S. 2966 — Emergency Relief for Federal Workers Act of 2025

This section waives the 10% additional tax under IRC §72(t) on Thrift Savings Plan (TSP) distributions of up to $30,000 to federal employees on furlough or working without pay during a qualified lapse in appropriations of at least two weeks, with the dollar amount adjusted for inflation for taxable years beginning after December 31, 2025. The provision applies to distributions made after September 30, 2025, and uses the definitions of furlough and pay from 5 U.S.C. §7511.

This section establishes special rules for Thrift Savings Plan (TSP) in-service withdrawals and loans for federal employees on furlough or working without pay during a qualified lapse in appropriations (i.e., government shutdown, as defined in IRC §72(t)(2)(O)). **(a) In-Service withdrawals** authorizes (1) covered age-based withdrawals under TSP §8433(h)(1)(A) and covered hardship withdrawals under §8433(h)(1)(B) during such a lapse, with hardship withdrawals not to exceed $30,000 (inflation-adjusted per IRC §72(t)(2)(O)(iii)) in aggregate and no limit on the number permitted; (2) repayment of such withdrawals to the TSP before 120 days after the lapse ends, up to the lesser of the withdrawal amount or $30,000 (inflation-adjusted), treated as an eligible rollover distribution transferred directly trustee-to-trustee; and (3) administrative procedures, including reliance on employee representations and agency lists of affected employees. **(b) Loans** requires the Federal Retirement Thrift Investment Board to (1) allow TSP loans under §8433(g) during such a lapse without regard to its duration; and (2) deduct and withhold all missed loan payments due during the lapse from an employee's post-lapse pay. (Thus, these rules enable TSP participants to access retirement funds during shutdowns while providing repayment options to mitigate tax penalties.)

This section establishes a special rule under IRC §72(p)(2) providing that a missed repayment on a Thrift Savings Plan (TSP) loan—due solely to a government shutdown (as defined in 5 U.S.C. §8433(g)(6)(A)(i))—is not treated as a taxable distribution. (The TSP is a defined-contribution retirement savings plan for federal civilian employees and uniformed services members.) The rule applies to missed payments due after September 30, 2025.