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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

Note 8 - Income Taxes

The provision for income taxes is as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

15,070

 

 

$

11,896

 

 

$

14,683

 

State

 

 

3,613

 

 

 

1,854

 

 

 

5,529

 

Total current provision for income taxes

 

 

18,683

 

 

 

13,750

 

 

 

20,212

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(535

)

 

 

2,784

 

 

 

(1,096

)

State

 

 

(319

)

 

 

1,842

 

 

 

(1,081

)

Total deferred provision for income taxes

 

 

(854

)

 

 

4,626

 

 

 

(2,177

)

Total provision for income taxes

 

$

17,829

 

 

$

18,376

 

 

$

18,035

 

 

 

Deferred income tax assets and liabilities consist of the following components (in thousands):

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

Deferred income tax assets:

 

 

 

 

 

 

Deferred compensation

 

$

7,392

 

 

$

6,149

 

Tax effect of unrealized losses, net

 

 

7,374

 

 

 

7,969

 

Operating lease liability

 

 

5,850

 

 

 

5,813

 

Workers' compensation claims liabilities

 

 

5,423

 

 

 

6,709

 

Other

 

 

1,164

 

 

 

579

 

Equity based compensation

 

 

857

 

 

 

907

 

Total deferred income tax assets

 

 

28,060

 

 

 

28,126

 

Less: valuation allowance

 

 

340

 

 

 

65

 

Net deferred income tax assets

 

 

27,720

 

 

 

28,061

 

Deferred income tax liabilities:

 

 

 

 

 

 

Tax depreciation in excess of book depreciation

 

 

(10,230

)

 

 

(9,180

)

Amortization of software and intangibles

 

 

(7,467

)

 

 

(8,441

)

Operating lease right-of-use

 

 

(5,545

)

 

 

(5,452

)

Other

 

 

(1

)

 

 

(770

)

Total deferred income tax liabilities

 

 

(23,243

)

 

 

(23,843

)

Net deferred income taxes

 

$

4,477

 

 

$

4,218

 

 

The effective tax rate differed from the U.S. statutory federal tax rate due to the following:

 

 

 

Year Ended December 31,

 

 

 

 

2024

 

 

 

2023

 

 

 

2022

 

 

Statutory federal tax rate

 

 

21.0

 

%

 

 

21.0

 

%

 

 

21.0

 

%

State taxes, net of federal benefit

 

 

3.6

 

 

 

 

4.3

 

 

 

 

5.4

 

 

Nondeductible expenses and other, net

 

 

1.0

 

 

 

 

1.7

 

 

 

 

1.5

 

 

Adjustment for final positions on filed returns

 

 

0.5

 

 

 

 

(0.5

)

 

 

 

0.2

 

 

Other, net

 

 

(0.1

)

 

 

 

0.2

 

 

 

 

—

 

 

Federal and state tax credits

 

 

(0.8

)

 

 

 

(0.1

)

 

 

 

(0.5

)

 

Effective tax rate

 

 

25.2

 

%

 

 

26.6

 

%

 

 

27.6

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Under ASC 740, “Income Taxes,” management evaluates the realizability of the deferred tax assets on a quarterly basis under a “more-likely-than-not” standard. As part of this evaluation, management reviews all evidence both positive and negative to determine if a valuation allowance is needed. One component of this analysis is to determine whether the Company was in a cumulative loss position for the most recent 12 quarters. The Company was in a cumulative income position for the 12 quarters ended at both December 31, 2024 and December 31, 2023.

The Company’s realization of a portion of net deferred tax assets is based in part on our estimates of the timing of reversals of certain temporary differences and on the generation of taxable income before such reversals.

The Company is subject to income taxes in U.S. federal and multiple state and local tax jurisdictions. The Internal Revenue Service (the "IRS") is examining the Company’s federal tax returns for the years ended December 31, 2017 through 2021. BBSI received notices that the IRS intends to disallow certain wage-based tax credits claimed for the years 2017 through 2021, which could result in estimated total additional taxes of $8.0 million and penalties of $1.9 million plus related interest. The Company disagrees with the IRS determination to disallow certain wage-based credits taken by the Company and has filed U.S. Tax Court petitions challenging these notices. We believe that the Company has the technical merits to defend its position. Based on management’s more-likely-than-not assessment that the Company’s position is sustainable, no reserve for the aforementioned IRS notices of disallowance of wage-based tax credits or underpayment penalties has been recorded in the financial statements.

In the major jurisdictions where it operates, the Company is generally no longer subject to income tax examinations by tax authorities for tax years before 2017. As of December 31, 2024, total gross unrecognized tax benefits, excluding interest and penalties, of $0.5 million would affect the Company's effective tax rate if recognized in future periods. The Company does not anticipate any material changes to the reserve in the next 12 months. The Company had unrecognized tax benefit of $0.8 million and $0.6 million as of December 31, 2023 and December 31, 2022, respectively.

A portion of the consolidated income the Company generates is not subject to state income tax. Depending on the percentage of this income as compared to total consolidated income, the Company's state effective tax rate could fluctuate from expectations.

At December 31, 2024, the Company had no state operating loss carryforwards. At December 31, 2024, the Company did not have a federal general business tax credit carryforward or an alternative minimum tax credit carryforward.