Emergency Relief for Federal Workers Act of 2025
Emergency Relief for Federal Workers Act of 2025 is a bill designed to provide targeted financial relief to federal employees who are furloughed or unpaid during a lapse in appropriations (a government shutdown). The core idea is to reduce the financial penalties and barriers that can accompany a lapse by expanding: (1) the availability of Thrift Savings Plan (TSP) hardship and age-based withdrawals during a lapse, capped at $30,000 (with inflation adjustments); (2) the ability to make and repay such withdrawals (including a mechanism to roll funds back into TSP in a tax-favorable way); (3) the option for TSP loans to be available during a lapse; and (4) protection that missed loan payments during a lapse do not count as taxable distributions. The bill also extends a specific 10% early withdrawal penalty waiver for these lapse-related distributions and defines “qualified lapse in appropriations” as a period of continuous funding shortfall of at least two weeks. The effective date for the changes is distributions and actions occurring after September 30, 2025. In short, the bill seeks to provide emergency liquidity for federal workers during shutdowns while attempting to maintain tax and retirement plan integrity through specific caps, inflation adjustments, and rollover treatment provisions.
Key Points
- 1Waiver of 10% early withdrawal penalty for TSP distributions to federal employees affected by a qualified lapse in appropriations, up to a $30,000 aggregate limit per lapse (adjusted for inflation after 2025; rounded down to the nearest $100).
- 2In-service withdrawals during a lapse: The TSP Board must permit covered hardship withdrawals and covered age-based withdrawals during a lapse, up to a combined aggregate limit of $30,000 (inflation-adjusted). The board can’t cap the number of such withdrawals beyond the aggregate dollar limit, and employees may make back-dress contributions to the TSP during the lapse, treated as if the withdrawal occurred and rolled over into TSP within 60 days.
- 3Treatment of contributions and rollovers: Any contributions made during the lapse that are used to offset withdrawals are treated as if the withdrawal happened as an eligible rollover distribution for the purposes of the rollover mechanics, but not as an eligible rollover distribution for certain other tax/retirement rules. The inflation adjustment applies to the dollar cap.
- 4Expanded loan access during a lapse: The TSP Board may allow loans to furloughed or unpaid employees without regard to the lapse period, with interpretation of “furlough” and “pay” aligned with 5 U.S.C. 7511. The plan must ensure that outstanding loan repayments missed due to a shutdown are deducted from the employee’s pay during the lapse.
- 5Protection for missed loan payments: Missed loan repayments due to a shutdown shall not be treated as taxable distributions, ensuring that a lapse does not trigger unintended tax consequences for missed loan payments.
- 6Effective dates: The new rules apply to distributions after September 30, 2025; in-lapse in-service withdrawals and related provisions apply during the lapse; missed loan payments due after September 30, 2025 are protected from being treated as taxable distributions.