IRS Issues Proposed Regulations on Employer Contributions to Trump Accounts and Nondiscrimination Rules for Dependent Care Assistance Programs

On August 11, 2026, the Internal Revenue Service and the Department of the Treasury published a notice of proposed rulemaking providing guidance on employer contributions to Trump Accounts under Internal Revenue Code Section 128, as well as updated nondiscrimination rules for dependent care assistance programs under Section 129. The proposed regulations address the written plan, operational, reporting, and nondiscrimination requirements that employers must satisfy in order for contributions to be excluded from employees’ income, and would be effective for plan years beginning on or after the date final regulations are published. Employers that have been awaiting this guidance before launching a Trump Account Contribution Program (“TACP”) now have a detailed roadmap and an opportunity to shape the final rules through the comment process.

Background

The One Big Beautiful Bill Act (“OBBBA”), enacted in 2025, established Trump Accounts, which are a type of traditional IRA for eligible individuals (generally those under age 18). Trump Accounts can be funded by a variety of sources, including employers. Code Section 128 allows employers to make contributions of up to $2,500 per employee per year (indexed for inflation after 2027) to the Trump Account of an eligible individual – either the employee or the employee’s dependent—excludable from the employee’s gross income through a qualified Trump Account Contribution Program (“TACP”).

This proposed rulemaking is the latest in a series of developments shaping the employer landscape for Trump Accounts. In July 2026, the Department of Labor issued Technical Release 2026-02 clarifying that Trump Accounts and TACPs generally will not constitute employee pension benefit plans under Title I of ERISA (discussed in our earlier Legal Update, DOL Guidance Clarifies ERISA Status of Trump Accounts). We also explored design and implementation considerations in Practical Considerations for Employers Implementing Trump Account Contributions as a Retention and Recruitment Tool. The proposed regulations now supply employers with a more detailed compliance framework.

Key Features of the Proposed Regulations

Written Plan and Operational Requirements

A TACP must be maintained under a separate written plan for the exclusive benefit of employees (and their eligible dependents). The plan document must specify, among other things:

• Eligible employee classifications;
• Contribution formulas and whether employees may elect to contribute to the TACP account through a salary reduction under a Section 125 cafeteria plan;
• Account designation, certification, and verification procedures;
• Notice, reporting, and correction procedures; and
• The plan year.

The employer must operate the TACP in accordance with its written terms. Contributions may be made only to a Trump Account whose beneficiary is in his or her “growth period,” which starts when the Trump Account is established and ends on December 31 of the calendar year in which the beneficiary turns 17. For purposes of an employer-sponsored TACP, the beneficiary may be either the employee or the employee’s dependent.

Contribution Limits and Exclusions

Section 128 contributions are excludable from gross income up to $2,500 per employee per year (across all employers), but count toward the overall $5,000 annual Trump Account contribution cap. This limit applies per employee, not per dependent. Amounts above the limit are generally includible in income and wages. Although Section 128 contributions that qualify for the income exclusion are not subject to federal income tax withholding, they remain subject to employment taxes. Accordingly, employers should account for the resulting employment tax cost when budgeting for TACP contributions.

Notably, the proposed regulations define “employee” for Section 128 purposes as excluding self-employed individuals such as partners or sole proprietors, which is narrower than the Section 129 definition of “employee.”

Salary Reduction and Cafeteria Plan Integration

An employer can allow employees to make a pre-tax contribution to a TACP under a Section 125 cafeteria plan, but only for contributions to an employee’s dependent’s Trump Account, not the employee’s own Trump Account. The cafeteria plan must specifically describe the Trump Account benefit and permit participants to change or revoke their elections prospectively, on at least a monthly basis.

Verification and Trustee Communications

Employers may rely on employee certifications regarding the Trump Account beneficiary’s  relationship to the employee, dependent status, and date of birth, unless the employer has actual knowledge of inaccuracy. Conversely, employers may not rely solely on employee certifications to verify that the destination account is a valid Trump Account; instead, the employer must implement a method reasonably designed to verify the account through information provided by a trustee, a payroll processor, or another service provider. Employers may not skirt this issue by limiting TACPs to Trump Accounts held by a particular trustee.

At the time of contribution, the employer must identify the amount in writing to the trustee as a Section 128 contribution. If a contribution is later determined not to qualify as a valid TACP contribution, the TACP must provide the trustee with a corrective notice within a reasonable period (21 calendar days after determination is treated as reasonable).

Nondiscrimination Testing

The proposed regulations impose nondiscrimination requirements generally parallel to those for dependent care assistance programs:

• Contributions may not discriminate in favor of highly compensated employees (“HCEs”) or their dependents as opposed to non-highly compensated employees (“NHCEs”) or their dependents.
• Eligibility classifications must be reasonable, objective, and nondiscriminatory under either a facts-and-circumstances test or a numerical safe harbor.
• Average benefits provided to NHCEs must equal at least 55% of average benefits to HCEs, measured among employees receiving more than zero benefits as of the last day of the plan year.
• Employees under age 21, those with less than one year of service, and certain collectively bargained employees may be excluded from testing.
• The proposed regulations also cover a safe harbor relating to pilot matching contribution, allowing employers to match the $1,000 government contribution to Trump Accounts of certain qualified beneficiaries. Pilot matching contributions that are offered on the same terms and conditions to all non-excluded employees are deemed to satisfy some (but not all) nondiscrimination requirements that apply to TACPs.
• For nondiscrimination testing and contribution limit purposes, all members of a controlled group are treated as a single employer.

Nondiscrimination Failure

In the event of a nondiscrimination failure, NHCEs generally retain favorable tax treatment, whereas HCEs may have excess TACP benefits included in income for income tax reporting.

Reporting and Employee Notices

Employers must provide reasonable notification to eligible employees of TACP availability and terms. Annual written statements must identify Section 128 contributions made for each employee; this can be satisfied through Form W-2 reporting. The 2026 Form W-2 instructions require Section 128 contributions to be reported in Box 12 using code “TA.”

Dependent Care Assistance Programs

Notably, the proposed regulations also include long-awaited clarifications to the nondiscrimination rules for dependent care assistance programs (“DCAPs”) under Section 129, including HCE/NHCE definitions, reasonable classification rules, the 55% average benefits test, permissible exclusions, and remediation procedures. These rules may affect existing DCAP programs regardless of whether an employer adopts a TACP.

Employer Takeaways

• Planning can proceed. Employers that deferred TACP design while waiting for Section 128 guidance now have a detailed framework addressing written plan content, payroll mechanics, trustee operations, cafeteria plan integration, W-2 reporting, and nondiscrimination testing. The ability to rely on the proposed regulations before finalization reduces risk for employers who want to implement a TACP now.
• Coordinate across functions. Implementing a TACP involves benefits, payroll, HR, tax reporting, and external vendors. Employers implementing TACPs should begin cross-functional coordination, particularly on account verification protocols, trustee communication workflows, and W-2 reporting using code “TA.”
• Model nondiscrimination outcomes. Before finalizing contribution formulas, employers should consider modeling workforce demographics, expected participation rates, and nondiscrimination testing.
• Understand cafeteria plan limitations. Salary reduction under a cafeteria plan is permitted only for contributions to a dependent’s Trump Account. Employers wishing to facilitate employee contributions to their own Trump Accounts must do so outside the Section 125 framework.
• Review existing DCAPs. The proposed Section 129 nondiscrimination rules apply to dependent care assistance programs independently of whether an employer offers a TACP. Employers should assess whether existing DCAP designs satisfy updated nondiscrimination requirements which are generally consistent with, but an expansion of, existing requirements under Section 129.
• Consider commenting. Employers or other interested parties can seek clarifications to the proposed regulations or advocate for modifications through September 25, 2026 by submitting written comments.