Tax Information
- $5,000 single filers
- $10,000 married, filing jointly when both spouses contribute
The Alabama tax deadline is December 31.
What is the deadline to contribute to take advantage of the Alabama state income tax deduction?
Contributions may be completed online or mailed. Contributions that are mailed must be postmarked to CollegeCounts no later than December 31, 2023 to be eligible for a 2023 deduction. Electronic contributions must be completed by 11:59pm Central Time on December 31 to be considered a 2023 contribution.
Any contribution made after 3:00pm Central Time on Friday, December 29th but before 11:59pm Central Time on Sunday, December 31st will post to your account on Tuesday, January 2, 2024, but will be coded a “Prior Year Contribution” and generally should be eligible for the 2023 state income tax deduction.
Contributions addressed to CollegeCounts and postmarked in 2023 but received by Friday, January 12, 2024, will be invested on the day the check is received – and will be coded as a “Prior Year Contribution” and should be considered a 2023 contribution for tax deduction purposes.
2023 Contributions for Alabama state income tax purposes: 2023 contribution information is included on your December 31, 2023 account statement (located below the pie chart on your statement). Contributions are reported on a cash basis so if you made any contributions online at the end of December 2023 or by mail with a December 2023 postmark you will want to see if they were included in the transaction activity on your December 31st statement or if we received them and posted them in January 2024 as a “Prior Year” contribution. A 2023 postmarked contribution invested in January 2024 as a “Prior Year” contribution should be eligible for the 2023 Alabama tax deduction. Likewise, make sure to review your 1st quarter 2023 account statement for any “Prior Year” contributions for 2022 that you would need to adjust for.
PLEASE REVIEW to your records to match your total contributions. The year to date contribution amount we report will also include contributions to your account by others (those generally would be deductible by the contributor versus you).
1Individuals who file an Alabama state income tax return are eligible to deduct for Alabama state income tax purposes up to $5,000 per tax year ($10,000 for married taxpayers filing jointly if both actually contribute) for total combined contributions to the Plan and other State of Alabama 529 programs. The contributions made to such qualifying plans are deductible on the tax return of the contributing taxpayer for the tax year in which the contributions are made. In the event of a Nonqualified Withdrawal from the Plan, for Alabama state income tax purposes, an amount must be added back to the income of the contributing taxpayer in an amount of the Nonqualified Withdrawal plus ten (10%) percent of such amount withdrawn. Such amount will be added back to the income of the contributing taxpayer in the tax year that the Nonqualified Withdrawal was distributed. Please consult with your tax professional.
If you made larger gifts (i.e.: typically over $16,000), don’t forget to mention them to your tax professional so they can determine if any special IRS filings are required. If you took advantage of the special five-year, front-loading election allowed for 529 plans, please notify your tax professional so they can prepare any necessary Gift Tax Return. The due date for filing is April 15.
If you will be receiving a federal or state tax refund, consider investing it into your CollegeCounts 529 account. Your federal and Alabama tax forms provide a section allowing you to deposit all or part of your refund directly into a bank account.
Here is the information you will need when completing the “Refund – Direct Deposit” section of your federal and/or Alabama tax returns:
| Routing Number: | 104910795 |
| Type of Account: | Savings |
| Account Number: | 3529 followed by your CollegeCounts 9- or 10-digit account number |
IRS Publication 970 defines qualified education expenses as follows: These are expenses related to enrollment or attendance at an eligible educational institution. As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time.
- The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible educational institution.
- Tuition and fees.
- Books, supplies, and equipment.
- Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution.
- Expenses for room and board must be incurred by students who are enrolled at least half-time. The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts:
- The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
- The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
Note: You may need to contact the eligible educational institution for qualified room and board costs.
- The purchase of computer or peripheral equipment, computer software, or internet access and related services, if it is to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution. (This does not include expenses for computer software for sports, games, or hobbies unless the software is predominately educational in nature.)
- The expenses for fees, books, supplies, and equipment required for the designated beneficiary’s participation in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act.
- No more than $10,000 paid as principal or interest on qualified student loans of the designated beneficiary or the designated beneficiary’s sibling. A sibling includes a brother, sister, stepbrother, or stepsister. For purposes of the $10,000 limitation, amounts treated as a qualified higher education expense for the loans of a sibling are taken into account for the sibling and not for the designated beneficiary.
- Up to a maximum of $10,000 per year in tuition expenses, incurred by a Designated Beneficiary, in connection with enrollment or attendance at an eligible elementary or secondary public, private or religious school.
Half-time student. A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled.
The account owner will receive the 1099-Q if the check was payable to the account owner.
The beneficiary receives the 1099-Q for any withdrawals paid to the beneficiary or to the school.
We recommend that you keep the receipts and documentation of your college expenses with your tax paperwork in the event there are any questions about the amount you have withdrawn. You should discuss any tax reporting requirements with your tax professional.
1Individuals who file an Alabama state income tax return are eligible to deduct for Alabama state income tax purposes up to $5,000 per tax year ($10,000 for married taxpayers filing jointly if both actually contribute) for total combined contributions to the Plan and other State of Alabama 529 programs. The contributions made to such qualifying plans are deductible on the tax return of the contributing taxpayer for the tax year in which the contributions are made. In the event of a Nonqualified Withdrawal from the Plan, for Alabama state income tax purposes, an amount must be added back to the income of the contributing taxpayer in an amount of the Nonqualified Withdrawal plus ten (10%) percent of such amount withdrawn. Such amount will be added back to the income of the contributing taxpayer in the tax year that the Nonqualified Withdrawal was distributed. Please consult with your tax professional.
If you receive a refund from an Eligible Educational Institution for Qualified Higher Education Expenses that were paid from money withdrawn from your Account, you could:
- Other Qualified Higher Education Expenses – you can use the funds to pay other Qualified Higher Education Expenses incurred by that Beneficiary in the same calendar year.
- Recontribution of Refunded Amounts – if a student receives a refund of Qualified Higher Education Expenses that were treated as paid by a 529 distribution, the student can recontribute these amounts into any 529 account for which they are the beneficiary within 60 days after the date of the refund. The amount recontributed cannot exceed the amount of the refund.
You should consult with your financial, tax or other advisor regarding your individual situation.
The tax benefits afforded to 529 plans must be coordinated with other programs designed to provide tax benefits for meeting higher education expenses to avoid the duplication of such benefits. You should consult with a qualified tax advisor with respect to the various education benefits.
Taxable Portion of a Distribution
The part of a distribution representing the amount paid or contributed to a qualified tuition program doesn’t have to be included as income. This is a return of the investment in the plan. The designated beneficiary generally doesn’t have to include any earnings distributed from a qualified tuition program as income if the total distribution is less than or equal to adjusted qualified education expenses. To determine if your total distributions for the year are greater or less than the amount of qualified education expenses, you must compare the total of all qualified tuition program distributions for the tax year to the adjusted qualified education expenses. Adjusted qualified education expenses are the total qualified education expenses reduced by any tax-free educational assistance. Tax-free educational assistance includes: the tax-free portion of scholarships and fellowship grants; veterans’ educational assistance; the tax-free portion of Pell grants; employer-provided educational assistance; and any other tax-free payments (other than gifts or inheritances) received as educational assistance.
Coordination with American Opportunity and Lifetime Learning Credits
An American Opportunity or Lifetime Learning Credit can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program if the same expenses are not used for both benefits. This means that after the beneficiary reduces qualified education expenses using tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit.
Coordination with Coverdell Education Savings Account Distributions
If a designated beneficiary receives distributions from both a qualified tuition program and a Coverdell Education Savings Account in the same year and the total of these distributions are more than the beneficiary’s adjusted qualified higher education expenses, the expenses must be allocated between the distributions. For purposes of this allocation, disregard any qualified elementary and secondary education expenses.
Coordination with Tuition and Fees Deduction
A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program if the same expenses are not used for both benefits.
Resources
Internal Revenue Service
- Internal Revenue Service
- IRS Publication 970
- IRS Education Credits (American Opportunity Tax Credit & Lifetime Learning Credit)
Alabama Department of Revenue
Internal Revenue Service Circular 230 Notice
Although our professionals provide information about CollegeCounts 529, they cannot provide tax advice. The information, including all linked pages and documents, on the CollegeCounts 529 websites is not intended to be tax advice and cannot be used to avoid any tax penalties. Union Bank & Trust, and its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion, including all linked pages and documents, contained on the CollegeCounts 529 websites is not intended or written to be used, and cannot be used, for the purpose of: 1) avoiding any tax penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions; or 2) promoting, marketing, or recommending to any person any transaction or matter addressed herein. You should consult your own tax advisor.