Idaho Employers Can Receive Tax Credit for Contributions to Their Employees' 529 Plans

Published on Friday, December 31, 2021

For parents, saving for a child's education is often a major priority and many choose to save for the future costs of education through tax-advantaged 529 plans. And as the cost of higher education rises, employers looking to attract and retain a talented workforce might consider offering contributions to their employees' 529 plans as an employment benefit. Not only can they help employees reach their education savings goals, but employers are also eligible for a 20 percent annual tax credit of up to $500 per employee when they contribute directly to an employee's Idaho College Savings Program account.

How it Works

For every dollar an employer contributes to an employee Ideal - Idaho College Savings Program account, they will receive a 20% credit of up to $500 per employee per year. This means an employer can contribute up to $2,500 per employee to receive the maximum amount of the credit for each employee account contribution.

For example, an employer that contributes $2,500 to four different employee Idaho College Savings Program accounts may receive a $2,000 credit ($500 maximum credit x 4 employees). Even though the maximum amount of the credit is reached at $2,500, an employer may contribute more or less than this amount. An employer can choose to contribute to any or all employee Idaho College Savings accounts.

Eligibility

This employer tax credit does not preclude any type of employer from participation. To receive the tax credit, employers must contribute directly to their employees' Idaho College Savings Program accounts via check, ACH, or money wire. Contributions to another state's 529 accounts are not eligible. In addition, contributions must be made to an employee's account. Contributions to an employee's spouse's accounts would not qualify for the tax credit. There is no enrollment period; employers may begin contributing at any time.

Compliance

Contributions to employee Idaho College Savings Program accounts must be reported as income on employees' W-2s and are subject to payroll taxes and withholding. Employers will report contributions on Form ID-529 Credit for Employer Contributions to Employee Idaho College Savings Accounts.

An ordering rule limits the ability to take this credit after 13 other allowable Idaho tax credits are claimed. The order of tax credits that must be taken before the credit for employer contributions to employee Idaho College Savings accounts is provided below:

1. Credit for income tax paid to other states
2. Credit for contributions to Idaho educational entities
3. Investment tax credit
4. Credit for contributions to Idaho Youth and Rehabilitation facilities
5. Credit for production equipment using post-consumer waste
6. Promoter-sponsored event credit
7. Credit for Idaho research activities
8. Broadband equipment investment credit
9. Small employer investment tax credit
10. Small employer real property improvement tax credit
11. Small employer new jobs tax credit
12. Credit for live organ donation expenses
13. Idaho child tax credit

This is a nonrefundable tax credit, but the amount of the credit disallowed in a tax year can be carried forward up to 5 years.

If you would like to explore this opportunity in more detail, please reach out to us.

Josh Fishburn, CPA