Bradley Birkenfeld, who had been jailed by a US court for helping rich American citizens hide their wealth from the Internal Revenue Service (IRS), received the record payment in return for helping to expose a widespread tax evasion scheme.
The payment is the largest government whistle-blower award ever given to an individual, according to Birkenfeld's lawyer Stephen M Kohn.
The size of the award, confirmed by the IRS, reflects the result of an investigation that resulted in UBS being fined $780m (£485m).
It also led to an unprecedented agreement requiring UBS to give the US government the names of 4,700 Americans who held secret overseas accounts.
It allowed recovery by the IRS of $5bn (£3.1bn) in back taxes and penalties from other taxpayers with overseas accounts under agency amnesty programmes, Mr Kohn said.
Mr Kohn, who is also executive director of the National Whistle-blowers Centre, said the award was a resounding signal to other financiers with information about tax wrongdoing that the IRS will treat them properly.
"It's not about Brad," Mr Kohn said.
"It's about how other sources of information, other bankers view the US whistle-blower programme."
Birkenfeld has become something of a cause celebre because of the magnitude of his case and the fact that he was jailed after cooperating with authorities.
His lawyers said he discovered UBS' illegal activities in 2005, and after the company failed to change them he went to US authorities with the information in 2007.
Birkenfeld, 47, served 31 months of a 40-month prison sentence after pleading guilty in 2008 to a count of conspiracy to defraud the US, related to his work for UBS.
The Justice Department said Birkenfeld did not reveal his own misconduct in helping a client, a charge his lawyers say is not true.
As Birkenfeld entered prison in 2010, he called his treatment an injustice and said: "I'm a proud American who did the best I could for my country and this is how they reward me."
His time was cut short for good behaviour in prison but "they did not take one minute off his sentence" for his cooperation with the IRS on the UBS case, Mr Kohn said.
Mr Kohn said Birkenfeld left prison in August and is now confined to a house in an unnamed New Hampshire conference centre and works as a groundsman to satisfy his release requirement for a job.
"This is the day I thought would never come," he said in a statement issued by his brother, Douglas Birkenfeld.
"This is a monumental day not only for me, but for every whistle-blower worldwide."