Trump Account Proposed Regulations: What Employers and Employees Need to Know

Why this guidance matters

Trump Accounts are a new type of individual retirement account established for eligible individuals. Section 128 of the Internal Revenue Code allows qualifying employer contributions to an employee's Trump Account or the Trump Account of an employee's dependent to be excluded from the employee's federal gross income, subject to program requirements and an annual limit.

The proposed regulations focus heavily on how employers must structure and administer a Trump Account contribution program. They also clarify when employees may use pretax salary reductions, how the annual $2,500 limit works, and how payroll taxes apply.

1. Employers need a separate written plan

An employer cannot simply begin sending tax-favored contributions to employees' Trump Accounts. To qualify as a Trump Account contribution program, the arrangement generally must be governed by a separate written plan and operated according to its terms.

Under the proposal, the written plan would need to address items such as:

• The classes of employees eligible to participate

• The amount and rules for employer contributions

• Whether salary-reduction contributions are permitted through a Section 125 cafeteria plan

• How employees designate an eligible Trump Account

• Certification, notice, reporting, and correction procedures

• The plan year

• How the employer will verify that a contribution is going to a valid Trump Account

Eligible employees must also receive reasonable notice about the program's availability and terms. Employers would have annual reporting responsibilities as well, which may be satisfied by reporting qualifying contributions on Form W-2 using the required code.

2. Employees may be able to make pretax contributions for their children

The proposal confirms that an employer's plan may permit employees to make pretax salary-reduction contributions through a Section 125 cafeteria plan, but only when the money is contributed to the Trump Account of the employee's dependent.

• Employees may make qualifying pretax salary reductions for a dependent's Trump Account.

• Employees may not make pretax salary-reduction contributions to their own Trump Account.

• The cafeteria plan must specifically describe the Trump Account benefit.

• Employees must be allowed to change or revoke future elections at least monthly, before the affected wages become available.

These salary-reduction amounts are treated as Section 128 employer contributions for purposes of the annual limit. That means employee pretax contributions and direct employer contributions share the same $2,500 annual cap.

Example

If an employee elects to redirect $1,200 of pretax wages to a dependent's Trump Account, only $1,300 remains available for additional qualifying employer contributions for that employee during the year, assuming the $2,500 statutory limit applies and the plan permits the full amount.

3. The $2,500 limit is per employee, not per child or account

The proposed rules apply the annual Section 128 limit to each employee. The limit is not multiplied by the number of children, dependents, Trump Accounts, or unrelated employers involved. The $2,500 amount is scheduled to be indexed for inflation after 2027.

The limit combines qualifying amounts from all sources under Trump Account contribution programs, including:

• Direct employer contributions

• Employee pretax salary-reduction contributions

• Employer contributions designed to match the federal pilot program contribution

If an employee receives qualifying contributions from more than one unrelated employer and the combined amount exceeds the annual limit, the excess cannot be excluded from the employee's federal gross income. Under the proposal, each employer may still have complied with its own program limit, so employees with multiple employers will need to monitor their combined contributions carefully.

Amounts contributed outside the qualified program or above the applicable exclusion may be treated as taxable compensation and may trigger normal income and employment tax reporting. The exact correction steps will depend on why the amount failed to qualify, so employers should review any overage promptly with their advisers and payroll provider.

4. Income-tax treatment and payroll-tax treatment are different

A qualifying Section 128 contribution may be excluded from an employee's federal gross income and generally is not subject to federal income tax withholding. However, the proposed regulations explain that there is no corresponding exclusion from wages for FICA or FUTA purposes. In practical terms, qualifying employer and salary-reduction contributions may still be subject to Social Security, Medicare, and federal unemployment taxes unless another exclusion applies.

This distinction will be important when employers configure payroll systems and explain the benefit to employees. A contribution can be excluded from federal income tax while still generating employment taxes.

5. Related businesses may be treated as one employer

For purposes of the proposed Section 128 rules, businesses that are part of a controlled group, under common control, part of an affiliated service group, or otherwise required to be aggregated may be treated as a single employer. This prevents related entities from separately applying plan rules in a way that could exceed the permitted benefit or avoid nondiscrimination requirements.

Business owners with multiple companies should review ownership, payroll, and benefit structures before adopting a Trump Account contribution program.

6. Pilot-program matching receives special nondiscrimination treatment

The federal pilot program provides a $1,000 government contribution for eligible children born in 2025 through 2028. Some employers may choose to make a contribution tied to that pilot amount.

The proposed regulations provide a limited nondiscrimination-testing safe harbor for qualifying pilot-match contribution arrangements when the benefit is offered on the same terms and conditions to all non-excluded employees. However, the employer's pilot-match contribution still counts toward the employee's overall $2,500 Section 128 limit.

For example, a $1,000 employer pilot match would generally leave $1,500 of the annual Section 128 limit available for other qualifying employer contributions or employee pretax salary reductions. The government's own $1,000 pilot contribution is separate and does not count toward that employer-contribution limit.

What employers should do now

Employers interested in offering this benefit should begin planning, but they should remember that the regulations are still proposed. A practical preparation checklist includes:

• Decide which employees would be eligible and whether the program would include employer-funded contributions, employee salary reductions, or both.

• Coordinate with a benefits attorney or plan adviser to prepare a compliant written plan.

• Confirm that the payroll provider can calculate and report the benefit correctly, including FICA, FUTA, and Form W-2 reporting.

• Develop procedures to verify eligible Trump Accounts and obtain required employee certifications.

• Create a system for monitoring the $2,500 employee-level limit, especially for controlled groups and employees who may have more than one employer.

• Watch for final regulations and any additional IRS guidance before implementation.

How Kamish & Associates can help

Trump Account contribution programs may offer employers a new way to support employees and their families, but the tax, payroll, documentation, and nondiscrimination rules require careful coordination.

Kamish & Associates can help business owners evaluate the tax and payroll impact of a proposed benefit, coordinate implementation questions with the appropriate plan and legal professionals, and prepare for the reporting requirements that may follow. Contact our team before launching a program so the contribution structure fits your business and is administered correctly.

Disclaimer: This article is for general informational purposes only and does not constitute tax, legal, payroll, or employee-benefits advice. The guidance discussed is proposed and may change before final regulations are issued. Consult qualified advisers regarding your specific circumstances.