Proposed rules reshape nondiscrimination testing and payroll setup for employers
Benefits teams planning Trump Account contributions will need to look at their dependent care assistance programs at the same time, because one set of proposed regulations covers both.
The Internal Revenue Service (IRS) and the Treasury Department issued the proposed rules on August 11, 2026. They cover employer contributions to Trump Accounts under Section 128 of the Internal Revenue Code and nondiscrimination testing for dependent care assistance programs (DCAPs) under Section 129, according to the Federal Register notice for the proposal. Comments were due September 25, 2026, and the IRS said in its announcement that a public hearing is set for October 15, 2026.
None of it applies until the rules are final. According to law firm Mayer Brown, they would take effect for plan years beginning on or after the date final regulations are published.
CBIZ's September 2026 regulatory and legislative update lists the DCAP changes and the Trump Account rules as separate items, and many compliance calendars do the same. But law firm Troutman Pepper Locke said the Trump Account nondiscrimination tests are modeled on the DCAP rules. Plan documents, testing, payroll coding and employee notices for the two programs will probably have to be worked on together.
DCAP testing gets some relief
The proposal helps employers that have been nervous about testing. The pretax exclusion for dependent care assistance went up to $7,500 in 2026 from $5,000, and Groom Law Group said the jump had made employers worry about passing the average benefits test.
Under the proposal, only participating employees would count in the denominator of the 55 percent average benefits test, CBIZ said. OneDigital, a benefits consultancy, said that means employees who actually receive more than $0 in DCAP benefits. Groom Law Group called that change the most useful part of the proposal.
It would also add a 90 percent eligibility safe harbor, according to OneDigital. Under it, a plan would generally count as nondiscriminatory if the share of eligible non-highly compensated employees is at least 90 percent of the share of eligible highly compensated employees (HCEs). CBIZ put the 2026 HCE threshold at $160,000.
Employers that fail a test wouldn't have to unwind the benefit. Mayer Brown said non-HCEs would generally keep their tax treatment and HCEs could have the excess included in income. CBIZ described that as moving the discriminatory portion into taxable W-2 wages.
Setting up a Trump Account program
Total contributions to a Trump Account are capped at $5,000 a year for 2026 and 2027. Employers can put in up to $2,500 of that per employee, not per child, according to Troutman Pepper Locke's analysis. The employer limit will be indexed for inflation after 2027.
Employer contributions are excluded from federal income tax. According to Porte Brown, there's no matching exclusion from wages for Federal Insurance Contributions Act (FICA) or Federal Unemployment Tax Act (FUTA) purposes, so payroll will still treat them as wages for those taxes.
CBIZ said employers would need a separate written Section 128 plan document and employee notices, and would have to let employees change pretax salary reduction elections at least every 30 days. Mayer Brown added that each employee must get an annual written statement of Section 128 contributions, which can be handled through Form W-2 reporting with Box 12 code "TA."
Pretax salary reduction through a Section 125 cafeteria plan is only allowed for contributions to a dependent's Trump Account, not the employee's own, according to Department of Labor Technical Release 2026-02, which cites Treasury. Troutman Pepper Locke also pointed to a safe harbor for employer matches tied to the $1,000 federal pilot contribution for children born from 2025 through 2028.
For payroll and HRIS teams, that means a new W-2 code, a new election window and new data moving between vendors, all of which depends on the links between payroll and benefits platforms that many employers are still trying to fix.
Uptake has been slow
Employers were cautious before the proposal came out. A Mercer poll in February 2026 found nearly 16 percent of employers planned to offer Trump Account funding or were seriously considering it, as HRD reported when Trump Accounts first launched in July. At that point payroll providers and account custodians were still building their systems.
Nondiscrimination testing only covers part of the fairness question, since the benefit mostly goes to employees with children.
"Inherently, offering this as a benefit would exclude childless employees," Bennett Hadley, financial security solution leader at Segal in New York City, told the Society for Human Resource Management (SHRM).
HRD's earlier breakdown of the Treasury guidance on Trump Accounts covered how contributions would work. The testing rules are now out as well, and the October hearing comes before anything is final.
