S-Corp Trump Account Contributions: The New 2026 Rules
Starting in 2026, your S-corp can make a Trump Account contribution of up to $2,500 a year to an employee’s account, tax-free to the employee and deductible to the business. It’s one of the newer pieces of the One Big Beautiful Bill Act to get implementing guidance, and Treasury and the IRS laid out the rules for using it in proposed regulations released August 11, 2026. There’s a catch, and it’s the same one that shows up everywhere else in the S-corp fringe benefit rules: if you own more than 2% of the company, you can set this benefit up for your staff, but you can’t take it yourself.
What a Trump Account actually is
A Trump Account is really a retirement account for a minor. Section 530A of the Code, added by the One Big Beautiful Bill Act (OBBBA) when it became law on July 4, 2025, created a special type of traditional IRA that can be opened for a child before the calendar year the child turns 18. While the child is in the “growth period” — which runs through December 31 of the year they turn 17 — the money has to track a low-cost index fund of U.S. stocks, with no leverage and fees capped at 0.1% annually. Parents and guardians sign up using Form 4547 through the IRS Individual Online Account; accounts officially launched on July 4, 2026, which is also the earliest date any contribution could be made. A U.S. citizen child born between 2025 and 2028 qualifies for a one-time $1,000 seed deposit from the government under a separate pilot program.
Total contributions to a Trump Account from all sources — parents, relatives, employers — are capped at $5,000 a year, adjusted for inflation. The government’s $1,000 pilot deposit doesn’t count against that limit. An employer’s Section 128 contribution does.
How S-Corp Trump Account Contributions work
Section 128, also added by the OBBBA, lets an employer contribute to the Trump Account of an employee or an employee’s dependent and exclude that amount from the employee’s taxable income, up to $2,500 per employee per year — that’s the figure for both 2026 and 2027, indexed for inflation starting in 2028. The cap applies to the employee, not the account. An employee with three kids on the payroll still only gets one $2,500 exclusion for the year, and that limit stacks across every employer that employee works for — it isn’t $2,500 per job.
The benefit has to run through a formal, written “Trump Account contribution program” — Section 128(c) requires the plan to meet requirements similar to the dependent care assistance rules in Section 129(d)(2), (3), (6), (7), and (8), which cover nondiscrimination, eligibility, employee notice, and annual reporting. The IRS’s 2026 W-2 instructions have the employer report these contributions in box 12 using code TA. One detail that trips people up: the contribution is excluded from federal income tax and withholding, but it’s still wages for FICA and FUTA purposes, so payroll tax still applies even though income tax doesn’t.
An employee can also fund a contribution through salary reduction under a Section 125 cafeteria plan — but only into a dependent’s account, never their own. The proposed regulations explain why: a contribution to the employee’s own account would be deferred compensation the employee still has a claim on, which a cafeteria plan isn’t allowed to provide. Once the money moves into a dependent’s account, the employee gives up control of it, so that restriction doesn’t apply.
Why you, the owner, are locked out
The proposed regulations address this directly, because Treasury got a comment asking exactly this question for partners and S-corp shareholders. Their answer: for Section 128 purposes, “employee” means a common-law employee, and that definition excludes anyone who counts as self-employed under Section 401(c)(1) — a partner in a partnership, a sole proprietor, or a shareholder who owns more than 2% of an S-corp under Section 1372(b). That’s the same rule that already keeps 2% shareholders out of tax-free health insurance and HSA contributions — see our piece on S-Corp HSA Contributions for 2% Shareholders for how the mechanics play out there. Section 1372(b) also pulls in the family attribution rules of Section 318, so stock owned by your spouse, kids, or parents counts toward your ownership stake — a spouse you’ve put on payroll can be attributed more than 2% ownership and be locked out right along with you.
Being excluded from participating doesn’t stop you from sponsoring the program. You can set up a Trump Account contribution program that covers your rank-and-file W-2 employees even though you, as a more-than-2% shareholder, aren’t eligible to receive contributions under it yourself. You can still open a Trump Account for your own kids and fund it personally — you just can’t route that funding through the tax-free employer channel.
Setting up a compliant program
Getting S-Corp Trump Account Contributions right starts with the written plan. It has to spell out which classes of employees are eligible, how contributions are calculated, how an employee designates which Trump Account (their own dependent’s) receives the money, the notice and reporting procedures, and the plan year. You also have to give eligible employees reasonable notice that the program exists and how it works, and furnish an annual statement of contributions — satisfied automatically if you report it correctly on the W-2.
Nondiscrimination testing is where the real work is. A Trump Account contribution program can’t favor highly compensated employees, defined under Section 414(q), in eligibility or in the amount contributed. If the plan fails that testing, the consequence is narrower than it sounds: only the highly compensated employees lose the tax-free treatment, not the entire workforce. For a small S-corp with a handful of employees, running that test correctly, plus the account-verification and trustee-notification steps the proposed regulations require, is enough process that it’s worth setting up with help rather than guessing.
One more thing worth flagging: these are proposed regulations, not final ones. Treasury and the IRS are taking comments through September 25, 2026, and a public hearing is scheduled for October 15, 2026. The core numbers — the $2,500 employee cap, the $5,000 aggregate account limit, the 2% shareholder exclusion — come straight from the statute and are locked in, but some of the administrative mechanics could still shift before a final rule is published. If you’re setting up a program now, plan to revisit the paperwork once the rule is finalized.
S-Corp Trump Account Contributions are a cheap way to add a benefit your employees will actually notice, but the eligibility and nondiscrimination rules are easy to get wrong when you’re also the owner on payroll. Talk to us before you draft the plan document. Getting the written plan right the first time is a lot cheaper than unwinding a program that turns out not to qualify.