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 working without pay during a lapse in federal appropriations (i.e., a government shutdown). The core idea is to give affected employees temporary access to their Thrift Savings Plan (TSP) assets without incurring the usual penalties, up to a defined dollar limit that adjusts for inflation. It also expands options for withdrawals and loans from the TSP during a lapse and clarifies tax treatment for missed loan payments caused by shutdowns. The bill creates specific definitions around what counts as a lapse and how the access is administered, and it directs the TSP board and agencies to implement procedural requirements to identify affected employees. Key provisions include a 10% early withdrawal penalty waiver for certain TSP distributions during a lapse, a $30,000 cap (adjusted for inflation) on such distributions per lapse, and expanded in-service withdrawals and loans during the lapse. It also allows recontributions to the TSP within 60 days, provided they are treated in a particular way for tax purposes, and it ensures missed loan payments due to a shutdown aren’t automatically taxable distributions. The changes apply to distributions and missed payments occurring after September 30, 2025.
Key Points
- 1Penalty waiver and dollar cap during a lapse: The bill adds a new category under the 10% additional tax on early distributions (IR Code 72(t)) for federal employees affected by a qualified lapse in appropriations. Distributions made during the lapse (up to an aggregate limit of $30,000 per lapse, with inflation adjustments) would be exempt from the 10% penalty. The limit increases over time with inflation.
- 2Expanded in-service withdrawals during a lapse: The Thrift Savings Plan would allow additional hardship or age-based withdrawals during a qualified lapse, up to the same $30,000 aggregate cap (inflation-adjusted). Employees can take multiple withdrawals during the lapse, subject to the overall cap.
- 3Re-contributions within 60 days: Employees who take withdrawals during the lapse may, within 60 days, contribute an amount up to the lesser of their total withdrawals or $30,000 back into the TSP via a direct trustee-to-trustee transfer, with specific tax treatment conditions noted.
- 4Expanded loan rules during a lapse: The bill authorizes TSP loans to be made to furloughed or unpaid employees without regard to the duration of the lapse, and requires that any missed loan payments due to the shutdown be deducted from the employee’s pay during the lapse.
- 5Tax treatment for missed loan payments: If a loan payment is missed because of a shutdown, it shall not be treated as a taxable distribution solely due to the missed payment. The related tax and distribution rules are amended accordingly.
- 6Administration and oversight: Agencies affected by a lapse must provide the TSP Executive Director with a list of affected employees, and the TSP Board can rely on employee representations to determine furlough status. The bill also requires procedural updates to implement these provisions when a lapse occurs.