Treasury and the IRS have proposed a rule that would let an employer allow workers to set aside part of a paycheck, before taxes, into a child’s Trump Account, using the same payroll structure many workers already use for a health or dependent-care flexible spending account. The rule, published Aug. 11, is still a proposal, though the IRS says employers and taxpayers may already rely on it. Under the plan, a worker could direct pretax dollars into a dependent’s account only if the employer chooses to offer the option through its own cafeteria plan.
Inside the planner: The Retirement Tax & Withdrawal Planner includes the provisional-income calculator and the account withdrawal order, the two pieces that matter once a paycheck redirects pretax dollars toward a child’s account instead. Model how pretax Trump Account deposits change provisional income →
Treasury’s Proposed Rule
The proposed regulation, published in the Federal Register on Aug. 11, 2026, under docket number 2026-16314, would permit an employer to let employees make salary-reduction contributions to a dependent’s Trump Account through a section 125 cafeteria plan, the same legal structure that already governs pretax health and dependent-care benefits, according to the Federal Register notice. Treasury and the IRS have separately confirmed that Trump Accounts are the newborn and child savings accounts created under last year’s tax law, and this proposal addresses how a working parent’s own paycheck can feed one through payroll rather than through a contribution made outside of work. The proposal covers only the payroll mechanism itself; it does not create the underlying Trump Account program, which already exists and already accepts outside contributions from a parent, grandparent or other family member regardless of whether an employer ever adopts this option.
How the Payroll Deduction Would Work
Because the mechanism runs through a section 125 cafeteria plan, an employer has to affirmatively adopt it before any employee can use it, the same way a company chooses whether to offer a dependent-care flexible spending account today. A worker whose employer adopts the option would elect an amount at open enrollment or a qualifying life event, and that amount would come out of each paycheck before income and payroll taxes are calculated, landing directly in the named dependent’s Trump Account rather than in the worker’s own take-home pay. Because the deduction happens before taxes, it would also lower the wages reported on a worker’s W-2 for the year, the same way an existing health or dependent-care flexible spending election already does.
The $5,000 Annual Limit
The proposed rule sets the salary-reduction contribution ceiling at $5,000 a year, adjusted for inflation going forward, according to the same Federal Register notice. That figure covers the payroll-deduction route specifically; a separate part of the same proposed regulation addresses up to $2,500 an employer could contribute directly and tax-free on a worker’s behalf, a provision the IRS has scheduled a public hearing on for Oct. 15, 2026. The two contribution paths, one funded by the worker’s own paycheck and one funded by the employer, are addressed together in the same rulemaking but work through different funding sources, and a family could potentially see money arrive through both channels if an employer chose to offer each one. Neither figure is a household cap on total contributions to a Trump Account from every source combined, since a parent or grandparent contributing outside of payroll operates under the account’s own separate contribution rules rather than either number in this proposed rule.
Proposed But Usable Now
Treasury and the IRS have said taxpayers and employers may rely on the proposed rule while it moves toward final form, which is the status the notice itself describes as “proposed; reliance permitted.” The Treasury Department has already launched Trump Accounts more broadly this year, and this rule is one piece of the regulatory buildout still working through the federal rulemaking process rather than a finished, permanent regulation. A worker whose employer wants to offer payroll-deduction contributions this year is not required to wait for a final rule before acting on the proposal, though the specifics could still shift once Treasury reviews public comments and finalizes the text.
What This Doesn’t Change
The proposal is an option for an employer to adopt, not an automatic feature of every job. A worker whose employer has no cafeteria plan, or chooses not to add this benefit to it, would still have to contribute to a child’s Trump Account the way most account holders already do, outside of payroll. The rule also does not touch how money already inside a Trump Account is invested or eventually withdrawn once the child reaches adulthood, which remains governed by the separate rules Treasury has issued for the accounts themselves, so a family weighing the payroll option is really only deciding how the money gets in, not what happens to it afterward. Nothing in the proposal changes who can open a Trump Account in the first place or what a child’s account can eventually be used for once withdrawals begin in adulthood; those questions are answered elsewhere in the law that created the accounts, not in this payroll-specific proposal.
The Tax Question A Payroll Deduction Raises
Treasury’s proposed rule lets a worker redirect pretax paycheck dollars into a child’s Trump Account, but it doesn’t address how that payroll deduction interacts with a household’s own retirement tax picture, including how lower pretax income can shift the provisional-income math for someone already drawing Social Security. A parent or grandparent contributing through payroll still has to work out separately which of their own retirement accounts to draw from first once take-home pay changes.
The Retirement Tax & Withdrawal Planner includes the provisional income calculator and the account withdrawal order, for a household juggling a pretax payroll move against its own retirement math.
Check the provisional-income math in The Retirement Tax & Withdrawal Planner.
This article was produced with AI assistance and reviewed by a human editor, who confirmed the $5,000 limit and the proposed status against the Federal Register notice itself.
