Trump Account contributions for employees: Setting up a Section 128 plan

Section 128, added by the One Big Beautiful Bill Act, lets an employer put up to $2,500 a year into the Trump Accounts of its employees or their children, and the employee does not pay income tax on it. Proposed regulations were published on August 11, 2026, and employers may rely on them now. For a small business this is one of the cheapest benefits to offer, and one that employees with children notice. Here is who can be covered, what it costs, and how to set up a plan for January 1, 2027.

The rules in one place

• Limit: $2,500 per employee per year for 2026 and 2027, adjusted for inflation after that. The limit is per employee, not per child, and an employee with three children can have the $2,500 split among their accounts. It also applies across all of an employee's employers.
• Income tax: excluded from the employee's federal taxable income, and no federal income tax is withheld.
• Payroll taxes: still wages for Social Security, Medicare, and federal unemployment tax. Both the employee and employer shares of FICA apply.
• Deduction: the business deducts it as compensation.
• Child's limit: the employer money counts toward the child's $5,000 annual Trump Account limit.
• Reporting: Form W-2, box 12, code TA.
• Payment: contributions go straight to the Trump Account, never to the employee.
• State tax: depends on whether your state follows Section 128. We check this for the states where your employees work.

Who can be covered: The owner question

Only common-law employees can benefit. The proposed regulations exclude self-employed people, so the following cannot receive Section 128 contributions from their own business:

• Sole proprietors and single-member LLC owners. Their W-2 employees can be covered. A spouse who is a genuine W-2 employee can generally be covered too, but counts as highly compensated for the testing described below.
• Partners and members of an LLC taxed as a partnership. Employees of the partnership can be covered.
• More-than-2% S-Corp shareholders. The S-Corp attribution rules also treat the shareholder's spouse, children, and parents as 2% shareholders, so family members on the S-Corp payroll are out as well. Other employees can be covered.
• C corporations. Every W-2 employee can be covered, including owner-employees, subject to the nondiscrimination tests.

If you own an S-Corp or a partnership, you can still put money into your own child's account personally, as a parent, within the $5,000 limit. It just comes from after-tax dollars rather than through the business.

What it costs: A worked example

A 20-person company has 8 employees with children under 18 and contributes $1,000 for each of them:

• Contributions: $8,000
• Employer FICA at 7.65%: $612
• Federal unemployment tax: usually nothing extra, because most employees have already earned more than the $7,000 wage base
• Total cost: about $8,612, all deductible

Compare that with a $1,000 cash bonus. The cost to the business is the same, but an employee in the 22% bracket keeps $220 more of the Trump Account contribution, because no federal income tax applies to it. The money also goes where many parents would have put it anyway.

Letting employees use their own pay

The plan can let employees redirect part of their salary, before income tax, into their children's Trump Accounts through your Section 125 cafeteria plan. Three conditions apply:

• The cafeteria plan document must describe the Trump Account benefit specifically.
• Employees must be able to start, change, or stop the election at least monthly, going forward only.
• Salary reduction works for a dependent's account only, not the employee's own account.

Salary reduction saves the employee income tax but not FICA, and salary reductions plus employer contributions together stay within the employee's $2,500 limit.

Nondiscrimination: Three tests

A Section 128 plan must not favor highly compensated employees. For 2026, that means anyone who earned more than $160,000 in 2025 or who owns more than 5% of the business, with family members of owners counted the same way.

• Eligibility: the classes of employees who can participate must not favor highly compensated employees.
• Contributions and benefits: the amounts must not favor them either.
• Average benefits: the average benefit for everyone else must be at least 55% of the average for highly compensated employees.

If the plan fails, only the highly compensated employees lose the exclusion, and their contributions become taxable wages. The plan still works for everyone else.

The $1,000 match safe harbor. If you match the federal $1,000 seed deposit for every eligible employee's child born from 2025 through 2028, on the same terms for all employees, those match contributions are ignored for the contributions test and the 55% test. The eligibility test still applies. For most small businesses, the simplest compliant designs are either this match or a flat dollar amount for every employee with a child under 18.

Step-by-step setup

1. Choose the design. A flat amount per employee with children, a $1,000 match for 2025–2028 babies, salary reduction, or a combination. Set the dollar amount and who is eligible, for example every employee after 90 days of service.
2. Adopt a separate written plan. It must state the eligible classes of employees; the contribution rules, including the amount and whether salary reduction is allowed; how employees designate the account; the certification, notice, and reporting procedures; the plan year; and how mistakes are corrected. Your benefits provider or attorney drafts the document, and we review the tax and payroll side.
3. Tell eligible employees about the plan and its terms. No set format is required, but every eligible employee must be told.
4. Collect a written certification from each employee stating that the account belongs to the employee or a dependent, giving the child's date of birth, and confirming they know of nothing that makes the child ineligible.
5. Verify each account using information from the trustee, such as the account identifier in the Trump Accounts app. A certification alone is not enough. Employees must claim their children's accounts first.
6. Accept any trustee. The plan cannot limit contributions to accounts held at particular trustees.
7. Set up payroll. Add a pay item that is excluded from federal income tax, subject to FICA and FUTA, and reported in W-2 box 12 with code TA. Tell the trustee that each payment is a Section 128 contribution.
8. Track the $2,500 limit per employee. Anything over the limit, or paid outside the plan's terms, is taxable wages. Fix it in payroll and notify the trustee; 21 days after you find the error is treated as reasonable.
9. Year-end. The W-2, issued by January 31, serves as the written statement employees must receive.

Our Payroll Services team sets up the pay item, the W-2 coding, and the per-employee limit tracking.

Timeline for a January 1, 2027 start

1. November: choose the design and set the budget.
2. December: adopt the written plan, amend the cafeteria plan if you are offering salary reduction, notify employees, and set up the payroll item.
3. January: collect certifications and account details, then make the first contributions.

Frequently asked questions

Can my S-Corp contribute to my own child's Trump Account tax-free?

Not under Section 128 if you own more than 2% of the S-Corp. You can contribute personally as a parent, with after-tax money, up to the $5,000 annual limit.

Can we contribute only for babies who get the $1,000 federal deposit?

Yes. A match for children born from 2025 through 2028, offered on the same terms to all employees, fits the safe harbor described above.

What if an employee works for two companies that both contribute?

The $2,500 limit applies to the employee across all employers. Each plan must cap its own contributions at the limit, and any combined excess is taxable to the employee.

Does the employee need to claim the child's account first?

Yes. The employer has to confirm that contributions go to a valid Trump Account, and that requires an account that has been claimed.

Are the proposed rules final?

Not yet. They apply in final form to plan years beginning after final regulations are published, and employers can rely on the proposed rules until then.