How Employers Can Contribute $2,500 To Trump Accounts

Employer contributions to Trump Accounts become legal on July 4, 2026 — one year to the day after the One Big Beautiful Bill Act created the new children's savings accounts. For small business owners, the launch opens a question worth real money: can your business fund your own kids' accounts with pre-tax dollars?

The IRS answered that question on August 10, 2026 (PDF File), and for most owners, the answer is no. Proposed regulations define "employee" for these programs using the common-law standard and exclude self-employed individuals, a group the IRS says includes partners, sole proprietors, and more-than-2% S corporation shareholders, even those who pay themselves W-2 wages.

The tax break itself is still real. New Internal Revenue Code Section 128 lets an employer contribute up to $2,500 per year to the Trump Account of an employee or an employee's dependent, deductible to the business and free of income tax to the worker. It just is not available to the people who own the business.

Here is what the proposed rules require, who can still benefit, and the mistakes that could undo the exclusion.

How The Employer Contribution Works

Trump Accounts, created under Tax Code Section 530A, are a special type of traditional IRA for children under 18 who have a Social Security number. A parent or guardian opens the account by filing Form 4547 or using the government's online application at trumpaccounts.gov, and the funds must be invested in low-cost mutual funds or ETFs that track the S&P 500 or another index made up primarily of U.S. equities. Money cannot be withdrawn until January 1 of the year the child turns 18, at which point the account converts to standard traditional IRA treatment.

Total contributions from all sources are capped at $5,000 per year, indexed for inflation after 2027, according to IRS guidance in Notice 2025-68. Children born between January 1, 2025 and December 31, 2028 also receive a one-time $1,000 federal pilot program contribution, which does not count against the cap.

The employer piece sits inside that framework. Under Section 128, an employer may contribute up to $2,500 per year (also indexed after 2027) to the Trump Account of an employee or the employee's dependent.

Two details matter here:

1. The $2,500 limit applies per employee, not per child, so an employee with three kids still tops out at $2,500 in total employer money.
2. The employer contribution counts against the $5,000 aggregate cap per child, so a family planning to contribute on its own needs to coordinate the two..

The proposed regulations also confirm that married parents filing jointly can stack the benefit. If each spouse's employer contributes $2,500, the couple can direct the full $5,000 to one child's account — even if both spouses work for the same employer. A single worker with two employers cannot do the same: the $2,500 limit applies per employee across all employers, and any excess is taxable income to the employee.

The contribution is excluded from the employee's gross income and, according to an analysis by Grant Thornton's Washington National Tax Office, is a deductible business expense for the employer. Draft IRS forms show the amounts reported on the W-2 in Box 12 under new code "TA."

The proposed regulations confirm the payroll tax treatment: contributions are not subject to federal income tax withholding, but they still count as wages for Social Security and Medicare (FICA) and federal unemployment (FUTA) taxes.

What Businesses Must Do To Qualify

The income exclusion only applies if contributions are made under a Trump Account Contribution Program (TACP) — a separate written plan the statute requires to exist for the exclusive benefit of employees. Section 128 borrows most of its program rules from the dependent care assistance program (DCAP) requirements under Section 129(d), including:

Nondiscrimination. The program cannot favor highly compensated employees or their dependents in eligibility or benefits. If you have a team, you cannot quietly set up a program that covers only your own children.

Notice. Employees must receive reasonable notification that the program exists and what its terms are.

Annual statements. By January 31 each year, employees must receive a written statement showing what the employer contributed for the prior year.

One notable difference from DCAPs: Section 128 skips the owner-concentration test that limits owners holding more than 5% of a business to 25% of total DCAP benefits. Earlier readings treated that omission as an opening for owner-heavy small firms. The August 2026 proposed regulations flip that logic — the IRS says Congress left the test out because owners cannot participate in these programs at all, so there was nothing to cap.

The proposed regulations also spell out how a program must operate. Employers must collect a written certification from each employee covering the account beneficiary's date of birth, dependent status, and eligibility. They must use a reasonable method to verify that contributions go to a valid Trump account, identify each contribution to the account custodian in writing as a Section 128 contribution, and send the custodian a corrective notice if an amount turns out not to qualify. Employers cannot restrict contributions to a single account custodian. The annual statement requirement is satisfied by reporting the amount on the W-2 in Box 12 under code TA.

There is also good news on the compliance front. On June 17, 2026, the Department of Labor issued Technical Release 2026-02, taking the position that Trump Accounts and TACPs generally are not ERISA pension plans when they benefit employees' dependents.

Programs that contribute to a teenage employee's own account can also avoid ERISA, provided participation is voluntary, the employer stays out of investment decisions, and the employer does not hold the program out as an employee benefit plan.

Mistakes To Avoid

A few mistakes could turn the benefit into a problem. Do not contribute before July 4, 2026 — earlier contributions are not permitted.

Do not skip the written plan document, the employee notice, or the January 31 statement. Without a qualifying TACP, the exclusion does not apply. 

Do not exceed the caps: over-contributions to IRAs generally trigger a 6% excise tax, and the $2,500 employer amount counts toward the child's $5,000 total. The proposed regulations clear up the two-parent question — each parent may direct $2,500 to the same child through their own employer's program — but one worker with two employers is still capped at $2,500 combined, with any excess taxed as income.

Do not assume the money escapes payroll taxes. The proposed regulations confirm that Section 128 contributions are wages for FICA and FUTA purposes, even though they are excluded from income tax and income tax withholding.

And remember the back end: employer contributions come out as ordinary income when the child eventually withdraws them, which makes the account a tax-deferral play, not a Roth. One way around this is to eventually convert the Trump account to a Roth IRA, but that also takes planning.

What This Means For Small Business Owners And Their Families

For small business owners, the proposed regulations close the door that Section 128 appeared to leave open.

The rules define an employee using the common-law standard and exclude self-employed individuals under Section 401(c)(1). The preamble spells out who that covers: partners in a partnership, sole proprietors, and more-than-2% S corporation shareholders as defined in Section 1372(b). Taking a W-2 salary from your own S corporation does not change the result. The IRS responded directly to a comment asking about owner-employees of S corporations and partnerships, and said the statute intentionally excluded them.

The family workarounds mostly fail too. Section 1372(b) counts stock owned by a spouse, children, grandchildren, and parents under the attribution rules of Section 318, so an S-corp owner's spouse or teenager on the payroll is treated as a more-than-2% shareholder and is equally ineligible.

These are proposed rules, with a 45-day comment window (comments due September 25, 2026, if the rules publish on schedule) and a public hearing set for October 15, 2026. But the IRS framed the exclusion as what Section 128 already means rather than a new policy choice — and taxpayers may rely on the proposed rules before they are final — so owners should not count on a reversal.

What still works: a business owner can maintain a program for non-owner employees, and the business deduction for those contributions stands. A sole proprietorship or partnership that employs the owner's spouse as a bona fide W-2 employee may still be able to contribute, since the stock-attribution problem is specific to S corporations — though that reading should be confirmed with a tax professional before final regulations arrive.

For hiring, the benefit remains a recruiting tool: a $2,500 pre-tax family benefit can stand out for small employers competing for parents in the workforce. Employers who match the $1,000 federal pilot contribution for children born 2025 through 2028 also get a nondiscrimination testing safe harbor under the proposed rules.

Common Questions

What is the new $2,500 employer contribution rule for Trump Accounts and when does it start?
Starting July 4, 2026, employers can contribute up to $2,500 per year to an employee's dependent child's Trump Account as a deductible business expense that's excluded from the employee's gross income, but only through a written Trump Account Contribution Program (TACP).

Can small business owners, especially S-corp owners paying themselves W-2 wages, use this rule to fund their own children's Trump Accounts with pre-tax dollars?
No, proposed IRS regulations released August 10, 2026 exclude partners, sole proprietors, and more-than-2% S corporation shareholders from receiving pre-tax employer contributions even when they take W-2 wages, though their businesses can still offer the benefit to non-owner employees.

How does the $2,500 employer limit interact with the $5,000 annual Trump Account contribution cap and the child's federal $1,000 pilot deposit?
The $2,500 employer contribution counts toward the child's $5,000 annual contribution cap, leaving up to $2,500 in room for family contributions, while the $1,000 federal pilot deposit for children born 2025–2028 does not count against the cap.

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