Tax and benefits experts analyzed recently proposed regulations that provide details on employer Trump Account Contribution Programs (TACPs). The proposal contains a welcome clarification to nondiscrimination testing, but experts still caution of administrative complexity.
Trump account employer contribution basics
The One Big Beautiful Bill Act established Trump accounts under IRC § 530A as tax-favored investment vehicles for children under age 18, with contributions beginning July 6, 2026. Under IRC § 128, employers can make contributions to these accounts through a TACP, which must be a separate written plan established for the exclusive benefit of employees.
While Trump accounts have an overall annual contribution limit of $5,000 from all sources, employer contributions are subject to a separate, lower limit. Under IRC § 128(b), the amount an employer can contribute that is excludable from an employee’s gross income is capped at $2,500 annually. This limit is applied on a per-employee, not a per-dependent, basis.
Employer TACP contributions count toward the overall $5,000 annual cap and are not in addition to it. For example, if an employer contributes $2,500 to an employee’s TACP, only $2,500 would be permitted for other non-exempt contributions, such as those from the account beneficiary’s parents.
‘Game-changing’ clarification to nondiscrimination test
In an August 11 proposed rule, the IRS provided needed clarity on what one expert called an “outstanding ambiguity” on TACP contributions. These types of employer plans are subject to nondiscrimination rules, EY’s Rachael Walker explained during the firm’s September 18 webinar. Specifically, employer plans may not favor highly compensated employees, she explained.
Employers can satisfy nondiscrimination rules by showing that the average employer contributions for non-highly compensated employees equal at least 55% of the average for highly compensated employees, said Walker.
With Trump account contributions, the statute left an open question about how to treat employees who receive no contributions. If you include non-participating employees in the calculation, this could “pull the non-highly compensated employee average way down because you’re generally dividing by a much larger denominator,” Walker explained.
However, the August proposal resolved that question by confirming that employees who receive no contributions during the year may be excluded from the calculation, said Walker. She described the guidance as “a meaningful mathematical change that can substantially improve the testing outcomes.”
The proposed regulations provide this same clarification for Dependent Care Assistance Programs, which are also subject to the average benefits test. The OBBB increased the annual employer contribution limit for these programs from $5,000 to $7,500. But Walker said that many employers had been hesitant to participate because they were “already struggling to pass the 55% average benefits test.”
“But now that that math has changed and that really unlocks the availability of these additional benefits,” she said.
Navigating administrative hurdles
While the average benefits test clarification is welcome, experts caution that TACP administration will be more complex than it may initially appear.
Walker highlighted the administrative burdens, noting employers must maintain a separate written plan document, provide timely notices, collect employee certifications, and independently verify that contributions are made to valid Trump accounts.
And in a recent analysis, experts at Mayer Brown advised employers to prepare for cross-functional coordination between benefits, payroll, HR, tax reporting, and external vendors.
The Mayer Brown experts also stressed that while employers can rely on employee certifications about their relationship with a Trump account beneficiary, they cannot do so when it comes to Trump account validity. “[T]he employer must implement a method reasonably designed to verify the account through information provided by a trustee, a payroll processor, or another service provider,” they explain. And they cannot “skirt this issue” by limiting their TACP to a specific trustee.
Another complexity involves payroll, said Walker. While employer contributions are excludable from federal income tax withholding, they remain subject to FICA and FUTA taxes, she explained. This means employers must create new payroll codes to ensure contributions are included in boxes three and five of Form W-2 but excluded from box one. The proposed rules state that TACP contributions will be reported in Box 12 using the new code “TA.”
Expert recommendations for employers
With the new “detailed framework” in place, the Mayer Brown experts noted that employers who were awaiting guidance can now proceed with TACP design. They recommend that employers model their workforce demographics and expected participation rates to test nondiscrimination outcomes before finalizing contribution formulas.
They also urge employers to review their existing DCAP designs, as the proposed nondiscrimination rules are an expansion of existing requirements and apply independently of whether an employer offers a TACP.
Finally, for those with concerns or seeking additional clarifications on the proposed rules, the IRS is still accepting public comments through September 25, 2026. The agency had received 34 comments as of press time.
Comments can be submitted and viewed at https://www.regulations.gov/docket/IRS-2026-0925.
For more on contributions to Trump accounts, see Checkpoint’s Federal Tax Coordinator 2d ¶ A-4654.
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