Overview of the Utah 529 Plan Income Tax Credit:
Utah is one of just a few states that provides a tax credit instead of a tax deduction for contributions to its Section 529 plan. Currently, the tax credit offered equals 5% of the amount contributed to qualifying plans.The amount subject to the 5% credit is limited to $1,740 per beneficiary, or $87. If the taxpayer is filing jointly, this limit is raised to $3,480, yielding a maximum possible credit of $174 per couple, per beneficiary.
Value of the Utah 529 Plan Tax Credit:
One of the most confusing things about the Utah 529 tax credit is that the credit amount is applied directly against the taxes a resident owes. This stands in contrast to the typical "deduction from income" that most states offer for funding a Section 529 plan. When compared side-by-side, a tax credit of $250 is far more valuable to a taxpayer than a tax deduction for the same amount.In short, a $1,740 contribution to a Utah 529 plan essentially puts $87 right back in the pocket of a taxpayer. That's equivalent to an instant 5% return on a parent or grandparent's investment, simply for funding a Utah 529 plan.
With this in mind, most Utah parents will have an incentive to choose Utah's 529 plan over other states' Section 529 plan, a Coverdell Education Savings Account (ESA), or a UTMA Custodial account over the Utah 529 plan.
Claiming the Utah 529 Income Tax Credit:
The Utah 529 Plan income tax credit can be claimed for the prior year on funds contributed electronically or postmarked before January 1st of the following year.Claiming the Utah 529 tax credit requires completion of Utah state form TC-40A.
