Alabama Just Made History: First State to Offer Tax-Deductible Portable Benefits for Independent Workers
On April 10, 2025, Alabama Governor Kay Ivey signed a groundbreaking new law that could reshape the future of work in America. The bill doesn’t just protect companies that contribute to independent workers’ benefits—it actively incentivizes them to do so.
Alabama will become the first state in the nation to offer tax-deductible portable benefits contributions for independent workers. That means:
Companies can deduct 100% of their contributions to portable benefits accounts as business expenses.
Independent workers can deduct both their own contributions and any made on their behalf by companies.
This is a massive shift—transforming portable benefits from a compliance concern into a financial opportunity.
From Safe Harbor to Supercharger
In recent years, states like Utah and Tennessee have passed safe harbor laws that give companies legal clarity to contribute to independent worker benefits without triggering employee classification and the flexibility of contract work.
Alabama just took the next step.
By making these contributions tax-deductible, the state is doing more than providing legal cover—it’s sending a strong signal: building financial security for independent workers isn’t just allowed—it should be encouraged.
Why It Matters
For decades, access to tax-advantaged benefits like health coverage, retirement savings, and education assistance has been reserved for traditional employees. Independent workers—who now make up more than one-third of the U.S. workforce—have largely been left out.
This new law helps level the playing field, giving independent workers the same kind of access to flexible, portable, and tax-friendly benefits that full-time employees enjoy. It also lowers the cost of doing the right thing for businesses, unlocking new ways to attract, retain, and support 1099 talent.
And that’s not just theory—companies like DoorDash, Lyft, and Target are already piloting contributions to portable benefits accounts in Utah, Pennsylvania & Georgia, while Tennessee passed their own Portable Benefits legislation just last week.
Meanwhile, at the federal level, Representative Kevin Kiley (R-CA) introduced the Modern Worker Security Act, the first-ever federal safe harbor bill for independent workers. If passed, it would allow companies nationwide to contribute to portable benefits without affecting workers’ employment status.
Alabama’s tax incentives could dramatically accelerate adoption by giving companies a financial reason to follow suit.
Fueling Innovation for a more Financially Secure Workforce
Alabama’s approach doesn’t just pave the way for contributions—it creates opportunity for innovation. With clearer rules and better incentives, we’re likely to see a wave of new tools, platforms, and services emerge to meet the needs of modern workers.
Think of this as the first domino: other states may soon follow, and policymakers in Washington could take note too. If Alabama can make portable benefits both safe and smart for businesses, why can’t the rest of the country?
The modern American workforce is diverse, dynamic, and increasingly independent. It’s time our benefits systems caught up from their 1940s-era birth.
Alabama’s new law is a critical step in that direction—marking a shift from whether we should support independent workers to how well we can do it. With tax incentives now on the table, the answer just got a whole lot clearer.
