A new provision in North Carolina's Regulatory Reform Act of 2026 removes a major barrier to offering benefits to independent contractors—without changing their status.
Most professional services owners assume there's a trade-off: offer benefits to independent contractors and risk the IRS reclassifying them as employees, or keep them at arm's length and offer nothing. North Carolina's S445—the Regulatory Reform Act of 2026—eliminates that choice.
Buried in Section 17.6 (pages 18–20) is a provision that creates a new portable benefits account system. Here's what it does and why it matters to your business.
Starting January 1, 2027, you can make tax-deductible contributions directly into benefit accounts for independent contractors you hire. These accounts can cover health insurance, retirement savings, disability insurance, and other benefits—all funded by you, all tax-deductible to your business.
The critical part: these contributions are not treated as evidence of an employment relationship. That's the legal protection that changes the equation.
Until now, the primary barrier to offering contractor benefits was legal risk. The IRS and state agencies look at benefit provision as a sign of control and dependency—classic markers of employment. Offering health insurance or retirement matching to a 1099 contractor could trigger a misclassification audit, even if the contractor genuinely is independent.
This provision decouples benefits from employment status. You can now fund a contractor's portable benefits account without that contribution being used as evidence against your classification decision. That removes the legal deterrent that kept most professional services firms from offering anything beyond the contract rate.
If your firm uses independent contractors—whether consultants, freelancers, project-based specialists, or gig workers—this applies to you. Architects, engineers, accountants, marketing firms, IT services, and other professional services that rely on contractor talent have the most to gain.
The accounts are voluntary. You decide whether to participate, which contractors to fund, and how much to contribute.
The provision is effective for taxable years beginning on or after January 1, 2027. That gives you time to understand the mechanics, but not much time to plan. You'll want to:
• Review how your firm currently classifies and compensates contractors
• Understand the account structure and administration requirements
• Decide whether portable benefits make sense for your hiring strategy
• Consult with a tax advisor on deductibility and compliance
This isn't a mandate. It's an option that removes a legal barrier that previously existed. Whether it makes business sense depends on your contractor base, your competitive positioning, and your cost structure.
The full text is in S445, Section 17.6. If you work with independent contractors and want a plain-English breakdown of how this applies to your specific situation, a business-focused guide is available through most North Carolina professional associations and business resources.
Source: North Carolina S445—Regulatory Reform Act of 2026, Section 17.6, Pages 18–20. Effective January 1, 2027.