Waiver of 10-percent additional tax on certain financial hardship distributions from Thrift Savings Plan

(a) In general Paragraph (2) of section 72(t) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: (O) Distributions to Federal employees affected by a qualified lapse in appropriations (i) In general Distributions made from the Thrift Savings Plan under subchapter III of chapter 84 of title 5, United States Code, to an individual who is a Federal employee and who is on furlough or who is working without pay due to a qualified lapse in appropriations, if such distributions are made during the period of such qualified lapse in appropriations (including distributions which are in process as of the end of such lapse). (ii) Limitation Subclause (i) shall apply to any distributions only to the extent the aggregate of such distributions does not exceed $30,000 with respect to any qualified lapse in appropriations. (iii) Adjustment for inflation In the case of a taxable year beginning after December 31, 2025, the $30,000 amount in clause (ii) shall be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2024 for calendar year 2016 in subparagraph (A)(ii) thereof. If any amount after adjustment under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lower multiple of $100. (iv) Qualified lapse in appropriations For purposes of this subparagraph, the term qualified lapse in appropriations means a period of continuous lapse in Federal appropriations (including a partial lapse) of at least 2 weeks. (v) Other terms For purposes of this subparagraph, the terms furlough and pay have the respective meanings given such terms by section 7511 of title 5, United States Code.. (b) Effective date The amendment made by this section shall apply to distributions made after September 30, 2025.