Is my Medical Loss Ratio (MLR) Rebate taxable?

[andre1]

I just received a MLR rebate check for my 2016 health insurance, purchased in the individual market. For 2016, I took the standard deduction, but I did receive an Advance Premium Tax Credit (APTC). Some sources suggest that taking the standard deduction would mean that this rebate is not taxable. On the other hand, I believe the APTC only goes back to 2014, and these sources predate that. If the Federal government doesn't want to claw back part of the rebate, that seems odd to me, since they paid for part of the insurance originally. Are there any tax consequences for either my 2016 or 2017 tax returns?

[TaxGuyBill · Accepted solution]

Probably not.

As you said, if you took the Standard Deduction and did not use the Self Employed Health Insurance deduction, it is not reported as a 'recovery' for those deductions.


As for the Premium Tax Credit, in MOST cases the total amount of insurance does NOT affect the Premium Tax Credit (the "Second Lowest Cost Silver Plan" is the main component), so this 'rebate' would usually not affect that credit.

The only time when the cost of your insurance does affect the Premium Tax Credit is when the total Premium Tax Credit is MORE than the total cost of insurance, then Premium Tax Credit is limited to the amount of insurance you paid.  So if the MLR Rebate lowers the total cost of your insurance to LESS than what you received for a Premium Tax Credit (Line 24 of Form 8962), that is the only time it could hypothetically change the credit.  However, I have not seen any IRS guidance for this, so it may not actually affect anything.

[andre1]

Thank you. In fact, the amount I paid for last year's insurance (cost of insurance, minus the PTC) was smaller than the rebate check itself. So if there are no tax consequences, it means I actually GOT PAID to be insured. That seems to me like it must be wrong, but it could just be an oversight in the tax laws as well, I guess.

[TaxGuyBill]

Okay, so you do fall into that 'unknown' area.  However, until the IRS provides guidance on it, I would just leave it alone.

[RAH95]

Has the IRS issued any guidance on MLR rebates yet?  My concern is not taxability but whether I might be required to turn over 100% of rebate to the IRS when I file my 2019 tax return because the MLR rebate is less than the premium tax credit I received on my 2018 income tax return. 

[RMC]

I just received a MLR rebate check.  I am also wondering if the government is going to ask for 100% of this money back. ????

[dazed---confused]

Please comment on any further info you may have found since June 2019 posting.

Thank you!

[dazed---confused]

I am hoping you can update us. Did any problems crop up regarding this? Thanks!