The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (sometimes called the federal welfare reform act) became law on August 22, 1996. The 1996 federal welfare reform act converted AFDC to a block grant—called Temporary Assistance to Needy Families (TANF)—with essentially fixed funding.

The 1996 federal welfare reform act deleted the 61-year guarantee that all children meeting federal eligibility standards will get assistance, and instead allows states to deny aid to any needy family or category of families. The act expressly bars states from using federal funds to provide benefits to many lawful immigrants. With very limited exceptions, a state cannot use federal funds for families who have received assistance for five years, and a state can pick a shorter time limit if it wants. The act also subjects states to fiscal penalties unless a specified percentage of assistance recipients participate in federally defined work activities for a specified number of hours each month.