| Update Applicable to: | Effective Date |
| All Entities with Gig-Workers and Independent Contractors | December 31, 2025 |
What happened?
On April 10, 2025, Alabama passed Senate Bill 86, creating a tax-advantaged portable benefits program for independent contractors. The voluntary law allows businesses to support gig workers with benefit contributions, without changing their employment status or triggering tax complications.
Overview:
Starting December 31, 2025, Alabama will become the first state to offer a tax-advantaged, voluntary benefits program for independent contractors and gig workers.
How It Works:
- Contractors open their own Portable Benefit Account, administered by a bank, investment firm, or tech provider.
- Businesses can contribute:
- As a form of compensation, or
- By withholding a percentage of the contractor’s pay—only with written, opt-in consent.
- Contractors can opt out at any time.
Why It Matters: This law gives businesses a new way to attract and retain talent while helping independent workers build financial security, without changing how they are classified.
Additional Information:
Program Overview:
- Voluntary Participation: Businesses and contractors can choose to participate.
- Who Can Contribute: Any person or entity can contribute to a contractor’s Portable Benefit Account (including app-based platforms).
- Types of Benefits: Funds can be used for health insurance, retirement savings, life insurance, and income replacement plans.
- Tax Advantages:
- Businesses can deduct 100% of their contributions as business expenses.
- Contractors do not pay income tax on the benefits they receive and can deduct their own contributions.
- Preserves Contractor Status: Contributions do not create an employment relationship or trigger workers’ compensation obligations.
- Accounts Are Portable: Benefits stay with the contractor, not the business.
Source References
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