New TANF Rules Let States Bank Up to 50% of Funds for Future Use, Starting 2026

The Improve Transparency and Stability for Families and Children Act is changing the playbook for how states handle federal Temporary Assistance for Needy Families (TANF) funds. Starting October 1, 2026, there are new, tighter deadlines for states to use this money, but also a new safety valve that allows them to save a significant chunk for a rainy day.

Right now, when states get their annual TANF allocation, the expectation is that they spend it relatively quickly on programs that help low-income families—think job training, child care subsidies, and direct cash assistance. The new rules, outlined in Section 2, formalize this process: states must now commit (obligate) the funds by the end of the fiscal year after they receive them, and then actually spend (expend) all of it by the end of the second fiscal year. It’s basically setting a clear, three-year expiration date on the money to keep it flowing to families who need it.

The New State Savings Account: Banking for Stability

The most significant change here is the introduction of a formal reserve system. For any funds received after the 2026 cutoff, a state can choose to reserve up to 15 percent of that new money for future use. This is a big deal for state budgeting. It means a state can set aside a portion of its annual grant to cover unexpected spikes in need—like during a recession—or to fund long-term projects without worrying about the money vanishing at the end of the year.

However, there’s a cap on how much they can hoard. The total amount a state holds in reserve can never exceed 50 percent of the funds they received in the immediately preceding fiscal year. This 50% cap is meant to prevent states from sitting on massive reserves while current needs go unmet. If a state wants to take advantage of this saving ability, they must also notify the Secretary of Health and Human Services before the standard deadline for obligating the funds passes. This provides a needed layer of transparency to the federal government.

What This Means for Families and State Programs

For the state agencies running these programs, this new flexibility is a huge win for stability. It allows them to smooth out their budgets, meaning they might not have to cut services drastically if federal funding dips slightly one year or if caseloads unexpectedly jump. Think of it like being able to build a six-month emergency fund for your state’s social safety net.

But for families relying on TANF, this change cuts two ways. On one hand, a more stable, well-funded state program is better in the long run. On the other hand, allowing states to reserve up to 15% of the annual grant means that money isn't immediately going out the door to help families right now. If a state chooses to bank the maximum amount, it could slow down the deployment of assistance, which is a real concern for people who need help with rent or groceries today. The law is betting that the long-term stability gained by having reserves outweighs the short-term delay in service delivery. This is a classic policy trade-off: immediate aid versus future preparedness, and this bill leans toward preparedness.