Lawmakers in both the House and Senate are looking at legislation that would allow employers to provide tax-free benefits to their independent contractors. A House Committee approved legislation that would create a safe harbor that would insulate employers and workers from workers being characterized as employees due to the provision of these “portable” benefits. Separately, a Senate committee held a hearing on similar proposals.

House: The House Education & the Workforce Committee approved legislation, H.R.1320, that would allow a company to provide tax-favored benefits like health insurance and retirement savings programs to their independent contractors. Also approved was a bill, H.R.1329, that would define a worker as an independent contractor rather than as an employee if the worker has “the opportunities and risks inherent with entrepreneurship, including managerial discretion or professional judgement.” Both bills were approved on party-line votes.

Senate: The Senate Health, Education, Labor and Pensions (HELP) Committee, on July 17, held a hearing on ways to provide tax-favored employer-sponsored benefits for independent contractors. The hearing focused on four bills that would establish a safe harbor to allow a company to choose to provide health and retirement savings benefits to independent contractors without risking having them classified as employees, create a statutory definition of employee that reflects common law rules, allow independent contractors to join association health plans (AHPs), and expand eligibility of independent contractors to join pooled employer plans (PEPs).

Committee members generally followed partisan lines in discussing these issues. Generally, Republicans favor finding a way to provide similar tax-favored benefits rules to benefits provided to independent contractors as those afforded to benefits provided to employees. There was also considerable concern expressed over California’s “ABC test” for independent contractors. Democrats, on the other hand, focused on the importance of employee status. Democrats also lauded state-run automatic IRA programs that provide tax-favored retirement savings opportunities to independent contractors.

Prospects: Legislation to expand eligibility for tax-favored benefit plans is popular among Republicans, and so long as they control the House, the Senate and the White House, there is a decent chance that such legislation could move. However, these bills likely would be scored as revenue losers, and that creates a hurdle to overcome in these days of spiraling federal deficits. In addition, there is the 60-vote threshold in the Senate that will probably work against prospects for Senate approval of the bills. Further, action on these issues will likely wait until after resolution of the government funding issues facing Congress before the end of Fiscal Year 2025 on September 30. So, do not be surprised if there is action on these bills, but do not expect it any time soon.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.