New House Bill Would Waive IRS Early Withdrawal Penalty and Restore Tax Deductions for Scam Victims
A new bill introduced in the U.S. House of Representatives, the Tax Relief for Fraud Victims Act, aims to provide financial relief to victims of scams. Currently, victims who withdraw money from retirement accounts before age 59½ face a 10% IRS early withdrawal penalty and income taxes, and losses from non-investment scams (like romance or imposter scams) are not tax-deductible. The proposed legislation would waive the 10% penalty for any purpose of withdrawal and allow victims to deduct personal theft losses exceeding 10% of their adjusted gross income. It would also permit victims to claim losses in the year incurred or discovered and file amended returns within one year of discovery. The bill seeks to reverse limitations imposed by the Tax Cuts and Jobs Act and the Big Beautiful Bill, which restricted casualty and theft deductions to federally or state-declared disasters.
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