Victims of financial scams in the United States often face a secondary financial hardship when they discover they owe taxes on the money stolen from them. This situation stems from tax law changes implemented under the Tax Cuts and Jobs Act of 2017, which restricted the ability to claim theft losses as deductions. What was originally intended as a temporary provision through 2025 was made permanent last year through legislation, leaving most fraud victims unable to deduct their losses on their tax returns.
The tax treatment differs significantly depending on the type of fraud involved. While victims of investment scams may qualify for deductions based on the profit motive involved, those targeted by other schemes such as romance scams or impersonation fraud typically cannot claim deductions. Additionally, if victims accessed tax-deferred retirement accounts to pay scammers, they may owe income taxes on those distributions. Those under age 59½ may face an additional 10% early withdrawal penalty, compounding their financial losses.
Congressional lawmakers have introduced the Tax Relief for Fraud Victims Act, designated H.R. 9500, which aims to address these tax consequences. The bipartisan measure received unanimous approval from the House Ways and Means Committee on July 1 with a 39-0 vote. The bill would eliminate disaster-related deductibility restrictions, waive the 10% early withdrawal penalty in applicable cases, and allow victims to claim losses in the year they occurred rather than when the fraud was discovered. However, the timeline for consideration by the full House remains uncertain.
The urgency of such relief has grown as fraud losses continue to escalate. The Federal Trade Commission reported that consumers reported $15.9 billion in fraud losses in 2025, representing a 27% increase from the previous year and the highest total on record. Since 2020, reported losses have increased by approximately 430%. Imposter scams remain the most commonly reported type, though investment scams generated the largest individual losses. Notably, adults age 60 and older have experienced disproportionate losses, with six-figure thefts accounting for the majority of reported fraud losses in that demographic.
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