New House Bill Proposes Waiving IRS Early Withdrawal Penalty and Restoring Tax Deductions for Scam Victims
A new bill introduced by the House Ways and Means Committee, the Tax Relief for Fraud Victims Act, aims to provide financial relief to scam victims. Currently, victims who withdraw money from retirement accounts before age 59½ face income taxes, a 10% IRS early withdrawal penalty, and limited ability to deduct losses. The Tax Cuts and Jobs Act (2017) and the Big Beautiful Bill (2025) restricted personal casualty and theft deductions to federally or state-declared disasters. The proposed bill would eliminate these limitations, allowing victims to deduct theft losses exceeding 10% of their adjusted gross income, including losses from romance and imposter scams. It also waives the 10% early withdrawal penalty regardless of the withdrawal purpose. Victims could claim losses in the year incurred or discovered and have one year to file amended returns. The bill is supported by AARP as a measure to mitigate tax consequences for fraud victims.
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