13. Income Taxes

The provision for income taxes consisted of the following (in thousands):

	Fiscal Year
	2013			2012			2011

Income before income taxes	$	156,450		$	133,974		$	129,143
Income tax provision:
Current:
Federal	$	28,754		$	39,792		$	17,093
State	8,707			8,517			8,423
Total current	37,461			48,309			25,516
Deferred:
Federal	5,342			(11,055		)	9,284
State	(709		)	(1,703		)	(1,377		)
Total deferred	4,633			(12,758		)	7,907
Total provision	$	42,094		$	35,551		$	33,423

The following is a reconciliation between the U.S. federal statutory rate and the effective tax rate:

	Fiscal Year
	2013		2012		2011

Tax at U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State and district income taxes, net of federal income tax benefit	3.3		3.3		3.6
FICA tip credit	(7.0	)	(7.7	)	(6.9	)
HIRE Act retention tax credit	—		—		(1.4	)
Other credits and incentives	(1.2	)	(0.6	)	(0.8	)
Change in uncertain tax positions	—		—		(1.3	)
Manufacturing deduction	(2.4	)	(2.8	)	(2.7	)
Deferred compensation	(1.0	)	(0.7	)	0.2
Other	0.2		—		0.2
Effective tax rate	26.9	%	26.5	%	25.9	%

Following are the temporary differences that created our deferred tax assets and liabilities (in thousands):

	December 31, 2013			January 1, 2013
Deferred tax assets:
Employee benefits	$	23,707		$	20,135
Insurance reserves	15,622			15,284
Accrued rent	22,954			23,945
Stock-based compensation	13,822			18,908
Deferred income	7,922			7,060
Tax credit carryforwards	1,977			1,751
Other	1,320			853
Subtotal	87,324			87,936
Less: Valuation allowance	(185		)	(258		)
Total	$	87,139		$	87,678

Deferred tax liabilities:
Property and equipment	$	(150,226	)	$	(146,763	)
Inventory	(9,299		)	(9,160		)
Prepaid expenses	(8,843		)	(8,350		)
Total	$	(168,368	)	$	(164,273	)

Net deferred tax liability	$	(81,229	)	$	(76,595	)

Reported in consolidated balance sheets as:
Deferred income taxes — current asset	$	16,008		$	15,257
Deferred income taxes — noncurrent liability	(97,237		)	(91,852		)
Total	$	(81,229	)	$	(76,595	)

We had $3.0 million and $2.7 million of state tax credit carryforwards at December 31, 2013 and January 1, 2013, respectively. These credits began to expire in 2013. Management assesses the available evidence to estimate if sufficient future taxable income will be generated to use these carryforwards. Based on this evaluation, we recorded a valuation allowance relating to hiring and investment tax credits in North Carolina of $0.2 million and $0.3 million as of December 31, 2013 and January 1, 2013, respectively, to reflect the amount that more likely than not will not be realized. We believe it is more likely than not that all other state tax credit carryforwards will be realized. However, this assessment could change if estimates of future taxable income during the carryforward period are revised. The earliest tax year still subject to examination by a significant taxing jurisdiction is 2010.

At December 31, 2013, we had $0.8 million of unrecognized tax benefits. If recognized, this amount would affect our effective income tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Fiscal Year
	2013			2012			2011

Balance at beginning of year	$	695		$	590		$	2,135
Additions based on tax positions taken during a prior period	—			—			—
Reductions based on tax positions taken during a prior period	—			—			—
Additions based on tax positions taken during the current period	254			230			199
Reductions related to settlements with taxing authorities and lapses of statutes of limitations	(147		)	(125		)	(1,744		)
Balance at end of year	$	802		$	695		$	590

We recognize interest related to uncertain tax positions in income tax expense. Penalties related to uncertain tax positions are part of general and administrative expenses. At both December 31, 2013 and January 1, 2013, we had approximately $0.1 million of accrued interest and penalties related to uncertain tax positions. Included in the balance of unrecognized tax benefits at December 31, 2013 is $0.1 million related to tax positions for which it is reasonably possible that the total amount could decrease during the next twelve months based on the lapses of statutes of limitations for certain jurisdictions.

In 2008, the IRS issued a Notice of Proposed Adjustment to us disallowing, under Internal Revenue Code section 162(m), the deduction of approximately $5.1 million of compensation expense with respect to the exercise of stock options by certain current and former executive officers during 2003 through 2006. In 2010, we agreed to a resolution of this dispute as to tax years 2005 and 2006, and in 2011, we agreed to a resolution as to tax years 2003 and 2004.