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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Significant components of the income tax provision are as follows for the periods presented (in thousands):
For the Years Ended December 31,
202220212020
Current:
Federal$5,674 $10,597 $1,988 
State and local1,462 1,676 349 
Total current expense7,136 12,273 2,337 
Deferred:
Federal(10,752)(4,064)2,403 
State and local(1,374)(203)386 
Total deferred expense (benefit)(12,126)(4,267)2,789 
Income tax expense (benefit)$(4,990)$8,006 $5,126 
The following table reconciles the statutory federal income tax rate to the Company’s effective income tax rate for the periods presented:
For the Years Ended December 31,
202220212020
Federal statutory tax rate21.0 %21.0 %21.0 %
Increases (decreases) resulting from:
State income tax, net of federal tax benefit(1.4)%1.7 %3.1 %
Effect of change in tax rate2.0 %0.1 %0.5 %
Disallowed meals & expenses(0.4)%0.1 %0.4 %
Disallowed compensation(3.7)%2.1 %6.2 %
Liability adjustment— — %(9.7)%
Excess tax (benefit) shortfall (0.8)%2.3 %0.4 %
Other, net1.6 %0.9 %(0.7)%
Effective income tax rate18.3 %28.2 %21.2 %
The Company recognized income tax shortfalls of $0.2 million during the year ended December 31, 2022 and $0.7 million during the year ended December 31, 2021 from stock-based compensation awards that vested, were exercised, forfeited, or expired.
On September 14, 2021, the state of Florida reduced its corporate tax rate from 4.458% to 3.535% which was effective for the 2021 calendar year. This rate expired on December 31, 2021, and a new corporate income tax rate of 5.5% became effective on January 1, 2022.
The Variable Interest Entity (“VIE”) is subject to federal income taxes, however because it is domiciled in Bermuda it is not subject to state income taxes. Therefore, the annual results of the VIE can materially impact the state tax apportionment based on the materiality of results in the VIE compared to results of affiliates subject to state taxation.
The company adopted the standard for Corporate Alternative Minimum Tax (“CAMT”), reflected in the Inflation Reduction Act enacted on August 16, 2022, for the reporting period beginning January 1, 2023. The Company has determined that it does not expect to be liable for CAMT in 2023.
The Company accounts for income taxes using a balance sheet approach. As of December 31, 2022 and 2021, the significant components of the Company’s deferred income taxes consisted of the following (in thousands):
As of December 31,
20222021
Deferred income tax assets:
Unearned premiums$32,410 $28,748 
Advanced premiums2,683 2,476 
Unpaid losses and LAE2,574 2,513 
Share-based compensation3,744 3,458 
Accrued wages237 211 
Allowance for uncollectible receivables220 186 
Net operating loss carryforwards7,591 534 
Unrealized gain/loss4,175 890 
Other comprehensive income33,795 4,729 
Other410 77 
Total deferred income tax assets87,839 43,822 
Deferred income tax liabilities:
Deferred policy acquisition costs, net(25,512)(25,361)
Fixed assets(4,484)(1,790)
Unpaid loss and LAE transition adjustment(269)(340)
Other(316)— 
Total deferred income tax liabilities(30,581)(27,491)
Net deferred income tax asset$57,258 $16,331 
At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred income tax assets when it is more likely than not that all, or some portion, of the deferred income tax assets will not be realized. A valuation allowance would be based on all available information including the Company’s assessment of uncertain tax positions and projections of future taxable income and capital gain from each tax-paying component in each jurisdiction, principally derived from business plans and available tax planning strategies.
Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The Company reviews its deferred tax assets regularly for recoverability. Management has reviewed all available evidence, both positive and negative, in determining the need for a valuation allowance with respect to the gross deferred tax assets. In determining the manner in which available evidence should be weighted, management has determined that the need for a valuation allowance is not warranted at this time.
The Company has adopted Accounting for Uncertainty in Income Taxes (“ASC 740”) which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 provides a threshold for the financial statement recognition and measurement of an income tax position taken or expected to be taken in an income tax return. The Company’s policy is to classify interest and penalties related to unrecognized tax positions, if any, in its provision for income taxes. As of December 31, 2022, 2021 and 2020, the Company determined that no uncertain tax liabilities are required.
The Company filed a consolidated federal income tax return for the tax years ended December 31, 2021, 2020 and 2019 and intends to file the same for the tax year ended December 31, 2022. The tax allocation agreement between the Company and the Insurance Entities provides that they will incur income taxes based on a computation of taxes as if they were stand-alone taxpayers. The computations are made utilizing the financial statements of the Insurance Entities prepared on a statutory basis of accounting and prior to consolidating entries which include the conversion of certain balances and transactions of the statutory financial statements to a GAAP basis.
The Company files its income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. As of December 31, 2022, the Company’s 2019 through 2021 tax years are still subject to examination by the Internal Revenue Service and various tax years remain open to examination in certain state jurisdictions.