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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company holds an economic interest in Shift4 Payments, LLC and consolidates its financial position and results. The remaining ownership of Shift4 Payments, LLC not held by the Company is considered a noncontrolling interest. Shift4 Payments, LLC is treated as a partnership for income tax reporting and its members, including the Company, are liable for federal, state, and local income taxes based on their share of the LLC’s taxable income. In addition, Shift4 Payments, LLC wholly owns various U.S. and foreign subsidiaries which are taxed as corporations for tax reporting. Taxable income or loss from these subsidiaries is not passed through to Shift4 Payments, LLC. Instead, such taxable income or loss is taxed at the corporate level subject to the prevailing corporate tax rates. Components of income tax benefit (provision) consist of the following:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Current |  |  |  |  |
Federal | $ | (11.2) |  |  | $ | (0.7) |  |  | $ | (0.3) |
State | (3.7) |  |  | (0.4) |  |  | — |
Foreign | (11.0) |  |  | (4.2) |  |  | (2.0) |
Total current income tax benefit (provision) | (25.9) |  |  | (5.3) |  |  | (2.3) |
Deferred |  |  |  |  |
Federal | 252.0 |  |  | 5.5 |  |  | 0.9 |
State | 65.9 |  |  | 2.3 |  |  | 1.0 |
Foreign | 4.1 |  |  | 0.9 |  |  | 0.2 |
Total deferred income tax benefit (provision) | 322.0 |  |  | 8.7 |  |  | 2.1 |
Total income tax benefit (provision) | $ | 296.1 |  |  | $ | 3.4 |  |  | $ | (0.2) |
A reconciliation of the U.S. statutory income tax rate to the Company’s effective income tax rate is as follows:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Noncontrolling interests/effect of pass-through entities (LLC income (loss)) | 850.0 | % |  | (6.5 | %) |  | (3.3 | %)
State income taxes, net of federal benefit | (250.0 | %) |  | 25.9 | % |  | (13.3 | %)
Permanent items | 106.3 | % |  | 2.1 | % |  | 0.8 | %
Impacts of business combinations | — | % |  | — | % |  | (7.4 | %)
Impacts of Recording Tax Receivable Agreement | 262.5 | % |  | — | % |  | — | %
Change in fair value of contingent consideration | — | % |  | 0.9 | % |  | (11.5 | %)
Foreign rate differential | 450.0 | % |  | 0.4 | % |  | 1.7 | %
Unrecognized tax benefit | — | % |  | — | % |  | 1.0 | %
Change in valuation allowance | 18,100.0 | % |  | (47.4 | %) |  | 9.1 | %
Equity-based compensation | 6.3 | % |  | 0.2 | % |  | 2.3 | %
Research and development tax credits | 93.7 | % |  | — | % |  | — | %
U.S. taxation of worldwide subsidiaries, net of foreign tax credits | (1,137.5 | %) |  | — | % |  | — | %
Other | 4.0 | % |  | 0.6 | % |  | (0.2 | %)
Effective income tax rate | 18,506.3 | % |  | (2.8 | %) |  | 0.2 | %
The following table sets forth the Company’s income (loss) before income taxes for its domestic and foreign operations for the years ended December 31, 2024, 2023, and 2022:
| December 31,
| 2024 |  | 2023 |  | 2022
Domestic | $ | (61.4) |  |  | $ | 110.0 |  |  | $ | 89.6 |
Foreign | 59.8 |  |  | 9.5 |  |  | (2.7) |
Income (loss) before income taxes | $ | (1.6) |  |  | $ | 119.5 |  |  | $ | 86.9 |
Details of the Company’s deferred tax assets and liabilities are as follows:
| December 31,
| 2024 |  | 2023
Deferred tax assets: |  |  |
Investment in Shift4 Payments, LLC | $ | 465.3 |  |  | $ | 249.4 |
Net operating loss and tax credits carryforward | 84.0 |  |  | 87.6 |
Lease liabilities | 5.5 |  |  | 1.7 |
Equity-based compensation | 8.3 |  |  | 6.3 |
Accrued expenses | 1.9 |  |  | 2.4 |
Other | 19.2 |  |  | 6.4 |
Subtotal | 584.2 |  |  | 353.8 |
Valuation allowance | (137.4) |  |  | (334.1) |
Total deferred tax assets | 446.8 |  |  | 19.7 |
Deferred tax liabilities: |  |  |
Intangible assets | (100.4) |  |  | (38.6) |
Fixed assets | (1.3) |  |  | (2.1) |
Right-of-use assets | (4.9) |  |  | (2.0) |
Other liabilities | (4.0) |  |  | (5.0) |
Total deferred tax liabilities | (110.6) |  |  | (47.7) |
Net deferred tax asset (liability) | $ | 336.2 |  |  | $ | (28.0) |
The Company has a deferred tax asset for the difference between the financial reporting and the tax basis of its investment in Shift4 Payments, LLC. The deferred tax asset above considers the iterative impact of the Tax Receivable Agreement (“TRA”) liability. In prior periods, the Company maintained a full valuation allowance on the net deferred tax assets of Shift4 Payments, Inc. which are comprised primarily of differences in the book and tax basis of Shift4 Payments, Inc.’s investments in Shift4 Payments, LLC. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income sufficient to utilize the deferred tax assets on income tax returns. In prior periods, management had determined that its net deferred tax assets were not more likely than not going to be realized due to existence of significant negative evidence that the Company was in a three-year cumulative loss position. Considering this and other factors, Shift4 Payments, Inc.’s full valuation allowance was maintained through the period ended June 30, 2024. During 2024, management assessed the realizability of deferred tax assets and concluded that it is more likely than not that its deferred tax assets will be realized and that a full valuation allowance is no longer required. The assessment included the fact that as of December 31, 2024, the Company is no longer in a three-year cumulative loss position and is projecting sufficient income in future periods to realize its deferred tax assets. The Company continues to maintain a valuation allowance on the portion of deferred tax assets that require capital gains income because there are no current projections of capital gains income at this time. Accordingly, a tax benefit of $289.0 million was recognized during the year ended December 31, 2024 relating to the release of the valuation allowance associated with the Company’s deferred tax assets and recording additional deferred tax assets related to the TRA liability. As of December 31, 2024, the Company h as $279.3 million f ederal and $341.2 million s tate net operating loss carryforwards, which are expected to expire on various dates as follows. The federal net operating loss carryforwards of $187.0 million gene rated in tax years after 2017 have an unlimited carryforward period, while the remainin g $92.3 million gene rated in earlier tax years have a twenty year carryforward and will expire if unused between 2036 and 2037. T he Company’s state net operating loss carryforwards are available to reduce future taxable income, which expire at various times t hrough 2042. Uncertain Tax Positions The effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold. For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude “more-likely-than-not” to be realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits within “Income tax benefit (expense)” in the Company’s Consolidated Statements of Operations. Accrued interest and penalties, if any, are included within “Deferred tax liability” in the Company’s Consolidated Balance Sheets. As of December 31, 2024 and 2023, $10.4 million and $4.7 million, respectively, of uncertain tax positions were recognized within “Other noncurrent liabilities” in the Company’s Consolidated Balance Sheets, which were primarily recognized in conjunction with acquisitions. Below is a tabular reconciliation of the total amounts of unrecognized tax benefits:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Beginning balance | $ | 4.7 |  |  | $ | 8.0 |  |  | $ | — |
Increase related to current year tax positions | 0.7 |  |  | 0.8 |  |  | 0.9 |
Increase attributable to positions acquired through business combinations | 6.0 |  |  | 0.9 |  |  | 7.1 |
Decrease related to prior year tax positions | (0.2) |  |  | — |  |  | — |
Decrease attributable to measurement period adjustments | — |  |  | (5.0) |  |  |
Decrease attributable to statute of limitation expirations | (0.8) |  |  | — |  |  | — |
Ending balance | $ | 10.4 |  |  | $ | 4.7 |  |  | $ | 8.0 |
Total amount of interest and penalties recognized in the Consolidated Statements of Operations | $ | 0.6 |  |  | $ | 0.7 |  |  | $ | 0.1 |
Total amount of interest and penalties recognized in the Consolidated Balance Sheets | $ | 2.0 |  |  | $ | 1.9 |  |  | $ | 1.8 |
All of the unrecognized tax benefits reflected in the above table would affect the effective tax rate, if recognized. The Company files income tax returns as required by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company may be subject to examination by federal and certain state and local tax authorities. As of December 31, 2024, the Company’s federal and state and local income tax yea rs 2022 th rough 2024 remain open and are subject to examination. Shift4 Payments, LLC is currently under examination by the Internal Revenue Service for the 2020 tax year and certain US corporate subsidiaries are under examination for the 2022 tax year. The Company's open tax years by major taxing jurisdictions are as follows:
Jurisdiction |  | Open Tax Years
United States |  | 2021 - 2024
Israel |  | 2019 - 2024
Lithuania |  | 2020 - 2024
Malta |  | 2019 - 2024
Switzerland |  | 2023 - 2024
Tax Receivable Agreement The Company expects to obtain an increase in its share of the tax basis in the net assets of Shift4 Payments, LLC as LLC Interests are redeemed from or exchanged by the Continuing Equity Owners, at the option of the Company, determined solely by the Company’s independent directors. The Company intends to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that it would otherwise pay in the future to various tax authorities. In connection with the Company’s initial public offering in June 2020 and certain organizational transactions that the Company effected in connection with it, the Company entered into the TRA with the Continuing Equity Owners. The TRA provides for the payment by Shift4 Payments, Inc. of 85% of the amount of any tax benefits the Company actually realizes, or in some cases is deemed to realize, as a result of (i) increases in the Company’s share of the tax basis in the net assets of Shift4 Payments, LLC resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA. The Company expects to benefit from the remaining 15% of any of cash savings that it realizes. As of December 31, 2024 and 2023, the Company recognized a TRA liability of $365.5 million and $5.1 million, respectively, after concluding it was probable that, based on estimates of future taxable income, the Company will realize tax benefits associated with the TRA. A payment of $1.7 million was made to the Continuing Equity Owners pursuant to the TRA during the year ended December 31, 2024. No payments were made to the Continuing Equity Owners pursuant to the TRA during the years ended December 31, 2023 or 2022. The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount, character, and timing of the taxable income of Shift4 Payments, Inc. in the future. Changes in tax laws or rates could also materially impact the estimated liability. If Rook were to exchange any of its LLC Interests subsequent to December 31, 2024, such exchanges could generate additional deferred tax assets and TRA liability. As of December 31, 2024, the estimated impact of the exchange of all of Rook’s LLC Interests was an additional deferred tax asset of approximately $526.1 million and a TRA liability of approximately $447.2 million. Organisation for Economic Co-operation and Development (“OECD”) - Pillar Two In December 2021, the Organisation for Economic Co-operation and Development issued model rules for a new global minimum tax framework (“Pillar Two”), and various governments around the world have passed, or are in the process of passing, legislation on this. Certain Pillar Two rules take effect in 2024 and 2025, depending on whether a particular jurisdiction has integrated the legislation into local law. The Company is continuing to monitor these impacts on its operating footprint and anticipates an increase in income tax expense associated with jurisdictions that have implemented an income inclusion rule or a Qualifying Minimum Top-up Tax (“QDMTT”). The Company is continuing to monitor and assess the impacts of rules set to take effect in 2025, such as the under-taxed profits rule. The impacts of Pillar Two to the Company are subject to change based on expansion and future acquisitions within jurisdictions that the Company does not currently operate.

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