IRS Proposed Trump Account Rules Put New Compliance Tasks on Employers

The IRS and Treasury have proposed rules for employer contributions to Trump Accounts, a new savings account structure for eligible individuals under age 18. As of September 17, employers weighing the benefit for 2026 face a clearer tax framework, but also a compliance list that looks closer to a formal employee benefit program than a simple payroll add-on, according to Dykema’s review of the proposed regulations.

The headline tax break is straightforward: for 2026 and 2027, up to $2,500 of qualifying employer contributions may be excluded from an employee’s federal gross income. But the proposed rules also require a separate written program, account verification, annual employee statements, trustee coordination, and nondiscrimination testing that generally cannot favor highly compensated employees.

What Changed

Trump Accounts were established under Code Section 530A as a new form of traditional IRA for eligible individuals younger than 18. During the account beneficiary’s growth period, which generally ends on December 31 of the year the beneficiary turns 17, the accounts face special limits on distributions, annual contributions, investments, leverage, and fees. After that period, the account generally becomes subject to ordinary traditional IRA rules, Dykema said.

For employers, Code Section 128 creates the contribution framework. The proposed regulations describe how an employer may contribute to an employee’s Trump Account or to the Trump Account of an employee’s dependent. The exclusion is capped at $2,500 per employee in 2026 and 2027, with inflation adjustments after 2027. That is an important distinction: the limit applies per employee, not per child and not per account. It also includes qualifying contributions made by any employer of that employee.

The rules also permit some employee-funded contributions through a Code Section 125 cafeteria plan, but only for pre-tax salary reduction contributions to a dependent’s Trump Account. An employee may not use pre-tax salary reductions to contribute to the employee’s own Trump Account, according to Dykema and Accounting Today.

Who Is Affected

The proposed regulations primarily affect employers considering Trump Account contributions as a workplace benefit, along with payroll providers, benefits administrators, and financial institutions serving as trustees.

They also draw clear lines around who cannot participate. Self-employed individuals may not participate in a Section 128 employer contribution program for themselves. Dykema said that includes partners, sole proprietors, individuals serving solely as directors, and 2% S corporation shareholders. Those business owners may still establish a contribution program for common-law employees, but not for themselves.

Parents, guardians, and other authorized individuals can open a Trump Account for a child with a Social Security number through the IRS Individual Online Account by completing Form 4547, according to Valley News Live and Accounting Today. Those reports also said children who are U.S. citizens born between 2025 and 2028 may be eligible for a $1,000 pilot program contribution if the election is made on the form.

Separately, Dykema said the Labor Department’s Technical Release 2026-02 concluded that Trump Accounts and related employer contribution programs generally are not subject to Title I of ERISA. That may limit one layer of benefit-plan regulation, but it does not remove the tax and administrative rules in the IRS proposal.

The After-Tax Math

The federal income-tax benefit is meaningful, but it is not a full payroll-tax exemption. Dykema said qualifying Section 128 contributions are excluded from federal gross income and are not subject to federal income tax withholding. However, Section 128 does not provide a corresponding exclusion from FICA or FUTA.

Example: assume an employer contributes the full $2,500 in 2026 for an eligible employee’s dependent. Under the proposed rules, that $2,500 would be excluded from the employee’s federal gross income, so it would not be subject to federal income tax withholding. But the same $2,500 would still remain relevant for payroll taxes because there is no Section 128 exclusion from FICA or FUTA.

Reporting also matters. Dykema said employers must provide an annual written statement to employees by January 31 showing Section 128 contributions made in the prior calendar year. The 2026 General Instructions for Forms W-2 and W-3 provide that employers must report these contributions on Form W-2 using Box 12, Code TA.

What Employers May Need to Build

The proposed regulations would require a separate written Trump Account contribution program. Dykema said that document must address employee classes, contribution rules, whether salary reduction contributions are allowed through a cafeteria plan, procedures for employees to designate their own account or a dependent’s account, certification and reporting procedures, the plan year, and correction procedures for administrative failures.

Employers may rely on written employee certifications for some eligibility information, including whether the beneficiary is the employee or is expected to be the employee’s dependent for the year, the beneficiary’s date of birth, and the employee’s statement that the employee is not aware of facts making the beneficiary ineligible. But Dykema said an employer cannot rely only on that certification to confirm the receiving account is a valid Trump Account. The employer must use a method reasonably designed to verify the account through information from the trustee, payroll processor, or another service provider.

Another practical issue is trustee coordination. Employers generally may not restrict contributions to a single employer-selected trustee, Dykema said. Because an individual may have only one Trump Account, an employer may need to send contributions to different financial institutions. Each Section 128 contribution must also be identified in writing to the trustee when transmitted, and employers must send corrective notices if a previously identified contribution later turns out not to qualify.

What to Watch Next

The proposed regulations would apply to plan years beginning on or after final regulations are published, but taxpayers may rely on the proposal before final regulations are issued, Dykema said. A public hearing is scheduled for October 15, 2026. Valley News Live and Accounting Today reported that comments are due by September 25, and requests to speak at the hearing must be received by October 13.

Nondiscrimination rules are likely to be one of the most important design constraints for higher-paid workforces. Dykema said the program may not discriminate in favor of highly compensated employees or their dependents, and the average benefits provided to non-highly compensated employees generally must be at least 55% of the average benefits provided to highly compensated employees.

For employers considering a 2026 rollout, the near-term questions are operational: whether the benefit will be employer-funded, offered through a cafeteria plan for dependent accounts, or both; whether vendors can handle verification and W-2 coding; and whether the design can pass nondiscrimination testing. Households and business owners tracking the new account type may want to watch for final IRS rules, additional Treasury guidance, and any further Labor Department clarification before assuming the benefit will work like a standard payroll election.

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