States Will Soon Face Huge Penalties for Their Food Stamp Mistakes

More than one out of every $10 in federal food stamp payments was made in error last year—and states with high fraud rates will soon be paying a hefty price.

The latest figures from the U.S. Department of Agriculture (USDA) show that payments made through the Supplemental Nutrition Assistance Program (SNAP), otherwise known as food stamps, were rife with waste once again in 2025. Though the figures vary widely from state to state, the USDA calculates that 10.62 percent of all food stamp payments were made in error—a slight decrease from the 10.93 percent error rate recorded in 2024.

Overpayments are about seven times as common as underpayments, according to the USDA data.

“The report confirms what has long been true: SNAP is structurally prone to waste, fraud, and abuse, and the states running it have too little financial incentive to fix it,” write Romina Boccia and Tyler Turmin, a pair of budget policy experts at the Cato Institute.

Indeed, the fundamental flaw in the food stamp program has long been its dual nature. The federal government provides all of the funding, but state governments get to administer the benefits. That’s likely part of the reason why food stamp enrollment, spending, and error rates have skyrocketed in recent years, even though federal poverty rates have remained flat. This is the fourth consecutive year that the improper payment rate has exceeded 10 percent. As recently as 2013, the national error rate was a mere 3.2 percent.

But there is a big change coming, and it could mean that some states are on the hook for huge penalties if their food stamp error rates continue to soar.

Thanks to a provision included in the One Big Beautiful Bill Act (OBBBA), the sprawling tax bill that President Donald Trump signed into law one year ago this month, some states might be required to fund a portion of SNAP benefits from their own budgets. That requirement kicks in next year, and it will apply to states that had error rates in excess of 6 percent in the previous year. The amount that states will have to cover will depend on their error rates, with a maximum obligation of 15 percent for states with error rates over 10 percent.

Only nine states—Idaho, Iowa, Kentucky, Nebraska, South Dakota, Utah, Vermont, Wisconsin, and Wyoming—had error rates below the 6 percent threshold in 2025, according to the USDA data.

It’s too soon to know how big those state-level obligations will be, because it is 2026 data that will determine what they must pay in 2027. However, the Center on Budget and Policy Priorities, a left-leaning think tank, crunched the 2025 error rate figures and concluded that states would owe roughly $9 billion in total. Many states would owe over $100 million.

That’s a lot of money, and some states are already freaking out about it.

Stephen Cha, commissioner of the New Jersey Department of Human Services, for example, has called for Congress to block the provision requiring states to pick up part of the tab. “These provisions create real uncertainty for States and benefit recipients alike, and the potential for significant future costs,” he said in a statement. “Penalizing states will do nothing to improve payment accuracy or meaningfully address waste, fraud, or abuse.”

Evidence suggests that’s simply not true.

In fact, the threat of actually being held accountable for not wasting federal taxpayers’ money has caused a number of states to change how their food stamp programs operate. A survey conducted earlier this year by the Urban Institute and the American Public Human Services Association found that states are “making significant operational investments to improve payment accuracy.” That includes “expanding training efforts, strengthening quality assurance functions, and adopting new technology and data tools to identify and prevent errors.”

Even in New Jersey, the new rule seems to be having an effect. The Garden State’s error rate declined from 14.33 percent in 2024 to 6.86 percent in 2025. Despite Cha’s complaints, he told state lawmakers during a May budget hearing that his office was working with county offices to reduce error rates by “implementing additional quality control protocols.”

Without the new cost-sharing requirement, would those efforts be happening? It seems unlikely.

Additionally, the survey shows a limited risk of disruption to SNAP recipients. Only 11 percent of states said there is a possibility that they could withdraw from SNAP as a result of the new costs, and 5 percent said they might need to temporarily pause SNAP operations.

Both seem like empty threats, since they would require state officials to build new food stamp programs that they would have to fully fund out of their budgets. That would be far more costly than having to fund a relatively small portion of the total cost to run SNAP.

The new requirements in the OBBA are far from perfect. Some states with exceptionally high error rates—hello, Alaska—got a special exemption from having to pick up part of the cost right away. That’s not fair to federal taxpayers and creates a perverse incentive for states to make their error rates worse before the new rule kicks in. Overall, however, this seems like a win for fiscally responsible federalism. Food stamps and other welfare programs really should be fully (or mostly) funded at the state level, particularly if they are going to be administered by state officials.

Despite the complaints about the new rules for SNAP, the policy seems to be doing as it was intended.

The post States Will Soon Face Huge Penalties for Their Food Stamp Mistakes appeared first on Reason.com.

Source: https://reason.com/2026/07/10/states-will-soon-face-huge-penalties-for-their-food-stamp-mistakes/