Employer Contributions to Trump Accounts: Proposed Regulations Tell Employers How

Sharon Kreider, CPA

When the One Big Beautiful Bill Act (OBBBA) created Trump accounts under §530A, it also added §128, allowing an employer to contribute up to $2,500 per year, excludable from the employee’s income, to the Trump account of an employee or an employee’s dependent. What the statute did not explain was how an employer actually sets up a “Trump account contribution program.” Proposed regulations issued August 11 (Prop. Reg. §§1.128-1 through 1.129-2) answer that question.

Setting Up a Section 128 Program

A §128 program must be a separate written plan for the exclusive benefit of employees (Prop. Reg. §1.128-2(b)). The plan must state the eligible classes of employees, the contribution rules (including whether salary reduction through a §125 cafeteria plan is allowed), the procedures for designating the recipient account, the certification, notice, and reporting procedures, the plan year, and the procedures for correcting administrative failures. The employer must then follow it (Prop. Reg. §1.128-2(c)), give eligible employees reasonable notice of the program, and furnish an annual statement of contributions, which is satisfied by reporting the amount in box 12 of Form W-2 with new code TA.

Paperwork is light on the front end. The employer may rely on a written employee certification that the beneficiary is the employee or is expected to be the employee’s dependent, the beneficiary’s date of birth, and no known facts make the beneficiary ineligible (contributions are permitted only during the beneficiary’s growth period, which ends December 31 of the year the child turns 17). But self-certification is not enough to prove the receiving account is a valid Trump account; the employer must verify that through the trustee, payroll processor, or another service provider (Prop. Reg. §1.128-2(d)(4)). Each contribution must be affirmatively identified to the trustee as a §128 contribution when made, and if the employer later determines an amount was not a §128 contribution, it must send the trustee a corrective notice, with 21 days deemed reasonable (Prop. Reg. §1.128-2(h)). One design shortcut is off the table: the employer may not limit contributions to Trump accounts held at a particular trustee or trustees, and an arrangement that does is not a §128 program at all (Prop. Reg. §1.128-2(d)(6)), because only one Trump account can exist for a beneficiary and a trustee restriction would lock out any employee whose child banks elsewhere.

Partners and S Corp Shareholders Need Not Apply

The proposed regulations adopt the common-law definition of employee. Partners, sole proprietors, 2-percent S corporation shareholders as defined in §1372(b), and directors acting solely as directors are self-employed individuals and cannot participate in a §128 program in their capacity as self-employed individuals, although their businesses can sponsor a program for the rank and file (Prop. Reg. §1.128-1(b)). Expect this to be the first question from closely held business clients, and note the contrast with §129, where §129(e)(3) expressly brings the self-employed in.

One $2,500 Exclusion Per Employee, Not Per Child

The $2,500 exclusion (indexed after 2027) applies per employee, not per dependent, and aggregates across all employers. An employee with three children still has one $2,500 exclusion, although the program may let the employee allocate it among the children’s accounts. Contributions above the §128 limit, or contributions that do not qualify under a §128 program, are not excludable from gross income. Even qualifying §128 contributions remain FICA and FUTA wages; there is no employment tax exclusion, although the amounts are not subject to federal income tax withholding. Employees cannot double dip. An employee whose two unrelated employers each contribute $2,500 must include the $2,500 excess in income, though neither program is disqualified.

Salary Reduction for a Child's Account Only

A cafeteria plan may allow pre-tax salary reduction contributions to a dependent’s Trump account, but not to the employee’s own account, which would be prohibited deferred compensation under §125(d)(2)(A). The cafeteria plan must specifically describe the benefit and allow prospective election changes at least monthly. The preamble predicts that this pre-tax route, not the employer-paid contribution, will be the provision’s most important feature over time, competitive with §529 plans for family savings.

Nondiscrimination, with a Match Safe Harbor

Borrowing from the rules in §129, a program faces three tests. The contribution and benefits test prohibits terms that favor HCEs; offering contributions on the same terms to all eligible employees satisfies the test (Prop. Reg. §1.128-3(a)). The program also must use a reasonable, objective eligibility classification that passes either a facts-and-circumstances test or a numerical safe harbor modeled on §1.410(b)-4 (a 90% ratio threshold, reduced as the workforce skews toward non-HCEs), and it must satisfy the 55% average benefits test, computed by counting only employees who actually received benefits.

That last test turns on utilization: a program open to everyone on identical terms can still fail if HCEs elect the full $2,500 through salary reduction while participating NHCEs elect little. HCE carries its §414(q) meaning: a more-than-5% owner in the current or preceding year, or an employee whose preceding year compensation exceeded the indexed threshold, $160,000 of 2025 compensation for 2026 testing (Notice 2025-67), narrowed to the top-paid 20% only if the employer elects. Employees under 21, employees with less than a year of service, and certain collectively bargained employees are disregarded. Employers matching the government’s $1,000 pilot contribution for children born 2025 through 2028 get a safe harbor: same-terms pilot matches are disregarded for the contributions-and-benefits and 55% average-benefits tests, but not the eligibility classification test (Prop. Reg. §1.128-3(d)). A nondiscrimination failure generally causes HCEs, but not NHCEs, to lose the §128 exclusion, and an average benefits failure can be cured by including the excess in HCE income by the Form W-2 deadline.

DCAP Nondiscrimination Rules

The same package delivers the first comprehensive nondiscrimination regulations for §129 dependent care assistance programs, an area that has run on statute and folklore since 1981. Prop. Reg. §1.129-2 mirrors the §128 framework, restates the 25% owner concentration limit, and adds a remediation rule for both average benefits and owner concentration failures through income inclusion by the W-2 deadline. Clients with existing DCAPs should revisit their testing methodology now, whether or not they ever touch a Trump account.

Tax Practitioner Planning

So how hard is setup? For an employer willing to offer the benefit to all employees on the same terms, this is a light lift: a short written plan, a payroll code, an account validation step, and W-2 code TA. The pilot match design is the easiest entry point because of the safe harbor. Complexity arrives with limited eligibility classes (testing), cafeteria plan salary reductions (a plan amendment and monthly election machinery), and corrective notices when contributions misfire. One practical brake: the mandatory account validation step assumes data connections among employers, payroll providers, and trustees that do not yet exist at scale, and the preamble concedes that Treasury and the IRS are still exploring a secure electronic validation method. Launch dates will depend as much on payroll vendor readiness as on plan drafting, and the IRS’s own regulatory analysis expects adoption to concentrate among large employers, with small employers working through third party administrators. Employers may rely on the proposed regulations for plan years beginning before the final rules publish, so programs can launch now. Comments are due September 25, 2026, and a public hearing is set for October 15, 2026.

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