Big Budget Decisions for States in 2026 as Medicaid, SNAP, and Taxes Change Under 'One Big Beautiful Bill'

The center identifies two changes as especially significant: requiring states with high payment error rates to cover part of SNAP benefit costs and shifting most of the social welfare program’s administrative expenses from the federal government to states.

“Motivated by high payment error rates nationwide, Congress created a new framework that ties state financial responsibility directly to program accuracy,” according to the research center’s blog post, “SNAP Payment Error Comes with a Price Tag.”

While the federal government has traditionally paid 100 percent of SNAP benefits, under the OBBBA, states with payment error rates above 6 percent will have to shoulder a portion of those benefits themselves.

“SNAP error rates reflect program waste. USDA takes payment errors very seriously and will continue to work with states to address the root causes of these mistakes,” states the USDA.

Conversely, South Dakota recorded the lowest error rate at 3.28 percent, followed by the U.S. Virgin Islands at 3.54 percent, and Idaho at 3.59 percent, with Wisconsin, Wyoming, Vermont, and Nebraska also near or below 5.5 percent.

Across the country, the average SNAP payment error rate was 10.93 percent in 2024. If that rate holds, most states will be above the 6 percent cutoff and will have to start picking up some of the SNAP costs.

Heading into the new year, states must take on a much larger share of SNAP administrative costs. The federal contribution drops from 50 percent to just 25 percent, leaving states to cover the remaining 75 percent.

Some adults ages 19 to 64 on Medicaid will soon need to meet work or community engagement rules—like working, training, or volunteering for at least 80 hours a month. States will also have to check eligibility every six months instead of once a year.

States will have to have these requirements in place by the first quarter after Dec. 31, 2026, unless they get a temporary exemption. Or states can choose to start the rules sooner.

Nebraska, for example, announced plans to implement Medicaid work requirements ahead of the federal deadline. Gov. Jim Pillen said the requirement “can have a gigantic impact in helping lift people up.”

Other states, however, are facing administrative hurdles. Missouri’s Department of Social Services is asking for about $33 million in its next budget to upgrade technology so it can handle Medicaid work checks and more frequent eligibility reviews. The agency also wants more than $12 million to hire about 120 new staff to handle the workload.

For states, that could mean deciding whether to follow these federal tax changes or stick with their own rules—a choice that will affect how much people owe in state income tax.

Twenty states and Washington, D.C., have “rolling conformity” and automatically update their tax codes when the federal law changes. Seventeen states have “static conformity,” which means lawmakers must vote to adopt federal updates. Four states pick and choose which federal changes to follow, and nine states don't tax income at all.

Colorado quickly rejected the state tax break for overtime after the OBBBA became law, citing worries about lost revenue. However, the state is still allowing the tip deduction. Michigan has already voted to adopt the federal tax exemptions on tips and overtime at the state level.

If a state goes along with the federal tax breaks, workers won’t pay state income tax on tips and overtime pay—just like on their federal return. But if a state opts out, people could still owe state taxes on those earnings.

California, facing a projected $3.2 billion cost, and Illinois will also disallow the deductions. Massachusetts, Connecticut, and Hawaii have indicated they will not conform either.