States Prepare for Major Budget Challenges Amid Changing Federal Laws

Fri Jan 09 2026 07:42:07 GMT+0200 (Eastern European Standard Time)

As states gear up for pivotal budget decisions influenced by sweeping federal legislation signed by President Trump, the looming challenges include managing increased expenses in Medicaid and SNAP food aid programs while balancing potential tax reforms.

States across the U.S. face significant financial pressures as they prepare for the repercussions of a new federal law affecting social safety net programs. Starting in 2026, states must manage rising costs in Medicaid and SNAP, necessitating tough decisions about state taxes and funding amidst increasingly strained budgets. With many states holding substantial rainy day funds, the impact of federal funding cuts and changing eligibility norms for benefits could shift the landscape of welfare assistance significantly.

States have major decisions to make in 2026 about the social safety net and taxes following a major law signed by President Donald Trump last year. The federal government is shifting more responsibilities to states, leading to increased costs in Medicaid and the Supplemental Nutrition Assistance Program (SNAP). With a tight budget forecast ahead, states must prepare for tough choices as federal funding declines.

Budget Challenges with SNAP

SNAP, which supports 42 million Americans with grocery assistance, is set to become more expensive for states to administer, amidst changes in federal funding responsibilities. By October 2027, states will be accountable for 75% of SNAP's operational costs and will incur costs if they fail to manage payments accurately.

Dealing with Medicaid Requirements

The new law introduces work requirements for some Medicaid beneficiaries, compelling states to prepare for these changes. The financial impact could be substantial, with states like Missouri requesting millions for compliance with new eligibility checks.

Tax Cuts Add a Layer of Complexity

The federal law also introduces temporary halts on income taxes related to tips and overtime, compelling states to assess whether they will adopt these changes into their tax codes, potentially affecting future tax revenues.

As legislatures prepare to convene in January, officials stress the need to make informed decisions to balance state budgets while still addressing the needs of their communities amid substantial shifts in welfare policy.