On August 10, 2026, the IRS and Treasury Department released proposed regulations (REG-101355-26) that provide the first comprehensive rules governing employer contributions to Trump accounts under IRC Section 128. They also clarify the nondiscrimination requirements applicable to both Trump account contribution programs and dependent care assistance programs. The proposed regulations generally reflect guidance previously described in Notice 2025-68 while addressing operational and compliance questions raised by employers and practitioners (see Tax Alert 2025-2438). They also provide much-anticipated taxpayer-favorable guidance on IRC Section 129 dependent care assistance programs.

Public comments must be received by September 25, 2026.

Background

Trump accounts were created by the One Big Beautiful Bill Act (OBBBA), which added IRC Section 530A and IRC Section 128 to the Internal Revenue Code. A Trump account is a traditional IRA subject to specialized contribution, investment, distribution and reporting rules during the account beneficiary's growth period, which generally ends on December 31 of the calendar year in which the beneficiary turns 17. IRC Section 128 employer contributions (which are pre-tax) and contributions from other sources (which could be pre-tax or post-tax depending on the source) during the growth period are subject to an aggregate annual limit of $5,000 (subject to cost-of-living adjustments after 2027). Annual employer contributions, which are excluded from the employee's gross income, may make up $2,500 of that limit. The exclusion applies for tax years beginning after December 31, 2025.

IRC Section 129 excludes employer-provided dependent care assistance from an employee's gross income when furnished under a qualifying dependent care assistance program, which must be a separate written employer plan and satisfy certain requirements, including nondiscrimination rules.

In December 2025, Notice 2025-68 was released with preliminary guidance on Trump accounts and stated that Treasury and the IRS intended to issue regulations addressing employer contributions and other operational issues.

In March 2026, the IRS and Treasury released two sets of proposed regulations. The proposed regulations on Trump accounts (REG-117270-25) clarified how to elect to open a Trump account. The proposed regulations (REG-117002-25) on the Trump account contribution pilot program specified how to elect to open a Trump account for a child who is eligible to receive a $1,000 contribution from the government (see Tax Alert 2026-0607).

New proposed regulations

Trump account contribution program requirements

The proposed regulations would define a Trump account contribution program as a separate, written employer plan that is established exclusively for employees and satisfies specified operational and nondiscrimination requirements. The written plan would be required to identify eligible employee classes, contribution rules, account designation procedures, certification requirements, reporting procedures and correction processes. Employers would be required to operate programs consistent with their written plan documents.

Employers would be required to provide eligible employees with reasonable notice of program availability, similar to the IRC Section 129(d)(7) requirements, and annually report IRC Section 128 contributions. Reporting could be satisfied through Form W-2, which would report contributions in Box 12 using code TA.

Tax treatment of contributions

The proposed regulations would clarify that the income exclusion available under IRC Section 128 also applies for federal income tax withholding but not for FICA (social security and Medicare) or FUTA (federal unemployment tax). Accordingly, employers would need to include IRC Section 128 contributions in wages for Social Security, Medicare and FUTA purposes even though the amounts are excluded from federal income tax wages.

Employee certifications and trustee communications

Employers could rely on employee certifications of dependent status, beneficiary age and eligibility unless the employer has actual knowledge that the certification is incorrect. However, employers could not rely solely on employee certifications to verify that a recipient account is a valid Trump account. Instead, employers would have to use procedures reasonably designed to verify account status through trustees, payroll providers or other service providers.

The proposed regulations also would require employers to identify contributions as IRC Section 128 contributions when transmitted to account trustees. If a contribution later were to be determined not to qualify, the employer would be required to provide corrective notice to the trustee, generally within 21 calendar days after the determination.

The proposed regulations would prohibit Trump account contribution programs from limiting contributions to particular trustees.

Contribution limits and employee eligibility

The proposed regulations would confirm that the IRC Section 128 exclusion applies on a per-employee basis rather than a per-dependent basis. Thus, an employee may exclude no more than $2,500 (for 2026 and 2027) annually from all employers combined, even if the employee has multiple dependents with Trump accounts. Similarly, an employee receiving contributions from more than one employer may be required to include excess contributions in gross income if aggregate employer contributions exceed the statutory limit.

Treasury and the IRS said they intend to issue a separate notice of proposed rulemaking that would first attribute Trump account contributions exceeding the IRC Section 530A(c)(2) annual limit to other source contributions before IRC Section 128 contributions.

The proposed regulations would also clarify that self-employed individuals, including partners, sole proprietors and certain S corporation shareholders, are not employees for purposes of IRC Section 128 and therefore could not receive IRC Section 128 contributions, although they may sponsor programs covering common-law employees.

Salary reduction arrangements

Consistent with Notice 2025-68, the proposed regulations would permit employees to fund contributions to a dependent's Trump account through salary reductions under an IRC Section 125 cafeteria plan. However, salary reduction contributions could not be made to the employee's own Trump account. Cafeteria plans including these benefits would have to permit employees to prospectively change or revoke elections at least monthly before salary becomes currently available.

Nondiscrimination requirements

IRC Section 128 imposes nondiscrimination requirements "similar to" to the nondiscrimination requirements under IRC Section 129. Although IRC Section 129 was enacted in 1981 and has been amended numerous times over the ensuing 45 years, there are no regulations on the nondiscrimination requirements under IRC Section 129. Treasury and the IRS used this opportunity to propose comprehensive nondiscrimination rules, including guidance on some issues that have, according to the proposed regulations, "been the subject of confusion for many years and … been challenging for taxpayers to apply."

The proposed regulations would establish detailed nondiscrimination rules modeled largely on existing nondiscrimination requirements for qualified retirement plans. Contributions and benefits generally could not discriminate in favor of highly compensated employees (HCEs) or their dependents. Eligibility classifications would have to be based on objective business criteria and satisfy either a facts-and-circumstances test or a numerical safe harbor. Another safe harbor would treat an eligibility classification as nondiscriminatory if the plan's ratio percentage — the percentage of eligible non-highly compensated employees (NHCEs) compared with eligible HCEs — equals or exceeds the employer's safe harbor percentage.

The proposed regulations would also provide taxpayer-favorable rules for applying the average benefits test, under which all the employer's contributions to a Trump account contribution program or dependent care assistance program for NHCEs generally must equal at least 55% of the average benefits for HCEs. Clarifying a longstanding ambiguity, the proposed regulations would allow employees receiving no contributions or benefits during the year to be excluded from this test. In addition, certain employees, including employees under age 21 with less than one year of service, could be excluded from testing.

The proposed regulations would create a special nondiscrimination safe harbor for employers that match the federal $1,000 Trump account pilot contribution available for children born from 2025 through 2028. These matching contributions would be disregarded for certain nondiscrimination tests if made available on the same terms and conditions to all nonexcluded employees. On the other hand, employers could consider these contributions along with other employer contributions when applying certain nondiscrimination requirements.

Finally, the proposed regulations would allow certain nondiscrimination failures to be corrected by reporting the excess amounts as taxable wages to the relevant HCEs.

Implications

The proposed regulations give employers useful information that should be considered when deciding whether to adopt a Trump account contribution program.

As IRC Section 128 contributions remain subject to FICA and FUTA taxes but not federal income tax and income tax withholding, employers adopting a Trump account contribution program will need a payroll code that includes contributions in boxes 3 and 5 and reports them in box 12 with the code TA but excludes them from box 1 on Form W-2. Employers should be aware that state law may not recognize the federal exclusion for employee/employer Trump account contributions for state income tax and income tax withholding purposes.

Perhaps more importantly, the proposed regulations provide much-anticipated taxpayer-favorable guidance on IRC Section 129 dependent care assistance programs that likely will be of interest to employers regardless of whether they are interested in offering a Trump account contribution program. In particular, the 55% average benefits test has constrained contributions to these programs for decades, leading many employers to conclude that the OBBBA increase in the maximum annual contribution from $5,000 to $7,500 for 2026 was nearly useless.

The clarification that employees receiving no contributions or benefits during the year can be excluded from the average benefits test could substantially improve testing outcomes because employees who do not elect or receive benefits during the year would no longer dilute the average NHCE benefit percentage. As a result, some employers may find that contribution levels or plan designs that previously raised nondiscrimination concerns are now permissible. The proposed regulations are therefore likely to increase contributions to dependent care assistance programs.