Connect with us

News

Dependent care and Trump Account rules arrive in one IRS proposal

Published

on

CBIZ’s September 2026 regulatory and legislative update lists the DCAP changes and the Trump Account rules as separate items, and many compliance calendars do the same. But law firm Troutman Pepper Locke said the Trump Account nondiscrimination tests are modeled on the DCAP rules. Plan documents, testing, payroll coding and employee notices for the two programs will probably have to be worked on together.

DCAP testing gets some relief

The proposal helps employers that have been nervous about testing. The pretax exclusion for dependent care assistance went up to $7,500 in 2026 from $5,000, and Groom Law Group said the jump had made employers worry about passing the average benefits test.

Under the proposal, only participating employees would count in the denominator of the 55 percent average benefits test, CBIZ said. OneDigital, a benefits consultancy, said that means employees who actually receive more than $0 in DCAP benefits. Groom Law Group called that change the most useful part of the proposal.

It would also add a 90 percent eligibility safe harbor, according to OneDigital. Under it, a plan would generally count as nondiscriminatory if the share of eligible non-highly compensated employees is at least 90 percent of the share of eligible highly compensated employees (HCEs). CBIZ put the 2026 HCE threshold at $160,000.

Employers that fail a test wouldn’t have to unwind the benefit. Mayer Brown said non-HCEs would generally keep their tax treatment and HCEs could have the excess included in income. CBIZ described that as moving the discriminatory portion into taxable W-2 wages.

Read the full article here

Trending