A similar package was passed after Hurricane Katrina in 2005.
"I know we’re closer to the starting line in this painful process of recovery than the finish line, but unveiling this bill is an important next step in our region’s recovery," Menendez said.
Meanwhile, the senators are pushing for separate passage of a $60.4 billion emergency spending bill to provide Sandy disaster aid to the region.
That measure is expected to be ready this week.
The tax proposal waives the 10 percent penalty that usually applies to early withdrawal from retirement plans. The changes would allow individuals to use up to $100,000 without penalty to cover storm-related expenses.
The Schumer-Menendez measure provides up to a $500 exemption for each person, four maximum, to those who provided free shelter for at least 60 days to anyone displaced by the storm.
Those businesses that kept paying their employees and have no more than 200 employees would be eligible for a credit equal to 40 percent of the employee's first $6,000 in wages paid between the date the business became inoperable and the date it reopened, no later than March 1, 2013.
Businesses also may elect to expense qualified disaster assistance property. The proposal would increase the dollar limit that is normally available for a particular tax year by the lesser of $100,000 or the cost of qualified property placed in service that year.