Beginning January 2026, a number of states will implement new restrictions on SNAP programs. Most of these restrictions involve limiting purchases of candy and soda with SNAP benefit dollars. Iowa is unique in its restrictions - it will become the first state where SNAP eligibility will depend on sales-tax classification.
What does this mean for ProHealth Connect retailers and their communities?
Under the new FNS waiver, any item subject to Iowa sales tax — candy, soda, prepared foods, and even some bakery goods — will be ineligible for purchase with SNAP benefits.
What was once a clear federal definition of food meant for home consumption now splits into state-specific logic tied to tax codes.
This is the first time a state tax table will drive benefit authorization at the register. In practice, it means a product’s eligibility can shift overnight when the Department of Revenue updates its taxable-item list. For stores processing EBT benefit, this makes accuracy in product mapping a critical and urgent challenge.
In most states, the EBT processor and POS system rely on a fixed federal definition of SNAP-eligible goods. Iowa’s approach creates a jurisdictional exception.
That means:
For multi-store operators on both sides of a border (Iowa-Illinois, Iowa-Minnesota), this could steeply increase the compliance workload. A SKU that is SNAP-eligible in Illinois could be rejected one mile away in Iowa. Will Minnesota or Illinois retailers be responsible for implementing these Iowa restrictions? That remains to be seen.
Nevertheless, this will create some significant technical challenges to address database synchronization, processor alignment as well as operational considerations like staff training and new signage.
Each of these adjustments will require time, vendor coordination, and clarity. The best-prepared stores will approach this the way they approach a system upgrade — with testing, version control, and rollout checkpoints — rather than as a simple rule change.
The paradox: OTC and healthy benefit cards may allow more
Traditionally, OTC and healthy benefit cards have tighter rules than SNAP. Yet under Iowa’s waiver, the opposite may be true. Because OTC programs operate on plan-based lists — not tax codes — they may continue to approve items (like certain drinks, bars, or healthy snack foods) that SNAP now blocks. Bakery items will be a unique challenge, as the implementation behind bakery goods like enriched breads remains unclear.
Retailers will need to differentiate between card types clearly, since customer expectations will invert. A transaction that fails on SNAP might succeed seconds later on a healthy-benefit card.
This is where platforms from ProHealth Connect can stabilize operations during this particular transition. Insurance based OTC and healthy benefit programs are ahead of the curve on clear initiatives to improve America’s health through better eating. This means extra security for retailers and programs that are secure and stable during what can feel like turbulent times.
Iowa’s waiver is labeled as a “novel demonstration project” set to last for two years. It’s a signal of future integration between state tax systems and benefit administration. If other states adopt similar models, retail technology will have to evolve from static compliance to dynamic eligibility — adjusting in real time as tax and policy data shift.
For independent grocers and community retailers, the next twelve months are an opportunity to modernize: automate item tables, partner with compliance-ready payment platforms, and ensure staff can confidently explain these distinctions to customers.
