Employer Trump account contributions: 9 rules in proposed regs

The IRS holds its public hearing on proposed regulations REG-101355-26 today, October 15, 2026, by telephone. The subject is employer Trump account contributions under new Internal Revenue Code section 128, and the questions we're hearing from closely held Oklahoma employers are practical ones: can the owners participate, is this really tax-free, and how much paperwork does a $2,500 benefit carry?

Our honest answer is that the benefit is modest, the rules are still proposed, and the administration is more than cutting a check. Here are the nine rules we'd want an Oklahoma employer to read before offering it.

Where the rules on employer Trump account contributions come from

Two federal documents matter here, and they have different legal weight. The proposed rule was published in the Federal Register on August 11, 2026. Comments closed September 25, 2026, and the rule would apply to plan years beginning on or after the date final regulations are published, with reliance permitted on the proposed version before then. Everything below from that document is proposed, not final.

The second document is TD 10056, temporary regulations on Trump accounts themselves, published September 30, 2026. Those are effective on publication, apply to taxable years beginning on or after January 1, 2026, and expire September 30, 2029. A Trump account under those rules is a type of traditional IRA created by section 530A, added by Public Law 119-21, with special treatment during a "growth period" that ends December 31 of the year the beneficiary turns 17.

A beneficiary has to be under 18 at the close of the year the account election is made and have a Social Security number. Under the temporary regulations, the Treasury will establish accounts automatically starting on or about October 1, 2026 for eligible children who don't already have one.

Rule 1: the exclusion is $2,500 per employee, not per child

Under proposed section 128, an employer's contribution to a Trump account held by the employee or the employee's dependent is excluded from the employee's gross income up to $2,500 per calendar year, indexed for inflation after 2027. The limit belongs to the employee. An employee with three children gets one $2,500 limit, not three, and an employee with two jobs gets one limit across both employers.

That second half is where the trouble starts. Your payroll system knows what you contributed. It doesn't know what a spouse's employer contributed to the same child's account, and the limit is tested at the employee level across all employers. Amounts over the limit are wages, subject to employment tax reporting and withholding.

Our practitioner's edge on this one: the collision is most likely in two-earner households where both employers adopt a program in the same year. The proposed rule lets the employer rely on a written employee certification about the beneficiary, but the certification described covers the relationship and the child's birth date, not what another employer has already paid in. Build a question about other employer contributions into your enrollment form anyway. It costs nothing and gives you a record if the employee's total overshoots.

Rule 2: owners of pass-through entities can't participate

"Employee" in the proposed regulations means a common-law employee. Partners, sole proprietors, 2-percent S corporation shareholders, and directors acting only as directors are self-employed for this purpose and can't receive excludable contributions to their own or their children's accounts.

For the typical Oklahoma closely held company, an S corporation or an LLC taxed as a partnership, that means the owners who are deciding whether to adopt the program are the people it won't cover. The proposed rule does say a self-employed owner may sponsor the program for the business's common-law employees. So the benefit works as a recruiting and retention tool for staff, not as a tax play for the family that owns the company.

Compare that to the dependent care assistance program rules under section 129, which the same proposed rule also addresses. Section 129 treats self-employed individuals as employees, but it imposes a concentration limit: no more than 25 percent of benefits may go to more-than-5-percent owners and their spouses and dependents. Section 128 has no owner-concentration test, because owners simply aren't in it. If your entity choice is still open, the question of who counts as an employee is one more item for the LLC versus S corporation analysis.

Rule 3: sister companies are tested as one employer

The proposed rule applies the controlled-group and common-control aggregation rules of section 414(b), (c), (m), and (o). Entities that are treated as a single employer under those rules are a single employer for section 128.

In practice that pulls the operating company and the real estate holding company next to it into one program for testing purposes, even if only one of them signs the plan. It also means two payrolls inside the same group can each contribute $2,500 for the same employee without either one noticing the other. A written procedure that routes every section 128 contribution through one ledger is the simplest fix we know of.

Rule 4: a separate written plan is required

The program must be a separate written plan for the exclusive benefit of employees, and the employer has to follow it. The proposed regulations list what the plan has to specify: the eligible classes of employees, the contribution rules and whether salary reduction is permitted, how employees designate the recipient account, the certification, notice, and reporting procedures, the plan year, and procedures for correcting administrative failures.

A one-page memo won't do it. Think of the document the way you'd think of a cafeteria plan document: it's the thing an examiner asks for first, and a contribution made outside its terms is treated as wages.

Rule 5: the recipient has to be the right child in the right window

Contributions can go only to a Trump account whose beneficiary is in the growth period and is either the employee or the employee's dependent under section 152. Under the proposed rule, divorced or separated parents and married couples filing separately can't both claim the same child for this purpose, while married couples filing jointly may both qualify.

The employer may rely on the employee's written certification of the relationship, the beneficiary's date of birth, and the absence of known disqualifying facts, as long as the employer has no actual knowledge the certification is wrong. The certification doesn't cover the account itself. The employer must have a reasonably designed method to verify that the receiving account is actually a Trump account, such as a unique account identifier confirmed with the trustee, a payroll processor, or another provider.

One more constraint: the program can't limit contributions to accounts held at a particular trustee. Your bank may be happy to set up accounts for your employees, but the plan has to accept contributions to any trustee's Trump account.

Rule 6: salary reduction works for a child's account only

Employees can elect salary reduction through a section 125 cafeteria plan to fund section 128 contributions, but only to a dependent's account, not to the employee's own. Elections have to be prospective, the plan must specifically describe the Trump account benefit, and employees must be allowed to change elections at least monthly.

That's a looser election regime than most cafeteria plan benefits carry. It also means the cafeteria plan document needs amending before the first salary-reduction dollar moves, and the proposed rule says Treasury intends to amend the existing change-in-election regulations to match.

Rule 7: tell the trustee, and tell them again if you were wrong

Each time the employer contributes, it has to tell the trustee that the amount is a section 128 contribution, and keep procedures for doing so. If the employer later determines an amount didn't qualify, it must send the trustee a corrective notice identifying the account, the calendar year, and the amount. The proposed rule calls for that notice within a reasonable period and treats 21 calendar days after the determination as a safe harbor.

The trustee may rely on the employer's characterization until a corrective notice arrives. So the employer carries the record, and the employer carries the error.

Rule 8: it's income-tax-free, but it's still FICA wages

This is the wrinkle that surprises owners. A qualifying section 128 contribution is excluded from the employee's gross income and isn't subject to federal income tax withholding. It remains wages for FICA and FUTA purposes unless some other exclusion applies.

Payroll has to handle a benefit that's excluded for one tax and included for two others, which is a setup for deposit errors. If your deposit schedule is already a sore point, review how the deposit penalty tiers work before adding another moving part.

Reporting follows the same split. The program has to furnish each employee a written statement of the prior year's section 128 contributions on or before January 31, and the proposed rule says that can be satisfied on Form W-2. The 2026 Form W-2 instructions direct employers to report the amount in box 12 with code TA. Separately, under the temporary regulations, section 128 employer contributions count toward the account's general $5,000 annual contribution cap (indexed after 2027), while the pilot program contribution and qualified general contributions from governments and nonprofits don't.

Rule 9: nondiscrimination testing, and the clean-up route

The proposed rule borrows the structure of the dependent care nondiscrimination rules. Contributions and benefits may not favor highly compensated employees. Eligibility must rest on a reasonable classification and pass either a facts-and-circumstances test or a numerical safe harbor. And the average benefit for non-highly-compensated employees must be at least 55 percent of the average for highly compensated employees across all of the employer's Trump account and dependent care programs, tested on the last day of the plan year and counting only employees who received more than zero.

What the tests let you disregard

Employees under 21 with less than a year of service are excluded from the eligibility and average-benefits tests, as are certain collectively bargained employees. For benefits provided through salary reduction, employees earning under $25,000 may be disregarded in the average-benefits test.

There's also a pilot-match safe harbor. Section 6434 provides a $1,000 pilot contribution for children born 2025 through 2028, and an employer match of that pilot contribution, offered on the same terms to all non-excluded employees, is disregarded for the benefits and average-benefits tests. It isn't disregarded for the eligibility test, so the classification still has to hold up.

Fixing a failed year

If the average-benefits test fails, the proposed rule treats the program as compliant anyway if the employer includes the excess benefit in the affected highly compensated employees' gross income by the Form W-2 furnishing deadline for that year. The non-highly-compensated employees keep their exclusion. That's a forgiving remedy, but it depends on running the test before W-2s go out, not after.

The honest counter-considerations

Is $2,500 per employee worth a plan document, a certification process, a trustee notice procedure, a cafeteria plan amendment, and an annual nondiscrimination test? For a company with a handful of employees who have young children, maybe not. For a larger workforce where the benefit is part of a broader package, the arithmetic looks better, and the administrative pieces overlap with what a dependent care plan already requires.

Two more cautions. These regulations are proposed, and the final version can change; reliance on the proposed rule is permitted, but an employer who adopts now should expect to amend. And nothing in either federal document addresses Oklahoma income tax treatment of these contributions, so state conformity is a question to put to your return preparer rather than assume.

Where this becomes a lawyer's problem rather than a payroll vendor's is the overlap with everything else in a closely held structure: who's a common-law employee versus an owner, which affiliates are in the controlled group, and what the operating agreement or shareholder agreement says about benefits for family members. Those are the same questions that produce payroll tax problems when they're answered casually.

If your company is weighing a Trump account contribution program, or has already adopted one and wants the plan document and testing procedure checked against the proposed regulations, you can reach our practice through the contact page or our Oklahoma City office. A short conversation before the first contribution tends to be cheaper than a corrective notice after it.

This article is general information about Oklahoma, Texas, and federal law, not legal advice, and it does not create an attorney-client relationship. Facts matter; talk to a lawyer about yours.