Substitute House Bill No. 5296 proposes a personal income tax deduction for National Guard members receiving state active duty pay, effective July 1, 2026, and applicable to taxable years starting January 1, 2026. The bill modifies existing tax law by repealing subparagraph (B) of subdivision (20) of subsection (a) of section 12-701 and replacing it with new provisions that allow National Guard state active duty pay to be subtracted from gross income, thereby exempting it from state income tax. This legislative change aims to provide financial relief to National Guard members and recognizes their service.

In addition to the tax deduction for National Guard pay, the bill introduces various amendments to the current tax code, including provisions for first-time homebuyer savings accounts, which allow deductions for contributions and interest accrued, with specific limits based on filing status. The bill also establishes income thresholds for deductions related to withdrawals from these accounts, ensuring that eligible costs can be covered for account holders with federal adjusted gross incomes below specified limits. Overall, the bill aims to clarify the treatment of various income sources and provide tax relief to specific groups, with an estimated annual revenue loss of approximately $40,000 for the General Fund starting in FY 27.