IRS Guidance on Trump Accounts and DCAP Testing

The IRS and Treasury Department have released proposed regulations addressing employer contributions to "Trump Accounts" for employees' children. Included within these proposed rules are updates to nondiscrimination testing for Dependent Care Assistance Programs (DCAPs), which we explore in more detail in our analysis of the proposed dependent care FSA testing rules. If finalized, these rules will shape how employers design, administer, and test both types of programs. 

Trump Accounts 

Trump Accounts are custodial savings accounts intended to promote long-term financial growth for children and function similarly to Individual Retirement Accounts (IRAs). Recent legislation established Trump Accounts and separately created an income exclusion for certain employer contributions made to an employee's Trump Account or to the Trump Account of an employee's dependent. 

An employee may exclude qualifying employer contributions from gross income if the contributions are made under a qualifying Trump Account contribution program.  The exclusion is limited to $2,500 per employee per year, with inflation adjustments beginning after 2027. Employer contributions also count toward the broader annual Trump Account contribution limit.  They are not treated as additional contributions on top of that cap.  

The Highlights for Employers 

1. A $2,500 Annual Limit — Per Employee, Not Per Child 

Employers may exclude up to $2,500 per employee per year (indexed for inflation starting in 2028) from an employee's income for contributions made to a Trump Account. Importantly: 

• The limit applies to the employee, regardless of how many dependents they have or how many employers they work for. For example, if an employee has multiple children with Trump Accounts, the employer’s excludable contributions for that employee are limited to $2,500 in the aggregate for the year. 
• If an employee receives contributions from multiple employers that exceed $2,500 in aggregate, the employee must include the excess in income. 
• Employers may allow employees to allocate employer contributions across multiple children's accounts, as long as the total stays within the cap. 

Employers should consider how payroll and benefits administration systems will monitor this limit, particularly if employees are permitted to allocate contributions among more than one dependent's account.  

2. A Separate Written Plan Is Required 

Just like a cafeteria plan or DCAP, a Trump Account contribution program must be established through a separate written plan that spells out eligible employee classes, contribution rules, how employees designate accounts, notice/certification procedures, the plan year, and correction procedures.

Employers should not treat these contributions as an informal payroll practice.  A documented plan will be central to preserving the intended tax treatment.

3. Pre-Tax Contributions Are Possible  

The proposed rules confirm that employers may allow employees to make pre-tax salary reduction contributions to a dependent's Trump Account through a cafeteria plan. However, this cafeteria plan feature is not available for contributions to the employee's own Trump Account.

The IRS views that arrangement as impermissible deferred compensation under the cafeteria plan rules.  Plans offering this benefit must let employees change or revoke elections at least monthly, on a prospective basis.  This is more flexible than many traditional cafeteria plan elections and may require payroll, enrollment platforms, and plan document updates.  

4. Employers Can't Steer Employees to a Preferred Trustee 

The proposed regulations explicitly prohibit Trump Account Contribution Programs from limiting contributions to accounts held at a single trustee. Since each child can have only one Trump Account, restricting trustees could effectively lock some families out of receiving employer contributions. 

5. New Compliance Duties with Trustees 

Employers have new compliance responsibilities when working with Trump Account trustees. Each employer contribution must be clearly identified to the trustee as an employer Trump Account contribution when it is transmitted. 

In addition, if the employer later determines that a contribution does not qualify for the intended tax treatment, the employer must notify the trustee so the trustee can properly track basis in the account. 

Employers should develop procedures for accurate contribution coding, data transmission, and timely corrective notices, and should coordinate these steps with payroll, benefits administration, and any third-party administrators before launching a program. 

6. Annual Employee Reporting is Required 

The proposed regulations require employers to provide participants with an annual written statement of the prior year’s excludable employer contributions. The IRS indicated that this requirement can be satisfied by reporting the amount in Box 12 of Form W-2 using Code TA. 

Employers should confirm that payroll systems and vendors can support any required W-2 reporting before implementing a program. 

7. Matching the Government's $1,000 "Pilot Program" Payment 

The legislation also includes a federal Trump Accounts contribution pilot program, which provides government contributions for children born from 2025 through 2028. The proposed regulations provide a safe harbor that lets employers exclude these match contributions from certain nondiscrimination testing, provided the match is offered on the same terms to all non-excluded employees. 

Action Steps for Employers 

These are proposed regulations. The IRS has opened a 45-day comment period and will hold a public hearing on October 15, 2026. Employers may choose to rely on the proposed rules for plan years beginning before final regulations are published, but the rules are subject to change based on comments received. 

Employers evaluating Trump Account contributions may want to consider how the benefit fits within their broader compensation, financial wellness, and family-support strategies.

In particular, employers should assess how a Trump Account program would interact with existing savings and education benefits, including 529 plan support, financial education initiatives, and other programs designed to help employees save for their children's future.

Employers should also be mindful of the administrative and compliance considerations associated with offering this benefit. Payroll processes, plan documentation, reporting procedures, and participant communications may require updates to accommodate employer contributions. Coordination with payroll providers, trustees, and other service providers may be necessary to ensure contributions are administered and reported appropriately. 

Because key aspects of the Trump Account framework remain subject to proposed guidance, employers considering these arrangements should continue to monitor regulatory developments and evaluate whether any future changes may affect program design, administration, or compliance obligations. 

The Bottom Line 

These proposed rules remove some of the uncertainty that has kept employers on the sidelines. As employers continue to expand their financial wellness offerings, now is a good time to work with trusted benefits and financial wellness advisors to evaluate whether a Trump Account contribution program fits within their overall rewards strategy. 

Connect with a OneDigital Benefits Consultant to evaluate whether Trump Account contributions align with your benefits and financial wellness strategy and understand the plan design, payroll, reporting, and compliance considerations before implementation.