FROM: KIM EVANS, DIRECTOR
SUBJECT: NET OPERATING LOSS AND CARRYOVER USED FOR INCOME CALCULATIONS FOR FAMILY MO HEALTHNET PROGRAMS
MANUAL REVISION #
1805.030.20.05
DISCUSSION:
The Internal Revenue Service (IRS) defines Net Operating Loss (NOL) as when deductions exceed your gross income for the year. This is most commonly used to refer to a business loss. When a tax filer has a NOL, they are allowed to claim this as a negative income. The negative income may be allowed to carry over for multiple years until the NOL is exhausted, following the guidance of the IRS and tax professionals.
This loss of income is shown on Form 1040, Schedule 1 as a negative amount listed on the “Other Income” line, Line 8.
Verification of this negative income requires a statement that includes:
- How the NOL was calculated,
- What year the NOL occurred and any deductions that have been claimed in previous years, and
- The amount of NOL that has not been exhausted.
EXAMPLE: Ms. McKee is self-employed. In 2010, she had a net operating loss with her business of $100,000. Each year she claims a portion of this loss as a negative income on her tax return. When she applied for MO HealthNet on January 16, 2020, she provided a copy of her 2019 tax return, her 2019 Schedule 1 showing a negative amount on “Other Income,” and a written statement regarding the NOL. The statement showed the amount she has claimed from the NOL each tax year since 2010. She provides a calculation from her tax professional showing that she claimed a $13,250 NOL negative income for her 2019 tax return.
For Family MO HealthNet Programs, using the Modified Adjusted Gross Income (MAGI) methodologies, participants who claim a NOL on their income tax return may use this as a negative income source, whether they are currently receiving self-employment income or not. The negative income can be claimed indefinitely until the NOL amount is exhausted, even if the self-employment income ends. This was added to the manual as an allowable income source, 1805.030.20.05 Income Included Under MAGI.
EXAMPLE: From the example above, if Ms. McKee still owns her self-employment business, she would be allowed a negative income amount included in her MAGI income calculation and also business expenses shown on her 2019 tax return.
EXAMPLE: From the example above, if Ms. McKee no longer owns her business, she would be allowed the NOL as a negative income to adjust the countable income from all other sources.
Staff should follow current procedures for entering negative income and should refer to MEDES Resources to make sure it is entered correctly. If a NOL was allowed and verified previously, staff must verify the amount for each year before allowing the negative income. The negative income amount can vary each year and once the NOL is exhausted, the negative income can no longer be allowed.
NECESSARY ACTION:
- Review this memorandum with appropriate staff.
- Allow negative income calculations for applicable MAGI cases immediately.
- Send all questions through normal supervisory channels.
KE/cj
