Sponsors (2)
The bill provides immediate financial relief and procedural protections to workers affected by federal shutdowns (by exempting wages/backpay from income tax and stopping penalties) at the cost of reduced federal revenue, potential short-term refund complexity for some taxpayers, and added administrative burdens, with a possible fairness tension between federal and private-sector workers.
Workers whose pay is suspended by a federal shutdown — including furloughed federal employees and contractors receiving backpay — would not owe federal income tax on wages/backpay for the shutdown period, increasing their immediate take-home pay and net compensation.
Taxpayers would be protected from accrual of penalties and interest during a shutdown, reducing the risk of added debt burdens or collection actions once appropriations resume.
Treasury guidance for employers on withholding during shutdowns could reduce payroll withholding errors for tipped, hourly, and salaried workers, simplifying compliance and lowering disputes between employees and employers or payroll processors.
Removing federal income tax on wages during shutdowns would reduce federal revenue, potentially increasing deficits or shifting costs onto other taxpayers and public services.
Taxpayers who already had withholding collected or who prepay may face delayed refunds or complex reconciliations after the shutdown, creating short-term cash-flow problems and administrative headaches for individuals.
Implementing the suspension of tax and withholding adjustments could increase administrative burden and compliance costs for Treasury, employers, payroll processors, and financial institutions, producing implementation delays or errors.
Based on analysis of 2 sections of legislative text.
Suspends federal income tax liability, interest, and penalties on wages earned during any federal shutdown and exempts specified Fair Treatment Act backpay from federal income tax.
Introduced October 6, 2025 by Robert P. Bresnahan · Last progress October 6, 2025
Suspends federal individual income tax liability, interest, and penalties on wages earned by U.S. citizens during any partial or full federal government shutdown caused by a lapse in appropriations. It also makes backpay paid under the Government Employee Fair Treatment Act of 2019 to furloughed federal employees or contractors exempt from federal income tax and directs the Department of the Treasury to issue employer guidance for withholding and reporting for tipped, hourly, salaried, and other covered employees. The law defines a “partial or full government shutdown” as any period when a lapse in federal appropriations results in such a shutdown and tasks Treasury with practical guidance to implement the tax suspension and exemptions.