Skills Investment Act of 2025
- Bill Number
- H.R. 464
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-01-15: Referred to the House Committee on Ways and Means.
- Last Updated
- 2026-01-10T06:59:16Z
AI-Generated Summary
Purpose of the Legislation
The Skills Investment Act of 2025 aims to promote lifelong learning and skill development by expanding and renaming Coverdell Education Savings Accounts into Coverdell Lifelong Learning Accounts. This encourages tax-advantaged savings for a broader range of educational and vocational activities beyond traditional K-12 schooling, supporting workers and adults in acquiring new skills throughout their careers.
Key Provisions
- Renaming and Continuity: Renames "Coverdell Education Savings Accounts" to "Coverdell Lifelong Learning Accounts" throughout the tax code. Existing accounts established before January 1, 2024, are automatically treated as the new type.
- Expanded Eligible Expenses: Allows tax-free withdrawals for "qualified educational or skill development expenses" after the beneficiary turns 16. These include:
- Training services, career and technical education, career services, youth workforce activities, and adult education/literacy programs (as defined under federal workforce and education laws like the Workforce Innovation and Opportunity Act).
- Related costs such as transportation, testing for enrollment/certification, and purchases of computer software, hardware, internet access, or fiber optic cables used for these activities.
- Modified Age and Contribution Rules:
- Contributions allowed until the beneficiary reaches age 70 (previously age 18).
- Annual contribution limit increases to $4,000 for beneficiaries over 30 (from $2,000 general limit).
- After age 30, total account balance capped at $10,000; no further contributions permitted beyond this.
- Beneficiary changes not allowed after age 30 unless the original beneficiary was under 30 at the time of change.
- Employer Tax Credit: Provides a 25% non-refundable tax credit (under new Section 45BB) for employers' nonelective contributions (not tied to salary reductions) to an employee's lifelong learning account. Excludes certain self-employed individuals, owners, and relatives; includes leased employees.
- Individual Deduction: Allows beneficiaries over age 18 to deduct their own contributions to the account (under new Section 224), but rollovers (transfers between accounts) do not qualify.
- Tax Treatment Changes for Distributions:
- Increases the penalty on non-qualified withdrawals (e.g., for non-eligible uses) from 10% to 20% of the amount withdrawn.
- Deducted contributions are fully taxable upon non-qualified distribution, while non-deducted portions follow standard tax rules (prorated between earnings and basis, like a traditional IRA).
Significant Changes to Existing Law
- Broadens Scope: Shifts from primarily K-12 and higher education expenses to include adult workforce training and skill-building, integrating references to laws like the Workforce Innovation and Opportunity Act and Carl D. Perkins Career and Technical Education Act.
- Relaxes Restrictions: Extends contribution age from 18 to 70 and introduces a higher limit and cap for older beneficiaries, enabling lifelong use rather than youth-focused savings.
- Adds Incentives: Introduces new employer credits and individual deductions not previously available for these accounts, while increasing penalties to discourage misuse.
- Conforming Updates: Makes technical amendments across the Internal Revenue Code (e.g., Sections 26, 72, 135, 408A, 529, 4973, 4975, 6693) to reflect the rename and expansions.
Potential Impacts
- On Citizens: Enhances access to tax-favored savings for ongoing education and skills training, potentially reducing financial barriers for career changes, upskilling, or adult learning. Older workers (over 30) gain limited but targeted benefits, though the $10,000 cap may restrict long-term accumulation.
- On Employers: Encourages contributions to employee development via a generous 25% credit, which could boost workforce training programs and retention without direct salary costs.
- On Government Agencies: The IRS will need to update forms, guidance, and enforcement for renamed accounts, expanded uses, and new credits/deductions. May lead to short-term revenue loss from incentives but long-term economic gains through a more skilled workforce. No direct impact on international relations.
- Broader Economy: Could support labor market adaptability in a changing job landscape, indirectly benefiting federal workforce programs by aligning tax policy with education initiatives.
Main Stakeholders Affected
- Individuals and Families: Primary beneficiaries, especially adults over 18 seeking skill development; enables personal savings and deductions.
- Employers: Businesses (including those with leased employees) gain tax credits for supporting employee growth; excludes small owners and self-employed.
- Educational and Training Providers: Institutions offering eligible programs (e.g., under federal workforce acts) may see increased enrollment from funded participants.
- Government: U.S. Department of the Treasury and IRS handle implementation; Congress and workforce agencies (e.g., Department of Labor) benefit from aligned policies.
- Financial Institutions: Banks and custodians managing these accounts must adapt to new rules and expanded uses.
Notable Legal, Constitutional, or Political Implications
- Legal: Integrates tax code with existing federal education/workforce statutes, potentially requiring IRS regulations to define "qualified" expenses clearly and prevent abuse. The increased penalty and tax treatment for deductions ensure fiscal accountability but may complicate distribution calculations.
- Constitutional: No direct challenges; aligns with Congress's taxing and spending powers under Article I, promoting general welfare through education incentives.
- Political: Represents bipartisan support (introduced by members from both parties) for workforce development amid economic shifts like automation. Could spark debates on tax equity (benefits skew toward those able to save/contribute) and revenue costs, estimated in billions over time, influencing future budget discussions. Effective dates (mostly January 1, 2026) allow preparation but delay immediate benefits.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Rep. Thompson, Glenn [R-PA-15]
Cosponsors (6)
Rep. Bonamici, Suzanne [D-OR-1], Rep. Fitzpatrick, Brian K. [R-PA-1], Rep. Schneider, Bradley Scott [D-IL-10], Rep. McDonald Rivet, Kristen [D-MI-8], Rep. Bost, Mike [R-IL-12], Rep. Vindman, Eugene Simon [D-VA-7]
Recent Actions
- 2025-01-15: Referred to the House Committee on Ways and Means.
- 2025-01-15: Introduced in House
- 2025-01-15: Sponsor introductory remarks on measure. (CR H159)
- 2025-01-15: Introduced in House
Bill Versions
- Skills Investment Act of 2025 — issued 2025-01-15 — PDF (16 pages)