Alabama Act 2025-119 provides for the establishment of portable benefit accounts for independent contractors.  This act is intended to help independent contractors, including gig workers, who do not have employer-sponsored health insurance or other benefits and provides for the deduction of contributions to the accounts for Alabama income tax purposes for tax years beginning after December 31, 2025.

Frequently Asked Questions

What is a portable benefit account?

A portable benefit account is a worker-owned financial account administered by a qualified provider (like a bank or investment firm) that stays with an independent contractor from job to job. It allows gig workers and freelancers to accumulate funds for essential benefits without being tied to a single employer.

What kinds of benefits can these accounts fund?

The accounts are used to purchase one or more of the following approved benefit plans:

• Health benefits (medical, dental, vision insurance)
• Income replacement insurance (disability policies)
• Life insurance
• Retirement benefits

Who administers these accounts?

An independent contractor must open the account with a qualified portable benefit account provider. This includes banks, investment management firms, or technology providers and program managers offering services through a bank or investment firm.

Who can contribute a portable benefit account?

Any person or entity can contribute. This includes the independent contractor themselves or any hiring party (such as app-based platforms like DoorDash or Uber, businesses, or individuals who contract for their work).

What are the rules if a hiring party deducts contributions from a contractor’s pay?

A hiring party can withhold a percentage of compensation to fund the account only if the arrangement meets strict requirements:

• Written Agreement: It must be explicitly agreed to in a signed services agreement or separate notice that is clear, unambiguous, and prominently displayed.
• Strictly Voluntary: The contractor must actively opt in to the withholding.
• Flexible Freedom: The contractor must be allowed to opt out of the agreement at any time.

Does contributing to an account change a worker’s legal status?

No, the act explicitly creates a safeguard stating that a hiring party’s contributions cannot be used as a criterion by Alabama courts to determine a worker’s employment classification.

How do these accounts “move” with the worker?

Unlike traditional employer-sponsored benefits that terminate when you leave a job, portable benefits are tied to the individual, not the position. The account stays with the worker as they move between different projects, platforms, clients, or jobs.

What are the Alabama state tax benefits?

For tax years beginning after December 31, 2025, Alabama provides the following tax incentives:

• For Independent Contractors: You can deduct 100 percent of the contributions made to the account as an adjustment to income on your Alabama individual income tax return. This includes both the money you contribute yourself and any money contributed on your behalf by a hiring party as compensation.
  
• For Hiring Parties/Businesses: If a business contributes its own funds to a contractor’s account as compensation, it can deduct 100 percent of those contributions as a business expense on its Alabama state income tax return.