Are employer Trump account contributions subject to Social Security and Medicare tax?

Most practitioners read them as FICA wages, because Congress excluded them from income under IRC §128 but did not amend the §3121(a) definition of wages, the same pattern as employer adoption assistance. That means roughly 7.65% employee-side and 7.65% employer-side tax on the contribution until Treasury says otherwise. They are excluded from federal income tax withholding and reported on Form W-2, Box 12, code TA.

Is the $2,500 Trump account employer contribution legit for S corp owners, or an audit trap?

The exclusion itself is statutory, IRC §128, effective for tax years beginning after December 31, 2025, so the strategy is legitimate. The unsettled part for owners is whether §1372 treats a more-than-2% S corp shareholder as a partner for this benefit, which would deny the exclusion the way it does for several other fringe benefits. Until the IRS answers that, run the program under a written plan, report code TA, and be prepared to adjust if guidance goes the other way.

Can I still contribute my own money to my child's Trump account if my business puts in $2,500?

Yes, but everything shares one cap. Total contributions per child are limited to $5,000 for 2026, indexed after 2027, and the employer's $2,500 counts against it, so the family can add up to $2,500 more. The $1,000 federal pilot contribution for children born 2025 through 2028 does not count against the $5,000.

Do I have to offer Trump account contributions to all of my employees?

A §128 program must satisfy eligibility and benefits requirements similar to §129(d)(2), (3), and (8), so it cannot be designed to favor highly compensated employees, which for 2026 means anyone paid over $160,000 in 2025 or any more-than-5% owner. If you have non-highly-compensated staff, they need meaningful access, and the average benefit provided to them must be at least 55% of the average provided to the highly compensated group.

Can a sole proprietor use the Trump account employer contribution for their own kids?

Not for their own children. IRC §128 excludes the contribution from the gross income of an employee, and a sole proprietor or partner is not an employee of the business; unlike the dependent care rules in §129(e)(3), the statute has no provision treating self-employed individuals as employees. A sole proprietor can still sponsor a program for W-2 staff, and can contribute personally to a child's account within the $5,000 annual limit.

The Journal / Business Tax

The S Corp Trump Account Employer Contribution: $2,500 Into Your Kid's Account, Income-Tax-Free.

By Ewan Morkel, EAJuly 5, 20266 min read

Contributions to Trump accounts opened July 4, 2026, and new IRC §128 lets your corporation put $2,500 a year into your child's account without touching your taxable income. Here is the part nobody hands you: the written plan, the borrowed dependent care tests, and the FICA asterisk.

Trump accounts opened for contributions on July 4, 2026, and within a day the most interesting questions were coming from business owners, not parents. The S corp Trump account employer contribution lets your corporation put up to $2,500 a year into your child's account without the money ever landing in your taxable income, courtesy of a brand new code section, IRC §128. For an owner who was going to fund the account anyway, routing the money through the business looks like free tax savings. It mostly is. The fine print is where owners get into trouble.

Quick orientation if the account itself is new to you. A Trump account is a tax-deferred account for a child under 18, created under IRC §530A by the One Big Beautiful Bill Act signed July 4, 2025. Anyone can contribute up to a combined $5,000 per child per year, after tax, with the cap indexed for inflation after 2027, and children born from 2025 through 2028 get a one-time $1,000 federal pilot contribution that does not count against the cap. I covered claiming that $1,000 in my Form 4547 walkthrough. This post is about the employer layer on top.

The mechanics

How the S corp Trump account employer contribution works

Section 128, added by OBBBA §70204(b)(1) and effective for tax years beginning after December 31, 2025, excludes from an employee's gross income up to $2,500 per year of employer contributions to the Trump account of the employee or the employee's dependent. The limit is per employee, not per child, so two kids still means $2,500 total, indexed for inflation after 2027. The corporation deducts the contribution as compensation, and the amount shows up on the W-2 in Box 12 under new code TA rather than in Box 1 wages.

For an S corp owner the appeal is obvious. You are a W-2 employee of your own corporation, so a contribution to your child's account can ride along as excluded income. Compare that to the alternative, paying yourself an extra $2,500 of salary, paying federal income tax on it, and then contributing personally. At a 32% bracket that detour costs $800 in income tax that the §128 route skips. Remember the employer contribution counts against the child's $5,000 annual cap, so the family can add up to another $2,500 on top of it.

The paperwork that makes it real

A written plan, plus nondiscrimination tests borrowed from §129(d)

The exclusion only works if the contribution is paid under a Trump account contribution program, which §128(c) defines as a separate written plan of the employer, for the exclusive benefit of employees, meeting requirements similar to paragraphs (2), (3), (6), (7), and (8) of §129(d), the dependent care assistance program rules. In English: eligibility and benefits cannot discriminate in favor of highly compensated employees, eligible employees must get reasonable notice that the program exists, each employee must receive a statement of the year's contributions by January 31, and average benefits provided to non-highly-compensated employees must be at least 55% of the average provided to the highly compensated group.

For 2026, a highly compensated employee under §414(q) is anyone who earned more than $160,000 in 2025 or who owns more than 5% of the business, and stock attribution makes your spouse and children owners too. So if your S corp has non-owner staff, you cannot quietly run a program that only funds your own kids' accounts. The staff need real access, and the 55% test has to hold. If the corporation employs only you, or only you and your spouse, there is no non-highly-compensated group to shortchange, and the tests are effectively a non-event.

One omission matters more than anything the statute includes. Congress did not import §129(d)(4), the rule that caps benefits going to more-than-5% owners at 25% of what a dependent care program pays out. That concentration test is what kills most owner-only DCAPs, and it simply is not on §128's list. Owners get more room here than the dependent care analogy would suggest.

The asterisks

The payroll tax catch and the 2% shareholder question

Two things are not settled. First, FICA. Section 128 excludes the contribution from gross income, but Congress did not amend the §3121(a) definition of wages, so most practitioners expect the contribution to be treated like employer adoption assistance: no federal income tax withholding, but Social Security and Medicare tax still due on both halves, roughly $383 combined on a $2,500 contribution. Second, §1372(a) treats a more-than-2% S corp shareholder as a partner for employee fringe benefit purposes, which is why your S corp cannot hand you tax-free health coverage the way it can a rank-and-file employee. Whether §128 falls in that bucket is an open question. Notice 2025-68 gave the first round of Trump account guidance in December 2025, and the March 2026 proposed regulations covered the accounts and the $1,000 pilot, but the employer-side questions are still in the queue.

Two routes to $2,500 in a child's Trump account

Amount landing in the child's account: $2,500
Route 1: extra salary, then contribute personally. Federal income tax at 32%: $800
Route 1: FICA on the extra salary, both halves: $383
Route 2: §128 employer contribution. Federal income tax: $0
Route 2: FICA, likely due pending guidance: $383
Annual tax saved by the §128 route: $800

Tax year 2026. Assumes an owner in the 32% federal bracket with W-2 wages under the $184,500 Social Security wage base, and assumes the IRS confirms §128 contributions are FICA wages, which practitioners expect but guidance has not settled. If final rules exclude them from FICA, the §128 route saves $1,183 instead.

Before the first contribution

How to set this up cleanly

01Open the child's account and claim the $1,000 pilot first if your child was born in 2025 or later. That election is yours as a parent and is separate from anything the business does.
02Adopt a written §128 plan before money moves. It must be a separate document, not a paragraph in the handbook, and it should name the eligible class, the contribution amount, and how dependents are defined.
03Decide what you will offer staff. If you have non-owner employees, price the 55% average benefits test into the decision before you fund your own kids' accounts.
04Run it through payroll correctly: out of Box 1, into Box 12 with code TA per the 2026 Form W-2 instructions, with FICA withheld until guidance says otherwise.
05If your kids already work in the business, a program can also fund the Trump account of an employee who is under 18, which stacks neatly with the hiring your kids strategy. Attribution still makes them highly compensated, so the testing does not disappear.