If you’ve heard that employers can now contribute up to $2,500 tax-free to employees’ Trump Accounts, you may be thinking: “That sounds like a great employee benefit. How do I set it up?”

It may be a great benefit for some businesses. But (and you knew there was going to be a “but”), it’s not quite as simple as telling payroll to start sending money.

There are rules about who can participate, how the program has to be set up, how much can be contributed and even some rules that could surprise family-owned businesses.

So let’s dig into this.

What Is a Section 128 Trump Account Contribution Program?

IRC Section 128 allows an employer to set up a Trump Account Contribution Program and contribute money to a Trump Account for an employee or an employee’s dependent.

If the program follows the rules, the employer contribution can generally be excluded from the employee’s taxable income.

For 2026 and 2027, that amount is limited to $2,500 per employee per year.

Notice, I said: Per employee. Not per child.  If your employee has three children with Trump Accounts, you don’t get to contribute $2,500 tax-free for each child.  You generally have $2,500 total for that employee.

You could potentially divide that $2,500 among the children’s accounts, but you don’t get $2,500 for each child.

Wait…I Thought the Trump Account Limit Was $5,000?

It is.  We’re talking about two different limits, and this is where things can get confusing.

Here’s the easiest way I know to explain it:

$2,500 = the employer limit

For 2026 and 2027, up to $2,500 of qualifying employer contributions can generally be excluded from an employee’s income under Section 128.

That limit is per employee—not per child.

$5,000 = the child’s general Trump Account limit

The child’s Trump Account generally has a $5,000 aggregate annual limit for all contributions that are subject to the regular contribution limit.

The employer’s Section 128 contribution counts toward that $5,000.

For example:

Employer contributes: $2,500
Parents and grandparents contribute: $2,500
Total: $5,000

The child’s general contribution limit has been reached for the year.

And just to make things a little more interesting, the government’s special one-time $1,000 contribution does not count against that $5,000 limit.

So there are really three numbers worth remembering:

$1,000 = Government A one-time government contribution for qualifying children born from 2025 through 2028.

$2,500 = Employer The Section 128 employer limit for 2026 and 2027.

$5,000 = Child’s Account The general annual contribution limit for contributions subject to the limit for 2026 and 2027.

Once you separate those three numbers, this starts making a little more sense.

Can I Just Tell Payroll to Start Contributing?

Hold on… the answer is no!

This is probably the most important thing I want business owners to understand.

You can’t simply decide: “I’m going to put $1,000 into each employee’s child’s Trump Account” and assume it’s automatically tax-free.

The employer needs a separate written Trump Account Contribution Program.  That program needs to spell out things like:

• Who is eligible;
• How much the employer will contribute;
• How contributions will be determined;
• How employees provide their Trump Account information;
• What information employees need to certify;
• How mistakes will be handled;
• Whether certain employee payroll contributions will be allowed.

In other words: This is an employee benefit program.  It’s not simply another deduction or contribution you add to payroll.

Can the Business Owner Participate?

Here’s where things get particularly important for small-business owners.

Under the proposed regulations, certain business owners generally cannot participate in their own Section 128 program.

That includes:

• Sole proprietors;
• Partners;
• People serving only as corporate directors;
• More-than-2% S corporation shareholders and certain family members.

That doesn’t mean the business can’t offer the benefit to employees.  It means the owner may not personally qualify for the Section 128 tax break.

For example:

You own 100% of your S corporation and have two children.

You might hear about this new benefit and think: “Great! My S corporation can put $2,500 into my child’s Trump Account tax-free.”  Unfortunately, under the proposed rules, that doesn’t work.  As a more-than-2% S corporation shareholder, you aren’t an eligible employee for this particular benefit.

What If My Child Works for My S Corporation?

Now we get to a rule I think will surprise a lot of family-owned businesses.

Let’s say you own 100% of your S corporation.  Your adult daughter works for the business.  She’s a legitimate employee.  She gets a W-2.  She owns zero stock in the company.  You might naturally assume: “I’m not eligible for the Section 128 benefit, but she is. After all, she doesn’t own the company.”

Not so fast.

Tax law has something called family attribution rules.  That’s tax-law language for: sometimes the IRS treats you as owning stock that actually belongs to certain family members.

For this particular S corporation rule, stock owned by a parent can generally be attributed to a child.

So if Mom owns 100% of the S corporation, her daughter can be treated as owning that stock for purposes of this rule—even though the daughter doesn’t actually own a single share.

That can cause the daughter to be treated as a more-than-2% S corporation shareholder too.

And under the proposed Section 128 rules, that means she would not qualify for the tax-free Section 128 benefit either.

Does It Matter If My Son or Daughter Is an Adult?

Again, the answer is no.

This isn’t just a rule for minor children.  For this particular family attribution rule, the child’s age doesn’t make the problem go away.  Your daughter could be 16.  She could be 25.  She could be 45.  The family ownership rules can still apply.

That’s why a family-owned S corporation shouldn’t simply look at its shareholder list and assume every non-owner employee is eligible.  You need to consider family relationships too.

What About Other Family Members?

This is where I would stop trying to use a simple rule of thumb.  Family ownership rules can get complicated quickly.  Depending on who actually owns the business and how everyone is related, the answer may be different.

So if your S corporation employs:

• Your spouse;
• Your children;
• Your parents;
• Your grandchildren;
• Other relatives;

don’t automatically assume they’re eligible—or automatically assume they’re not.

Have your tax advisor look at the ownership and family relationships before deciding who can participate.

This is one of those areas where a five-minute conversation before setting up the benefit could prevent a much bigger problem later.

Can I Offer This Only to My Highest-Paid Employees?

Come on… you know the answer… no.

Section 128 has rules designed to keep employers from creating a program that mainly benefits highly compensated employees while leaving everyone else out.

There are tests involving:

• Who is eligible;
• How much different groups of employees receive;
• The average benefits provided to higher-paid employees compared with other employees.

One of the tests generally requires the average benefit provided to participating employees who aren’t highly compensated to be at least 55% of the average benefit provided to participating highly compensated employees.

You don’t need to become an expert in nondiscrimination testing.  You do need to know that someone needs to do the testing.

That’s another reason I wouldn’t recommend setting this up without involving someone who understands employee benefit plans.

What About the Government’s $1,000 Trump Account Contribution?

This is separate from the employer benefit.

The federal government provides a one-time $1,000 contribution for qualifying children born on and between January 1, 2025 through December 31, 2028.

Let me emphasize: One-time $1,000 contribution.  It is not $1,000 every year.

The employer program we’re discussing here is different.

An employer could potentially establish a program that matches the government’s $1,000 contribution for qualifying employees’ children.

But the employer’s money is still an employer contribution and is subject to the applicable Section 128 rules and limits.

Can I Make Employees Use the Same Bank or Investment Company?

The answer is no.

The proposed rules don’t allow the employer to limit the benefit to Trump Accounts held by one particular trustee.

So you can’t simply announce: “We’re using ABC Financial. If you want the benefit, your child’s account has to be there.”

Employees may have Trump Accounts with different financial institutions.  That means someone needs a process for:

• Getting the account information;
• Verifying that it’s actually a Trump Account;
• Sending the contribution to the right place;
• Keeping records of what was sent.

This is where payroll administration starts becoming important.

So…Should My Business Offer This?

The answer is maybe.  I actually think this could be a nice employee benefit for the right business.  For an employer trying to attract and keep good employees—especially employees with children—this could be another way to offer something meaningful beyond regular wages.

But I wouldn’t start with: “How do I add this to payroll?”

I’d start with: Who is eligible?  Do any family ownership rules affect my employees?  Who is going to prepare the written program?  How much are we going to contribute?  Who will administer the program?  Who will do the required testing?  How will payroll track everything?  How will we verify the Trump Accounts?

Figure those things out first.  Then set up payroll.

Frequently Asked Questions About Section 128 Trump Account Contributions

How much can an employer contribute to a Trump Account?  For 2026 and 2027, up to $2,500 per employee per year can generally qualify for the Section 128 income exclusion if the employer’s program meets the requirements.

Is the $2,500 limit per employee or per child?

Per employee.  If an employee has three children, that doesn’t give the employer three separate $2,500 exclusions.

Does the $2,500 employer contribution count toward the child’s $5,000 Trump Account limit?

Yes, the Section 128 employer contribution counts toward the child’s general $5,000 annual contribution limit.

Does the government’s $1,000 contribution count toward the $5,000 limit?

No.  The qualifying government pilot contribution is separate from the general $5,000 limit.  And remember—it is a one-time $1,000 contribution, not an annual $1,000 contribution.

Can a sole proprietor use Section 128 to contribute to their own child’s Trump Account tax-free?

No.  A sole proprietor isn’t treated as an eligible employee for this benefit under the proposed regulations.

Can a more-than-2% S corporation owner participate?

No.  A more-than-2% S corporation shareholder is generally excluded under the proposed regulations.

If my daughter works for my S corporation but owns no stock, can she participate?

Probably not.  According to the proposed regulations, if you own more than 2% of the S corporation, the family ownership rules can cause your daughter to be treated as owning your stock for this purpose.  That can make her a more-than-2% shareholder under the tax rules even though she owns zero shares on paper.  Her age generally doesn’t change that result.  This is something I would have your tax advisor check before including family members in the program.

Are these rules final?

No.  This is important.  The Treasury Department and IRS issued proposed regulations in August 2026 under REG-101355-26.  The rules could change before the regulations are finalized.

The Bottom Line

I like the idea behind this benefit.  Giving employers another way to help employees save for their children’s futures could be a great thing.

But the headline: “Employers can put $2,500 tax-free into Trump Accounts” makes it sound much simpler than it really is.  There are rules.  There needs to be a written program.  There are limits.  There is testing.  There are payroll and reporting requirements.

And if you’re a family-owned S corporation, there are some family ownership rules you definitely don’t want to overlook.

So, before you tell payroll to start sending money: Get the program set up correctly.

It’s much easier to do that before the first dollar moves than to figure out how to fix it later.

Continue the Trump Account Series

Part 1: Trump Accounts Explained: Who Qualifies, the $1,000 Contribution, and How They Work

Next: Your Client Wants to Offer Trump Account Contributions — Now What Happens in Payroll?

We’ll talk about what happens behind the scenes once an employer decides to offer the benefit—including payroll setup, tracking contributions, verifying accounts, fixing mistakes and W-2 reporting.

This article discusses proposed Treasury regulations issued in August 2026. The rules are new and may change before the regulations are finalized. This article is intended to explain the rules in plain English and is not individualized tax, legal, investment, payroll or employee-benefits advice.

Sources

For readers who want to dig into the actual rules, primary sources include IRS guidance on Trump Accounts, IRS Publication 15-A, Notice 2025-68, IRC Sections 128 and 1372, and the proposed regulations issued under REG-101355-26.