in Section 2 is lacking. It's unclear if account holders need to take action or if this will be automatic, possibly causing administrative or compliance issues. (Section 2)
The effective dates for various amendments in Section 2 could create confusion regarding the timing of distributions, contributions, and allowable deductions as they relate to different tax years, affecting individual and business financial planning. (Section 2)
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the Act states that it can be officially referred to as the "Skills Investment Act of 2025."
2. Coverdell lifelong learning accounts Read Opens in new tab
Summary AI
This section proposes changing the name of Coverdell education savings accounts to Coverdell lifelong learning accounts and expands their use to cover a wider range of educational and skill development expenses. It also updates contribution limits and age restrictions, introduces a tax credit for employer contributions to such accounts, and allows for a deduction for contributions by account beneficiaries.
Money References
- (b) Expanded use of accounts.— (1) ELIGIBLE EXPENSES.— (A) IN GENERAL.—Section 530(b)(2)(A) of the Internal Revenue Code of 1986 is amended by striking “and” at the end of clause (i), by striking the period at the end of clause (ii) and inserting “, and”, and by adding at the end the following new clause: “(iii) qualified educational or skill development expenses (as defined in paragraph (5)).”. (B) QUALIFIED EDUCATIONAL OR SKILL DEVELOPMENT EXPENSES.—Section 530(b) of such Code is amended by adding at the end the following new paragraph: “(5) QUALIFIED EDUCATIONAL OR SKILL DEVELOPMENT EXPENSES.—The term ‘qualified educational or skill development expenses’ means— “(A) expenses paid or incurred— “(i) after the beneficiary attains age 16, and “(ii) for participation or enrollment of the beneficiary in services or activities that are— “(I) training services described in section 134(c)(3)(D) of the Workforce Innovation and Opportunity Act (29 U.S.C. 3174(c)(3)(D)) that are offered by a provider included on the list of eligible providers of training services described in section 122 of such Act (29 U.S.C. 3152), “(II) career and technical education activities defined in section 3 of the Carl D. Perkins Career and Technical Education Act of 2006 (20 U.S.C. 2302) that are offered through an eligible institution (as defined in such section), “(III) career services described in clauses (iii), (iv), and (xi) of section 134(c)(2)(A) of the Workforce Innovation and Opportunity Act (29 U.S.C. 3174(c)(2)(A)) that are provided by providers eligible under section 134(c)(2)(C) of such Act, “(IV) youth activities described in section 129(c)(2) of the Workforce Innovation and Opportunity Act (29 U.S.C. 3164(c)(2)) that are provided by eligible providers of youth workforce investment activities under section 123 of such Act, or “(V) adult education and literacy activities, as defined in section 203 of the Adult Education and Family Literacy Act (29 U.S.C. 3272), that are provided by eligible providers of adult education and literacy activities under section 231 of such Act (29 U.S.C. 3321), “(B) expenses for transportation required for or provided by any of the services or activities described in subparagraph (A), “(C) expenses for testing necessary for enrollment in, or certification in connection with, services or activities described in subparagraph (A), or “(D) expenses for the purchase of any computer software (as defined by section 197(e)(3)(B)), computer or peripheral equipment (as defined by section 168(i)(2)(B)), fiber optic cable related to computer use, internet access and related services, if such software, equipment, or services are to be used by the beneficiary for services or activities described in subparagraph (A) during any of the years the beneficiary is participating in or enrolled in any of the services or activities described in subparagraph (A).”. (c) Modification of rules relating to age restrictions and contributions.— (1) $10,000 ACCOUNT LIMIT AFTER AGE 30.— (A) IN GENERAL.—Subparagraph (E) of section 530(b)(1) of the Internal Revenue Code of 1986 is amended by inserting “in excess of $10,000” after “any balance to the credit of the designated beneficiary”. (B) CONTRIBUTION LIMIT.—Subparagraph (A) of section 530(b)(1) of such Code is amended by striking “or” at the end of clause (ii), by striking the period at the end of clause (iii) and inserting “, or”, and by adding at the end the following new clause: “(iv) in the case of a beneficiary who is over the age of 30, if such contribution would result in the balance of the account exceeding $10,000.”. (2) INCREASED AGE LIMIT FOR CONTRIBUTIONS.—Clause (ii) of section 530(b)(1)(A) of the Internal Revenue Code of 1986 is amended by striking “age 18” and inserting “age 70”.
- (3) INCREASED CONTRIBUTION LIMITATION FOR INDIVIDUALS OVER AGE 30.— (A) IN GENERAL.—Section 530(b)(1)(A)(iii) of the Internal Revenue Code of 1986 is amended by inserting “($4,000 in the case of an account the designated beneficiary of which has attained age of 30 before the end of the taxable year)” after “$2,000”.
- (B) CONFORMING AMENDMENT.—Section 4973(e)(1)(A) of such Code is amended by striking “$2,000” and inserting “the limitation applicable under section 530(b)(1)(A)(iii)”.
45BB. Employee educational skills and development expenses Read Opens in new tab
Summary AI
In section 45BB, a tax credit is offered for employers who make non-salary-based contributions to lifelong learning accounts for their employees. However, certain individuals like some owners and their relatives are excluded from being considered employees for this credit, though leased employees are included.
224. Coverdell lifelong learning account contributions Read Opens in new tab
Summary AI
In this section, it states that individuals who are 18 years or older and are designated beneficiaries of a Coverdell lifelong learning account can deduct the contributions made to the account during the tax year. However, they cannot deduct rollover contributions.