Buried in the Trump Account rules is a genuinely new employee benefit: from July 4, 2026, your employer can put up to $2,500 a year into your child’s Trump Account, and none of it counts as your income. Here is how the section 128 exclusion works, what it does to the contribution cap, and the one tax catch employees should understand.
The new section 128 exclusion
The One, Big, Beautiful Bill Act added IRC section 128, which lets an employer contribute to the Trump Account of an employee — or of the employee’s dependent — and excludes up to $2,500 per year of those contributions from the employee’s gross income (the limit is cost-of-living adjusted after 2027). No income tax, and it does not run through your W-2 wages like a cash bonus would.
Compare that with a $2,500 cash bonus you then contribute yourself: at a 22% marginal rate plus payroll taxes, roughly $700 evaporates before the money reaches the account. The section 128 route delivers the full amount.
It must come through a TACP
Employers cannot just wire money to an account. Contributions must be made under a written Trump Account Contribution Program (TACP) — a formal plan document, similar in spirit to other section 1xx benefit plans, with its own nondiscrimination requirements so the benefit is not funneled only to executives. The IRS’s initial guidance (Notice 2025-68 and the follow-on employer guidance) sets out the program requirements; expect benefits providers to offer turnkey TACPs the way they do for dependent-care FSAs.
If you run payroll or sit in HR: the demand signal from employees with young kids will arrive fast once accounts open on July 4, 2026.
The cap interaction: employer money eats family headroom
Trump Accounts have a $5,000 combined annual cap on family plus employer contributions. Employer money counts inside that cap.
Worked example: your employer contributes the full $2,500 in 2026. Your family can then add at most $2,500 of its own money that year. Want to max the account? Your out-of-pocket is only $2,500 — the employer covered the rest. The cap math is automatic in our calculator, which keeps the employer dollars first (they are the free ones) and clamps family contributions to the remainder.
Note what does not eat headroom: the $1,000 pilot deposit and any state or charity seed contributions sit outside the cap entirely.
The basis catch
Section 128 money is excluded from your income going in — and the price is that it creates no basis in the account. When your child eventually withdraws, employer contributions are taxed as ordinary income, just like the account’s investment earnings. Your own after-tax family contributions, by contrast, come back tax-free.
It is still unambiguously free money: your child pays tax at their (likely low) rate decades from now on dollars you never paid tax on at all. But it means the at-18 balance is not all spendable — the Trump Account Calculator splits the projected balance into tax-free basis and taxable remainder so you can see the real after-tax number.
What employees should ask HR before July 4, 2026
- Will we offer a TACP, and from when?
- Is there a match or a flat contribution, and is it per employee or per child?
- Does the program cover dependents’ accounts (the usual case) or employee accounts only?
- How do I hand over the account details once my child’s Form 4547 election is processed?
For the full account rules — eligibility, the $1,000 pilot, investments, and withdrawal tax — see Trump Accounts Explained, and weigh the account against a 529 in Trump Account vs 529.