On September 10, 2026, President Trump announced that the federal government would issue $500 checks to nearly one million Americans for participating in the federal Affordable Care Act (ACA) health insurance exchange. Individuals receiving checks are enrolled in 2026 coverage and paid full price without any advance premium tax credit (PTC) subsidies; it does not apply to prior years.
Here is a portion of the press release:
The Biden Administration overcharged Americans through Obamacare plan exchange “user fees” that were passed on to consumers in the form of higher premiums, funding the operations of the federal Obamacare exchange far in excess of what was needed to run the exchange.
Is the $500 payment income to those who receive it?
Not a New Issue
Under the ACA, the medical loss ratio (MLR) rule caps how much premium revenue a health insurer can keep for things other than paying claims. If an insurer's MLR for a market in a state falls below the threshold, it must rebate the shortfall to policyholders by September 30 of the following year.
The $500 payments, if they are rebates of premiums paid, should be treated similarly to the MLR rebates. The IRS issued informal guidance on MLR rebates that applies general tax principles to these payments.
The IRS concluded that the MLR rebate is not included in gross income as a purchase price adjustment; however, under §111, the rebate must be included in income to the extent it was deducted in the prior tax year and that deduction reduced the taxpayer's tax, either as a general medical expense on Schedule A or as §162(l) self-employed health insurance on Schedule 1.
Tax Benefit Rule Not Relevant
Because the rebate relates to premiums paid in 2026 and the $500 rebate was received in 2026, the tax benefit rule under §111 would not apply, as there would be no potential deduction of the $500 amount in a prior tax year.
Instead, a taxpayer would reduce their 2026 premiums paid by $500 when determining any deduction they may be allowed.
Under Treas. Reg. §1.36B-3(d)(1)(i)(A), enrollment premiums are reduced by amounts refunded in the same tax year, so a recipient who claims and/or reconciles the PTC on their 2026 Form 8962, Premium Tax Credit, reduces their premiums paid by $500.
Is the $500 Payment a True Rebate?
While the White House has said the $500 payments are a rebate of 2026 premiums, in some ways they do not align with a traditional rebate:
They are not tied directly to the premiums individuals actually paid, and
The insurer, whom the taxpayer actually paid for the coverage and who bore the federal fee expense, did not issue the rebate; the federal government did.
If the payments are a refund of federal fees economically borne by consumers, they are still likely not included in the taxpayer’s income based on the IRS’s position with respect to the 2006 telephone excise tax refund program.
Telephone carriers collected the §4251 excise tax from consumers as a line item on their phone bills. After losing in five circuits on whether time-only long-distance billing was taxable, the IRS conceded the issue in Notice 2006-50 and refunded consumers directly on their 2006 returns, offering a flat standard amount of $30 to $60 instead of the actual tax paid.
The IRS’s position was that an individual claiming the standard amount did not have to include it in gross income, and that an individual claiming the actual amount had to apply the §111 tax benefit rule to any portion previously deducted to determine gross income.
Lack of Form 1099 Does Not Control
The $500 payment is too small to report on a Form 1099 now that the filing threshold is $2,000 for tax year 2026, so the lack of a Form 1099 does not indicate anything.
It is critical to note that whether or not a payment is reported on Form 1099 has no bearing on its tax treatment to the payment recipient. Any payments received by a taxpayer should be analyzed with respect to their situation to determine whether or not they are included in gross income and their overall treatment.
Conclusion
It would be helpful if the IRS issued clear formal or informal guidance on the treatment of the $500 rebates. However, absent any guidance, they are most likely a nontaxable return of amounts previously paid, whether characterized as a premium rebate or a refund of pass-through federal fees, and they reduce the 2026 deductible or creditable premium amount.
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