Written By: Mark S. Gallegos, CPA, MST | Tax & Advisory Partner, Porte Brown LLC
New guidance gives employers a roadmap for Trump Account contribution programs, including the $2,500 annual employer contribution, cafeteria plan salary reductions, nondiscrimination testing and payroll reporting.
On August 11, 2026, the Treasury Department and IRS issued proposed regulations under Internal Revenue Code Section 128 addressing employer contributions to Trump Accounts. The regulations also provide significant new guidance on the nondiscrimination rules applicable to both Trump Account contribution programs and dependent care assistance programs under Section 129.
The headline is that employers may contribute up to $2,500 annually for employees or their dependents. But the regulations go considerably further, providing an operating framework for adding Trump Accounts to a benefit program: written plan requirements, payroll administration, trustee coordination, nondiscrimination testing, reporting and corrections.
Comments are due September 25, 2026, and a public hearing is scheduled for October 15, 2026. Importantly, Treasury provides that taxpayers may rely on the proposed regulations before final regulations are issued, so employers can begin designing programs now.
Qualifying employer contributions are excluded from the employee's federal gross income up to $2,500 per year, indexed for inflation after 2027.
The limitation applies per employee rather than per dependent. An employee with three children does not have three separate $2,500 limits, but rather a single annual exclusion that may be allocated among eligible dependents' accounts.
The limit also applies across employers. If an employee works for two unrelated employers and each contributes $2,500, neither plan necessarily fails, but the employee generally must include the $2,500 excess in income.
There is a planning opportunity for married couples. Each spouse is treated as a separate employee, so two spouses may each receive a $2,500 contribution and direct the combined $5,000 to the same child's account. The proposed regulations confirm this applies even when both spouses work for the same employer.
Qualifying Section 128 contributions are excluded from federal gross income and generally are not subject to federal income tax withholding. However, there is no corresponding exclusion from wages for FICA or FUTA purposes.
Describing the benefit simply as a "$2,500 tax-free employer contribution" is therefore incomplete. A more accurate description is:
Employer contributions also count toward the general $5,000 annual Trump Account limit under Section 530A, although the government's separate $1,000 pilot contribution does not. An employer is not responsible for monitoring that overall limit when parents or others are also contributing.
Perhaps the most significant feature of the regulations is the ability to integrate Trump Account contributions into a Section 125 cafeteria plan.
An employer may permit a pre-tax salary reduction contribution to the Trump Account of an employee's dependent. The same treatment is not available for the employee's own account, which Treasury views as prohibited deferred compensation. The cafeteria plan must specifically describe the benefit and permit employees to prospectively change or revoke elections at least monthly.
This feature could drive broad adoption because the employer is redirecting existing compensation rather than funding a new benefit. Treasury identifies it as likely the most significant long-run aspect of Section 128.
A Trump Account contribution program is not simply another payroll election. It must be established under a separate written plan specifying eligible classes of employees, the contribution formula, whether salary reduction is permitted, procedures for designating the applicable account, certification and notice procedures, the plan year and correction procedures.
Just as importantly, the employer must operate the program in accordance with that document. Employers targeting a 2026 or 2027 implementation should involve benefits advisers and plan-document providers, not payroll alone.
Section 128 uses the common-law employee standard and excludes self-employed individuals from participating in an employer's program. This includes partners, sole proprietors, individuals serving solely as directors and 2-percent shareholders of S corporations.
They may still establish Trump Accounts independently and maintain a program for their employees but generally may not receive the Section 128 benefit themselves. For closely held pass-through businesses, this may be the most significant limitation in the new rules.
An employer generally cannot require employees to maintain Trump Accounts with a particular financial institution in order to receive contributions.
Because each beneficiary may maintain only one Trump Account, restricting trustees could prevent an otherwise eligible employee from receiving a contribution merely because the child's account was established elsewhere. Operationally, this may require payroll departments and third-party administrators to coordinate payments among multiple providers, and it is worth raising with a payroll vendor early.
Programs must satisfy three tests. Contributions and benefits cannot be offered on more favorable terms to highly compensated employees. The eligibility classification must be reasonable and based on bona fide business criteria such as job category, salaried versus hourly status or geographic location. And average benefits received by non-highly compensated employees must equal at least 55 percent of the average received by highly compensated employees, or HCEs.
One particularly favorable clarification concerns that last calculation. The denominator generally includes only employees who actually receive benefits greater than zero, not every employee who could have participated. That is especially helpful for voluntary salary reduction programs, where limited participation would otherwise be fatal.
Employers matching the government's $1,000 pilot contribution for children born in 2025 through 2028 receive a safe harbor. If the match is available on the same terms to all applicable employees, it may be disregarded for the contributions-and-benefits and average-benefits tests, though the eligibility requirement still applies.
A program that fails the average-benefits test may generally cure the failure by including an appropriate portion of HCE benefits in their taxable income by the Form W-2 furnishing deadline. A failure does not cost non-highly compensated employees the exclusion.
Section 128 contributions are reported on Form W-2 in Box 12 using Code TA. Payroll systems will need to distinguish amounts excluded from federal taxable income that remain subject to employment taxes.
Employers may rely on employee certifications regarding the beneficiary's relationship, date of birth and eligibility. However, an employer cannot rely exclusively on an employee's statement that the receiving account is valid and must use a reasonable verification process involving the trustee or another service provider. If a contribution is later determined not to qualify, the employer must notify the trustee, and notice within 21 calendar days is deemed reasonable.
Employers should not overlook the Section 129 portion, which clarifies the increased $7,500 exclusion, eligibility testing, the 25-percent owner concentration limitation, the 55-percent average-benefits test and correction procedures. The two frameworks are now largely parallel. For employers already maintaining dependent care programs, this may prove just as important as the Trump Account rules and is a good reason to re-run testing.
Three designs are emerging: a $1,000 match of the federal pilot contribution, a larger employer-funded contribution up to $2,500, or a Section 125 salary reduction feature. These may be combined within the annual limit.
Before implementation, employers should coordinate with payroll providers, benefits advisers and tax professionals on plan documents, testing, trustee coordination, employee communications and W-2 reporting.
The larger takeaway is that these regulations move Trump Accounts beyond an individual savings concept and toward a genuine employer-sponsored benefit platform. For businesses evaluating their offerings, this is a development worth planning for now.
This article is provided for general informational purposes and does not constitute tax, legal or accounting advice. Please contact your Porte Brown adviser to discuss how these rules apply to your specific circumstances.
Mark S. Gallegos, CPA, MST, is a Tax & Advisory Partner at Porte Brown LLC. He can be reached at mgallegos@portebrown.com or 847-956-1040.
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