Trump Accounts Go Live July 4 – What Payroll Needs to Know Now

If your employer plans to contribute to Trump Accounts, payroll has until July 4, 2026, to get it right. Coding errors made at setup create tax reporting problems that are hard to fix later. A June 17 Department of Labor (DOL) technical release spells out the rules that matter. 

The two most likely mistakes: treating a dependent’s account the same as an employee’s own account and coding pre-tax employer contributions as post-tax.

What Are Trump Accounts? 

Trump Accounts are a new type of IRA for individuals under 18, established under the One Big Beautiful Bill Act. Employers can contribute up to $2,500 per employee per year under Section 128, and the accounts open July 4, 2026.

The DOL confirmed these will not be treated as ERISA plans if the program is structured to meet safe harbor conditions – no plan document, no Form 5500, no fiduciary obligations.

Different Contribution Types and Setups

For payroll purposes, Trump Account contributions fall into two categories: Section 128 contributions – which can come from the employer directly or through employee pre-tax salary reduction (treated as employer contributions under Section 125) – and post-tax employee payroll deductions.  

They carry different tax treatment, different basis rules and different eligibility conditions. Each needs its own coding. 

The Cafeteria Plan Split: Dependent Account or Employee Account?

In most cases, an employer’s Trump Account contribution goes to a dependent’s account – a child under 18. In that situation, the contribution can run through a Section 125 cafeteria plan salary reduction arrangement. This treatment is reflected in IRS Notice 2025-68.

The exception is when the employee is the account beneficiary – a 16- or 17-year-old employee whose employer contributes to their own account. In that case, the cafeteria plan option is not available. That’s a narrow scenario, but it requires a different approach.

Basis Tracking: Pre-Tax vs. Post-Tax

Section 128 employer contributions are excluded from the employee’s gross income and create no basis in the account. Post-tax employee payroll deductions do create basis.

These two contribution types need to be configured as distinct deduction codes so the basis difference is captured correctly from the first contribution. The error compounds with every pay period that is processed. 

Limits to Track and Enforce

Two limits apply — and they overlap, which makes them tricky to track.

The Section 128 cap is $2,500 per employee per year, subject to cost-of-living adjustments after 2027. This cap covers direct employer contributions and employee pre-tax salary reduction contributions combined. If the employer puts in $1,500 directly, the employee only has $1,000 left in pre-tax salary reduction room. The cap also applies per employee, not per dependent – so an employee with three children in Trump Accounts gets $2,500 total across all three, not $2,500 per child.

The $5,000 aggregate cap per beneficiary covers employer contributions plus any post-tax contributions, including those made through payroll deduction. Government contributions – including the Treasury’s $1,000 pilot program payment – don’t count toward either cap. Because employer contributions count toward both caps, payroll needs to track them at two levels – the employee level for the Section 128 cap and the beneficiary level for the $5,000 cap.

Nondiscrimination Requirements

Section 128 Trump Account contribution programs carry nondiscrimination requirements similar to those that apply to dependent care assistance programs under Section 129.

That means the program must be tested for nondiscrimination in contributions, benefits and eligibility. Employees must also receive notification of the program and statements of benefits provided. 

What Changes at the End of the Growth Period

Trump Accounts have a growth period that runs until January 1 of the year the beneficiary turns 18. After that date, employers can no longer make Section 128 contributions – that tax exclusion applies only while the beneficiary is under 18.

Employees can still contribute through post-tax payroll deductions after the growth period ends, as long as the program meets IRA payroll deduction safe harbor conditions.

Action Steps for Payroll

July 4 is just around the corner. Before the first contribution processes, payroll teams need to work through several setup decisions:

• Confirm whether your organization plans to offer Section 128 employer contributions, employee salary reduction through a cafeteria plan, or both.
• Establish or amend a Section 125 cafeteria plan to allow Trump Account contributions if that option is part of your program.
• Set up separate deduction codes for Section 128 contributions and post-tax employee deductions.
• Configure limit tracking at the employee level for the $2,500 cap and the beneficiary level for the $5,000 cap.
• Coordinate with HR on nondiscrimination testing requirements.