Treasury and IRS Propose Framework for Employer Trump Account Contribution Programs (TACPs)

The proposal borrows heavily from the Code section 129 dependent care assistance program nondiscrimination framework and addresses core operational requirements, contribution limits, pre-tax salary reduction rules, verification procedures, reporting, nondiscrimination testing and correction methods.

Key takeaways

The proposed regulations include the following highlights.

• Employers must maintain a separate written TACP and operate it according to its terms.
• The $2,500 annual income exclusion applies per employee, across all employers and eligible beneficiaries.
• Pre-tax salary reduction is permitted only for a dependent’s Trump Account (not the employee’s own).
• Employers may rely on employee certifications for eligibility/relationship facts, but must also implement reasonable, independent account verification to confirm contributions go to valid Trump Accounts.
• Employers may not restrict contributions only to accounts maintained by selected trustees.
• Section 128 contributions are excluded from federal gross income, but remain subject to FICA and FUTA withholding.
• Employers must satisfy nondiscrimination requirements, including contributions-and-benefits, eligibility, and the 55% average-benefits test.

Written plan and administrative requirements

A TACP must be maintained under a separate written plan describing key operational terms, including eligible classes, contribution formulas, any salary reduction feature, account designation procedures, certification/reporting processes, the plan year and correction procedures for administrative failures. Employers must operate the program in accordance with the written terms.

Employers may rely on employee certifications regarding the Trump Account beneficiary’s relationship to the employee, date of birth and other known eligibility information, absent actual knowledge that a certification is incorrect. Separately, employers must use a reasonable verification process to confirm the receiving account is a valid Trump Account, using information from trustees, payroll processors or other service providers.

Contribution limits and tax treatment

Qualifying employer contributions are excludable from an employee’s federal gross income up to $2,500 for 2026 and 2027, with inflation adjustments scheduled after 2027. The limit applies per employee, is not multiplied by the number of eligible children and applies across multiple employers; employees (not employers) are responsible for monitoring the limit.

Although qualifying section 128 contributions are not subject to federal income tax withholding, they are subject to withholding for FICA and FUTA purposes, which will require coordination with payroll tax and wage reporting systems.

Section 125 salary reduction contributions (cafeteria plans)

A TACP may allow pre-tax employee contributions through a section 125 cafeteria plan only when contributions are directed to a dependent’s Trump Account; salary reduction may not fund an employee’s own Trump Account, where applicable. Cafeteria plans must specifically describe the benefit and permit prospective election changes (or revocations) at least monthly before the compensation becomes currently available. Employers may need to amend existing cafeteria plans.

Nondiscrimination rules (overview and tests)

The proposal largely models TACP nondiscrimination rules on familiar section 129 principles—preserving nondiscriminatory benefits and contributions, eligibility, and average-benefits testing (including controlled-group aggregation, where applicable), with clarifications tailored to Trump Accounts.

The proposed rules establish three principal nondiscrimination tests.

1. Contributions and benefits — Program terms may not favor Highly Compensated Employees (HCEs) or their dependents; uniform terms for all eligible employees generally satisfy this requirement even if amounts vary due to elections or utilization.
2. Eligibility — Eligibility must be based on reasonable, objective business classifications and must satisfy either a facts-and-circumstances test or a numerical safe harbor using Code section 410(b)-type concepts. The proposal notes that self-employed individuals are not eligible to participate due to the common-law standard for defining an employee.
3. Average benefits — Participating Non-highly Compensated Employees (NHCEs) must receive average benefits of at least 55% of the average benefits provided to participating HCEs, with only employees receiving contributions greater than zero included in the group averages.

The numerical safe harbor compares the percentage of NHCEs eligible with the percentage of HCEs eligible and considers NHCE concentration in the overall employee population.

Safe harbor for pilot-contribution matches

Employer matching contributions tied to the federal pilot contribution program for children born between January 1, 2025 and December 31, 2028 may qualify for a special nondiscrimination safe harbor if made available on the same terms and conditions to all non-excluded employees. Under the safe harbor, these matches are disregarded for the contributions-and-benefits and average-benefits tests, but the arrangement remains subject to the eligibility test.

Reporting and correction procedures

Employers must notify eligible employees of the program and its terms in a manner that provides a meaningful opportunity to participate. They must provide an annual written contribution statement showing the prior year’s TACP contributions. Form W-2 reporting may satisfy the annual statement requirement using Box 12 and Code TA.

Employers must identify contributions as section 128 contributions to the trustee when transmitted. If a contribution is later found not to qualify, the employer must issue a corrective notice to the trustee; notice delivered within 21 calendar days after the employer’s determination is treated as timely. Certain average-benefits failures may be corrected by including the appropriate excess benefit amount in affected HCEs’ income by the deadline for furnishing Form W-2 and providing the required corrective notice. NHCEs are not impacted by these failures or correction procedures.

Practical implications for employers (planning checklist)

Employers considering a TACP should evaluate the following operational and compliance topics.

• Benefit design (employer-funded contributions, salary reduction contributions or both)
• Whether a pilot-match structure could use the special safe harbor
• Payroll tax calculation and W-2 reporting readiness
• Ability to support contributions to multiple trustees and authenticate valid Trump Accounts
• Controlled-group testing mechanics (where applicable)
• Administration of certifications, participant communications, annual statements and corrective notices
• Whether a section 125 plan amendment is required
• Which vendors or internal teams will handle compliance functions

The proposal’s prohibition against limiting contributions to selected trustees may require an operational solution capable of sending contributions to different institutions based on where each beneficiary’s Trump Account is maintained; while only the initial trustee/custodian may be available at this stage, employers may want to plan for multi-trustee scenarios as guidance (including rollover capability) develops.

Timing, reliance, and comment period

The proposal was published in the Federal Register on August 11, 2026, with a 45-day comment period ending September 25, 2026, and a public hearing scheduled for October 15, 2026. The rules generally would apply to plan years beginning on or after the date final regulations are published, though taxpayers may rely on the proposed regulations for plan years beginning earlier.

Treasury and the IRS specifically request comments on (among other items) eligibility testing, ratio-percentage methodology, average-benefits testing mechanics, the pilot-match safe harbor, and correction procedures, as well as practical administration of certifications, verification and trustee communications (including corrective notices).

Additional guidance expected

The proposal acknowledges that additional implementation guidance is expected, including how section 128 employer contributions interact with broader annual Trump Account contribution limits under Code section 530A, coordination with other private contributions, excess contribution correction procedures and further integration with section 125 cafeteria plan regulations.

Bottom line

The proposed regulations provide employers a workable framework to establish and implement TACPs (including employer-funded contributions, pilot matches, and pre-tax salary reductions for dependents’ accounts), but successful implementation will require coordinated administration across payroll, tax, benefits, cafeteria plan, and account transfer systems—particularly for verification, multi-trustee support, nondiscrimination testing, and rapid correction processes. Employers and their advisors now have a stronger foundation for planning, but should continue to watch for the release of additional guidance. 

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