Proposed legislation would waive the 10% early withdrawal penalty and restore tax deductions for fraud-related losses.
A new House bill aims to eliminate the IRS 10% early withdrawal penalty for retirement account holders victimized by scams. The legislation would also restore tax deductions for personal losses tied to fraud, currently limited to investment-related scams under U.S. law.
Current rules only allow deductions for scams linked to profit-driven schemes, such as investment fraud. Victims of romance or imposter scams face income taxes, penalties, and no deductions if they withdraw funds before age 59½ to cover losses.
The bill, introduced by the House Ways and Means Committee, seeks to expand protections for all fraud victims, addressing gaps in existing tax policy.