Emergency Relief for Federal Contractors Act of 2025

Penalty-Free Access to Funds: This provision allows people facing financial hardship due to a shutdown to access their retirement savings without the usual penalties normally applied under Section 72(t) of the Internal Revenue Code of 1986 (Section 2(a)).

Financial Relief for Specific Groups: The bill provides relief to Federal contractors or employees of contractors on unpaid leave, employees of Federal grantees or States with compensated work impacted by a lapse, and certain District of Columbia employees (Section 2(d)(2)).

Ability to Repay Savings: Individuals who take a distribution have the option to make contributions back into an eligible retirement plan within a 3-year period, which helps preserve their long-term retirement savings (Section 2(c)(1)).

Income Inclusion Spread: To assist with tax burdens, any amount required to be included in gross income due to these distributions can be spread out ratably over a 3-year taxable period (Section 2(e)(1)).

Caps on Distribution Amounts: There is a strict limit of $30,000 on the total aggregate amount of distributions an individual can receive as a Federal Government shutdown distribution in any single taxable year (Section 2(b)(1)(A)).

Limited Definition of Shutdown: The relief is only applicable during a "Federal appropriations lapse," which requires a continuous period of at least 2 weeks (Section 2(d)(3)(A)).