The federal law President Donald Trump signed last year is pushing state legislatures toward difficult choices in 2026 as it shifts more responsibilities to them for parts of the social safety net and for how states align their tax codes with federal changes. Tim Storey, the chief executive of the National Conference of State Legislatures, described what he called an incoming “big storm” for state budgets and said it would force “some hard choices.” In most states, the process will begin in January when legislatures convene and governors lay out their agendas.
A key focus for 2026 is SNAP, the federal food aid program. The AP reported that the federal government now picks up the full cost of SNAP benefits and splits administrative costs with the states, which run the program. Under the new law, starting Oct. 1, states will have to pay three-fourths of the cost to run SNAP, according to the report.
The federal role also changes for states that repeatedly make errors. The AP said that starting in late 2027, some states will have to start paying some of the costs of benefits if they make mistakes in more than 6% of payments—often when households receive more than they are supposed to after their income rises. California, the AP reported, has already set aside $84 million to reduce SNAP errors and has allocated additional money to help counties implement the program’s new requirements.
Other states are still weighing what SNAP changes could mean for their budgets. Sky Beard, Florida’s director for No Kid Hungry, said the shift in SNAP administrative costs could be about $50 million a year for Florida, and paying for some benefits if the state is forced to could be around $1 billion a year. She also tied lawmakers’ questions to the details of error rates, which state officials say are central to understanding how quickly costs could rise.
Medicaid planning is another major 2026 task. The federal law imposes work requirements for some adults on Medicaid, a program run jointly by the federal government and states for low-income people. Most states must begin the work mandates by January 2027, which means they have to reflect the changes in their next state budgets, though states can start earlier if they want to.
Nebraska Gov. Jim Pillen announced that his state will launch Medicaid work requirements in May. In comments carried by the AP, Pillen said the state could handle the change without hiring more government employees and described the work mandate as something that “can have a gigantic impact in helping lift people up.” The AP also reported that some states are already requesting money just to prepare for the requirements, including Missouri’s request for roughly $33 million in its next budget for technology changes to comply with Medicaid work checks and more frequent eligibility reviews, along with more than $12 million to hire the equivalent of about 120 people.
Policy advocates and analysts say the Medicaid work requirements are part of a broader set of federal changes. The AP reported that the nonpartisan Congressional Budget Office forecasts the federal law would reduce Medicaid spending by $911 billion through 2034 and leave 10 million more Americans uninsured over that period. It also reported that states could respond in different ways, including narrowing who is eligible for Medicaid, as the District of Columbia did with a policy that took effect Jan. 1, or cutting Medicaid reimbursement rates to medical providers, as Colorado and Idaho have done.
KFF also suggested that the law’s Medicaid shifts could affect more than eligibility alone. Liz Williams, who analyzes Medicaid at KFF, said home care, dental benefits and coverage of GLP-1 drugs used for weight loss could face restrictions in some states. The AP added that rural hospitals may be hit especially hard and that the federal law seeks to partly offset that through $50 billion in spending over the next five years, leaving states to decide how to use their share of that money.
State budget pressures are also colliding with tax decisions prompted by the federal law. The AP said the law temporarily halts federal income taxes on tips and overtime pay, provides new tax deductions for seniors and some people with auto loans, and enacts multiple new corporate tax breaks. The report said states can decide whether to incorporate the federal tax changes into their own income tax codes, including how fully and whether to link up at all, since some states automatically conform to federal tax law changes while others must vote to do so.
Michigan is the only state so far to have voted to opt in to the federal tax breaks on tips and overtime, the AP reported, and those provisions automatically carry over to state income taxes in about a half-dozen other states. Arizona’s officials, the report said, are among those planning to conform when their legislative session begins in January, and AP quoted Democratic Gov. Katie Hobbs as saying embracing the tax breaks can help “ease the cost of living crisis” and provide certainty to taxpayers. The AP also reported that Republican legislative leaders said they were ready to approve the changes.
Even as states weigh whether to expand or protect benefits, implement compliance systems and adjust tax rules, the underlying timeline is starting to close in. In January, governors and lawmakers will begin setting agendas and budget assumptions for Medicaid work requirements scheduled for most states by January 2027, SNAP administrative cost changes that begin Oct. 1, and longer-run consequences tied to state error rates and future funding shifts.