This bill, titled the "Stop Identity Fraud and Identity Theft Act of 2026," addresses the growing problem of identity fraud and theft, which victimizes millions of Americans and costs the government and financial industry hundreds of billions annually. It highlights the vulnerability of current digital infrastructure to attacks from hostile nation-states, organized crime, and emerging threats like AI-powered "deepfakes." The legislation recognizes that government entities, especially states, are uniquely positioned to improve digital identity solutions. To combat these issues, the bill directs the Secretary of the Treasury to establish an Identity Fraud Prevention Innovation Grant program for states within one year. States receiving these grants must use the funds to develop digital versions of driver's licenses and other identity credentials that adhere to National Institute of Standards and Technology (NIST) guidelines. These efforts are intended to protect individual privacy and security, foster more resilient and interoperable online identity solutions, and replace vulnerable legacy systems. The grants also aim to safeguard government benefit programs and the U.S. financial system from illicit actors, enabling more trusted online transactions. A portion of the funds, at least 10 percent, must be used to assist individuals in obtaining the necessary credentials or verification services for these new digital IDs. However, the bill explicitly states that funds cannot be used to mandate digital identity use, eliminate physical identity documents, or issue credentials to unauthorized immigrants, and states are not required to develop or issue digital credentials.