Skill Savings Account Act of 2026
- Sponsor
- Rep. Thompson, Glenn [R-PA-15]
- Committees
- Ways and Means Committee (primary)
- Last action
- May 7, 2026
Bottom line
The bill creates a new tax-preferred savings vehicle to encourage workforce development and skill acquisition by allowing individuals and employers to save for educational expenses tax-free.
What it actually does
This bill amends the Internal Revenue Code of 1986 to establish Skill Savings Accounts (SSAs), a new tax-advantaged savings vehicle. It allows eligible employees and their employers to contribute pre-tax dollars to these accounts, with annual limits of $10,000 for employee contributions and $5,250 for employer contributions (coordinated with existing educational assistance exclusions). Funds withdrawn from SSAs are tax-free if used for qualified education expenses, which are defined by reference to existing tax law.
Proponents argue
Supporters would argue that SSAs incentivize continuous learning and upskilling, addressing workforce shortages and enhancing individual career mobility. They would highlight the benefit of tax-free growth and distributions for education, making skill development more accessible and affordable for a broader range of workers.
Opponents contend
Critics might contend that SSAs primarily benefit higher-income individuals or those already employed in sectors with employer-sponsored education benefits, potentially exacerbating educational inequality. Concerns could also be raised about the potential federal revenue loss from the tax exclusions and the administrative complexity of establishing and managing a new savings vehicle.
The bill is concise and relatively easy to read, allowing for a quick understanding of its core provisions.
Section 2(a), inserting new Section 139M(a) into the Internal Revenue Code of 1986.
Creation of Skill Savings Accounts and Tax-Exempt Contributions
This provision establishes Skill Savings Accounts (SSAs) as a new type of tax-advantaged savings vehicle. It specifies that money contributed to an SSA by an eligible employee or their employer is not counted as gross income for tax purposes. This means contributions are made with pre-tax dollars, reducing the employee's taxable income.
Supporters argue
Supporters argue this provision directly incentivizes both individuals and employers to invest in workforce development by making contributions tax-free, thereby lowering the effective cost of skill acquisition and promoting continuous learning.
Critics contend
Critics might argue that the tax exclusion primarily benefits those with higher incomes who can afford to save or whose employers already offer educational benefits, potentially creating an uneven playing field in access to these tax advantages.
Tradeoffs
This provision balances the goal of encouraging skill development and workforce investment with the potential for federal revenue loss from the tax exclusion.
Section 2(a), inserting new Section 139M(a)(2) and 139M(e) into the Internal Revenue Code of 1986.
Tax-Free Use of SSA Funds for Qualified Education Expenses
This provision ensures that any money withdrawn from a Skill Savings Account is not subject to income tax, provided it is used exclusively to pay for "qualified education expenses." These expenses are defined by reference to existing tax law (Section 127(c)(1)), generally covering tuition, fees, books, supplies, and equipment for job-related education.
Section 2(a), inserting new Section 139M(c) into the Internal Revenue Code of 1986.
Annual Contribution Limits and Coordination with Existing Educational Assistance Programs
This section sets annual limits on contributions to SSAs. Employer contributions are capped at $5,250 per employee, and this amount is coordinated with existing tax exclusions for educational assistance under Section 127(a)(1) of the IRC. Employee contributions are capped at $10,000 per taxable year, independent of employer contributions.
Section 2(a), inserting new Section 139M(f) into the Internal Revenue Code of 1986.
Taxation and Penalty for Non-Educational Withdrawals
This provision specifies that if funds are withdrawn from an SSA and not used for qualified education expenses, the withdrawn amount will be included in the account beneficiary's gross income (i.e., taxed). Additionally, if the beneficiary is under 65 years old, an extra 20% penalty tax will be applied to the non-qualified distribution. Exceptions exist for excess contributions returned before the tax filing deadline.
Section 2(a), inserting new Section 139M(d) into the Internal Revenue Code of 1986.
Structural Requirements for Skill Savings Accounts
This section outlines the structural and administrative requirements for a trust to qualify as a Skill Savings Account. Key rules include that only cash contributions are accepted, the trustee must be a bank, insurance company, or approved entity, assets cannot be commingled (except in common funds), no investment in life insurance, and the individual's interest in the account balance must be nonforfeitable.
The bill coordinates employer contribution limits for SSAs with the existing exclusion for educational assistance programs under Section 127(a)(1) of the IRC. Specifically, the $5,250 employer contribution limit for SSAs is reduced by any amount already excluded under Section 127. Additionally, "qualified education expenses" for SSAs are defined by reference to "educational assistance" as defined in Section 127(c)(1).
Section 139M(c)(1)(B) and 139M(e)
Why it matters:This is standard legislative practice to avoid redundancy and integrate new provisions into existing tax frameworks, ensuring consistency across educational tax benefits.
Case for: Supporters would argue this ensures consistency across educational tax benefits and prevents 'double-dipping,' maintaining fiscal responsibility and preventing unintended expansions of tax benefits.
Case against: Critics might argue it adds complexity for employers and employees who need to track multiple educational benefits, potentially limiting the perceived simplicity and uptake of SSAs, especially for smaller businesses.
Estimated impact: Ensures that the total tax-free educational assistance an employee receives from an employer does not exceed $5,250 annually, preventing an unintended expansion of tax benefits beyond the stated intent.
The bill explicitly amends Section 4973 of the Internal Revenue Code to apply the 6% excise tax on excess contributions to Skill Savings Accounts. It defines "excess contribution" for SSAs as the aggregate amount contributed that is not excludable from gross income, plus any uncorrected excess from the prior year, minus distributions and the maximum excludable amount for the current year.
Section 2(c), amending Section 4973 of the IRC.
Why it matters:This is standard legislative practice for integrating new tax-advantaged accounts into existing penalty structures to ensure compliance and prevent abuse of the tax benefits.
Case for: Supporters would argue this ensures proper enforcement of contribution limits and prevents abuse of the tax-advantaged status of SSAs, maintaining the integrity of the program and protecting federal revenue.
Case against: Critics might argue that the additional layer of complexity and potential for penalties could deter some individuals or small businesses from utilizing SSAs due to fear of inadvertently incurring fines, even for minor errors.
Estimated impact: Provides a strong disincentive for over-contributing to SSAs, ensuring that the tax benefits are only applied within the statutory limits and that the program remains fiscally responsible.