Fraud victims in the United States frequently face a secondary financial hardship when required to pay taxes on money stolen from them. Tax law changes implemented starting in 2018 restricted the ability of scam victims to claim theft losses as deductions on their tax returns, with the restrictions made permanent last year. While investment fraud losses remain deductible under IRS guidance, money lost to other schemes such as impersonator or romance scams cannot be deducted. Victims who withdrew funds from tax-deferred retirement accounts to cover losses may owe additional income taxes, and those under age 59½ could face a 10% early withdrawal penalty.
A bipartisan measure known as the Tax Relief for Fraud Victims Act, designated as H.R. 9500, proposes to reverse these restrictions and provide relief to affected individuals. The House Ways and Means Committee approved the legislation on July 1 with unanimous support, though the timing of a full House vote remains uncertain. The bill would reinstate deductibility for personal casualty and theft losses, eliminate the 10% early withdrawal penalty in applicable cases, and allow victims to claim deductions in the year losses occurred rather than when fraud was discovered.
Fraud losses have grown significantly in recent years. The Federal Trade Commission reported that consumers documented $15.9 billion in fraud losses in 2025, representing the highest recorded amount and a 27% increase from the prior year. Since 2020, reported losses have climbed nearly 430%. Imposter scams ranked as the most frequently reported fraud type, while investment scams generated the largest monetary losses. Large losses exceeding $100,000 have become increasingly common, particularly among adults age 60 and older whose retirement accounts have been targeted.
Experts note that the current tax treatment creates inequitable outcomes, with victims required to claim deductions based on the type of fraud they experienced rather than the actual losses incurred. Advocates argue that the proposed legislation would provide necessary relief by eliminating the disaster-declaration requirement and restoring fairness to the tax code for those affected by fraud schemes.
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