H.R. 5674 — Emergency Relief for Federal Workers Act of 2025

This section establishes an exception to the 10-percent additional tax on early distributions under IRC §72(t) for Thrift Savings Plan (TSP) distributions to federal employees who are furloughed or working without pay (as defined in 5 U.S.C. §7511) during a qualified lapse in appropriations of at least two weeks. The exception applies to distributions made after September 30, 2025 (including those in process at the end of the lapse), up to an aggregate of $30,000 per lapse (adjusted for inflation after 2025 using the cost-of-living adjustment under IRC §1(f)(3) with calendar year 2024 as the base year, rounded down to the nearest $100).

This section establishes special rules for Thrift Savings Plan (TSP) in-service withdrawals and loans during a qualified lapse in appropriations (i.e., a government shutdown as defined in IRC §72(t)(2)(O)). For withdrawals under 5 U.S.C. §8433(h), it (1) authorizes covered hardship withdrawals for furloughed or unpaid employees up to $30,000 (inflation-adjusted per IRC §72(t)(2)(O)(iii)), with no limit on the number; (2) permits covered age-based or hardship withdrawals during the lapse; (3) allows repayment of such withdrawals up to the lesser of the withdrawal amount or $30,000 (inflation-adjusted) within 120 days after the lapse ends, treated as a rollover; and (4) directs agencies to provide lists of affected employees and permits reliance on employee representations. For loans under §8433(g), it (1) authorizes loans to furloughed or unpaid employees without regard to the lapse duration and (2) requires deduction of all missed payments from post-lapse pay. (Thus, these changes enable federal employees and uniformed service members to access TSP funds during shutdowns without standard restrictions and facilitate repayment to preserve retirement savings.)

This section amends IRC §72(p)(2) to establish a special rule providing that a missed repayment on a Thrift Savings Plan (TSP) loan—available to federal civilian employees, members of the uniformed services, and congressional staff—is not treated as a taxable distribution if the missed payment is solely due to a government shutdown (i.e., qualified lapse in appropriations as defined in 5 U.S.C. §8432(g)(6)(A)(i)). The rule applies to missed payments due after September 30, 2025.