The National Conference of State Legislatures says 10 states have passed such laws and 14 others are considering them, USA Today reported.
A new federal law requires states to bar the use of cash benefits in liquor stores, gambling establishments and adult entertainment businesses by 2014. States that do not do so could lose federal support.
USA Today said 4.4 million people got cash benefits last year from $200 to $1,000 a month, paid by federal and state governments.
The U.S. House Ways and Means committee pointed out news reports in eight states about people with welfare debit cards withdrawing thousands of dollars from ATMs in casinos, liquor stores and strip clubs, but did not provide estimates on how often or the amount of money involved.
Welfare cash is designed to cover the costs of non-food necessities.
New York state Sen. Thomas Libous, a Republican whose bill would restrict use of cash welfare, acknowledged it would be difficult to enforce.
"Until we figure out how to program the [ATM] machines, it's tough to stop someone from taking cash out of an ATM and buying liquor," said Libous, whose bill passed the state Senate but hasn't been introduced in the Assembly.