Trump accounts opened for contributions on July 4, 2026, and the first employer contribution programs are being drafted now. On August 11, 2026, Treasury and the IRS published proposed regulations that answer most of the questions New Mexico employers have been asking: what the plan document must say, whether the company can steer money to a preferred trustee, how the contributions hit payroll, and which owners can’t participate. That last answer is the one that matters most in a state where the typical employer is a family-owned S corporation. The proposed rules also deliver something benefits lawyers have wanted for four decades: the first regulatory nondiscrimination guidance for dependent care assistance programs, which will change how existing plans are tested.
What are Trump accounts, and where do employer contributions fit?
The 2025 reconciliation act added 26 U.S.C. § 530A, creating a tax-favored account for children under 18 that accepts up to $5,000 a year in total contributions, invested in low-cost U.S. equity index funds, with no distributions before the beneficiary turns 18 and IRA-style treatment afterward. Children born from 2025 through 2028 receive a one-time $1,000 federal deposit under § 6434, claimed on Form 4547. Employers can contribute through a program under 26 U.S.C. § 128, which excludes up to $2,500 a year per employee from the employee’s income, either as an employer-funded benefit or through pre-tax salary reduction under a cafeteria plan. Private money is arriving too: the Dell family pledged $250 for every child ten and under in ZIP codes with median household income of $150,000 or less, and deposits were reported to begin this month. Because that threshold captures essentially every ZIP code in New Mexico, most children in the state under ten now have or will have a funded account, which makes an employer match a benefit employees can see growing.
What do the proposed regulations require of an employer program?
The notice of proposed rulemaking, REG-101355-26, 91 Fed. Reg. 51611 (Aug. 11, 2026), requires a separate written plan that identifies eligible employee classes, states the contribution rules and whether salary reduction is permitted, describes how employees designate the destination account, sets the plan year, and includes notice, certification, and correction procedures. An employer may not limit contributions to accounts held by a particular trustee; employees choose. The employer must give eligible employees reasonable notice of the program, may rely on an employee’s written certification that the beneficiary is an eligible child, but must verify through the trustee or a payroll provider that the destination is actually a Trump account. Contributions are reported on Form W-2 in Box 12 with Code TA, and that reporting satisfies the annual statement requirement. The $2,500 limit is per employee, not per child, and it aggregates across all employers; the employer polices only its own program, and any excess is taxable wages. Contributions are exempt from income tax withholding but remain subject to FICA and FUTA. Salary reduction is allowed only for contributions to a dependent’s account, not the employee’s own, and unlike most cafeteria plan elections it must be changeable at least monthly. If a contribution later turns out to be ineligible, the employer must notify the trustee within a reasonable period, with 21 days deemed reasonable. Employers may rely on the proposed rules now.
Which New Mexico owners and families are excluded?
Only common-law employees may participate. Partners in a partnership and shareholders who own more than two percent of an S corporation are self-employed for this purpose and can’t receive program contributions for their own children, the same rule that already governs their health insurance and dependent care benefits. In New Mexico, where most closely held businesses with employees are S corporations or LLCs taxed as partnerships, that means the owner who adopts the program usually can’t use it for her own family, though her employees can, and the attribution rules extend the exclusion to the owner’s spouse and certain relatives on payroll. A C corporation owner-employee is a common-law employee and can participate, which is one more factor in the entity-choice analysis for a family business considering a benefits build-out. On the employee side, the beneficiary must be an eligible child with a Social Security number, and the certification the employer collects should say so.
How do the nondiscrimination tests work for a small employer?
A program must pass three tests modeled on the dependent care rules in 26 U.S.C. § 129(d). Contributions and benefits can’t favor highly compensated employees, a test a program passes automatically if it offers the same benefit on the same terms to everyone eligible. The eligibility classification must be reasonable and nondiscriminatory, with a safe harbor where the non-highly compensated participation percentage is at least 90 percent of the highly compensated percentage and a sliding scale below that. And the average benefit provided to non-highly compensated employees must be at least 55 percent of the average provided to the highly compensated group, which is where salary-reduction-only programs fail when only the higher-paid staff elect to defer. A matching contribution of the $1,000 federal pilot deposit is excluded from the first and third tests but not the eligibility test. The same rulemaking proposes the first regulations ever issued under § 129(d), including the rule that no more than 25 percent of dependent care benefits may go to owners of more than five percent of the business. New Mexico employers with existing dependent care plans should expect their administrators to retest under the new framework, particularly now that the dependent care exclusion rose to $7,500 for 2026.
What does a contribution cost, and what does it save in New Mexico?
Take an Albuquerque dental practice organized as an S corporation with twelve employees, four of whom have children under 18, that decides to contribute $2,500 a year for each eligible child’s parent. The practice’s cost is $10,000 plus the employer share of FICA, about $765, plus a small FUTA amount. Each participating employee excludes $2,500 from federal income tax, saving $550 at a 22 percent rate, and because New Mexico personal income tax starts from federal adjusted gross income and the state has adopted no decoupling provision, the exclusion carries through to the state return, saving another $122 or so at New Mexico’s 4.9 percent rate. Compared with a $2,500 cash bonus, the employee nets roughly $670 more in value and the employer pays the same FICA either way. The owner’s own three children get nothing from the program, but the owner can still contribute up to $5,000 per child directly with after-tax dollars, and New Mexico separately allows a state income tax deduction for contributions to its own 529 plan, The Education Plan, which for an owner’s family may be the better first dollar. Program contributions to a Trump account count toward the child’s $5,000 annual cap, so families with an employer match and their own contributions need to coordinate.
Should a New Mexico small business adopt a program this year?
For an employer with a young workforce, the economics are favorable and the administrative load is modest once the payroll vendor supports Code TA and multi-trustee remittance. The cautions are practical. Comments on the proposed regulations are due September 25, 2026, with a hearing October 15, and while reliance is permitted, final rules could adjust the certification and verification duties. A program that permits salary reduction requires a cafeteria plan amendment describing the benefit and its monthly election rule. The nondiscrimination tests punish programs that only the front office uses, so an employer-funded flat contribution is safer than a deferral-only design. And every owner should confirm entity type before promising the benefit to her own family, because the two percent S corporation rule has disappointed a great many New Mexico business owners on health insurance already.
| Feature | Trump account employer program (§ 128) | Dependent care assistance (§ 129) | New Mexico 529 (The Education Plan) |
|---|---|---|---|
| Annual exclusion or benefit | $2,500 per employee, income tax only | $7,500 for 2026, income and FICA | No federal exclusion; NM state deduction for contributions |
| Owner participation (S corp 2%+, partners) | Excluded | Excluded | Anyone may contribute |
| Nondiscrimination testing | Three tests, 55% average benefits | Same tests plus 25% owner-concentration | None |
| Salary reduction permitted | Dependents’ accounts only, monthly elections | Yes, annual election | Payroll deduction, after tax |
| Payroll reporting | W-2 Box 12 Code TA | W-2 Box 10 | None |
Frequently Asked Questions
Can an S corporation owner contribute to her own children’s Trump accounts through the company program?
Not through the § 128 program if she owns more than two percent of the S corporation; she’s treated as self-employed. She can contribute directly with after-tax dollars up to the child’s $5,000 annual limit.
Are employer Trump account contributions subject to payroll tax?
They’re excluded from federal income tax up to $2,500 per employee, but FICA and FUTA still apply, and the employer must report them on Form W-2 in Box 12 with Code TA.
Does New Mexico tax employer Trump account contributions?
No. New Mexico personal income tax starts from federal adjusted gross income, so an amount excluded federally under § 128 is excluded for New Mexico purposes as well.
Can the employer require employees to use a particular trustee?
No. Under the proposed regulations a program fails if it steers contributions to one trustee. Employees choose the account, and the employer verifies it’s a valid Trump account.
What happens if only higher-paid employees participate?
The program can fail the 55 percent average benefits test, which makes the exclusion unavailable to the highly compensated group. An employer-funded contribution offered equally to all eligible employees avoids the problem.
Can an employer rely on the proposed regulations before they’re final?
Yes. The preamble permits reliance on the proposed rules pending final regulations. Comments are due September 25, 2026.
How North Star Law Firm Can Help
North Star Law Firm advises New Mexico small businesses on employee benefit design, entity structure, and the payroll tax and reporting consequences of new federal programs, and represents employers when the IRS questions how a benefit was administered. Phillip Zagotti, JD/CPA, represents taxpayers before the IRS and the U.S. Tax Court and brings a CPA’s view to the cost, testing, and reporting questions that decide whether a benefit is worth offering. The firm’s tax law practice handles benefit and compensation planning, its entity selection practice addresses the S corporation and partnership rules that determine owner eligibility, and its trust and estate practice helps families coordinate Trump accounts, 529 plans, and gifts to children. Contact North Star Law Firm before adopting a plan document, because the design choices made now determine whether the program passes its first test.