State-level trends to watch in 2026

After major federal shifts in 2025, states will lead in 2026. Here are the trends to watch.

Balancing budgets

States must balance budgets annually, so federal tax changes will directly impact 2026 state budgets. With reduced federal support, legislatures will likely consider new revenue strategies, including tax proposals and decoupling from the federal code.

Taxes  

New taxes and tax increases will likely be debated as a way to balance budgets and keep state coffers full. Taxes can come in all variations, but we have seen some variations discussed more than others in the past couple of years. 

» Income tax increases: Straight-forward yet broad-reaching, which comes with its own risks.

» Wealth tax: Creation of new tax structures such as mark-to-market or taxes on net worth. These come under the mantra of “tax the rich” but also put states that consider these taxes at a significant disadvantage to others that don’t have such a tax structure in place. Although many of these proposals claim to tax billionaires, you can expect that marker to change over time.

» Premium tax: We remain diligent in our partnership with the American Council of Life Insurers in opposing any increase in premium taxes that would then be passed on to advisors or the clients they serve.

» Sales tax expansion to financial planning: This has popped up in red states and blue states and would assess sales tax on the advice and services the profession provides its clients. Finseca remains opposed to any tax that increases and, in the end, hinders access to financial advice.

Independent contractors  

In 2025, the New Jersey Department of Labor & Workforce Development introduced a regulatory proposal that would redefine who qualifies as an independent contractor in the state. While not aimed directly at the profession, the broad language could be interpreted to mean that regulatory requirements, compensation structures and product offerings eliminate independent contractor status — effectively requiring professionals to become employees of every carrier they write for. 

Thousands of pages of comments were submitted in opposition, and efforts are underway to introduce legislation carving out the profession. However, this issue will carry into 2026, and other states may consider similar regulatory changes.

Long-term care   

State interest in long-term care continues. Washington state’s program moves forward, while Massachusetts is exploring statewide solutions.

Overall, with the reduction of Medicaid funding to states slated to begin at the end of 2026, conversations around LTC are likely to continue. Finseca continues to promote the need for private sector products to be part of any LTC solution.

The unanswered question  

With so many legislative and gubernatorial seats up for election in 2026, we will continue to ask whether legislators and governors running for reelection want to pass legislation that increases taxes. Some of the federal financial impact won’t hit until the end of 2026, which means some of the items we posed here could be even more likely to gain traction in 2027.

But whichever year it does occur, state legislative activity can happen quickly. Tax threats, in particular, tend to pop up most during last-minute budget negotiations and special sessions, with passage weeks, sometimes days, after introduction. 

Melissa Bova joined the Finseca government affairs team in November 2021 as its first vice president of state affairs. She may be contacted at [email protected].