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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
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,
202420232022
Current:
Federal$23,088 $13,923 $5,674 
State and local5,165 3,194 1,462 
Total current expense28,253 17,117 7,136 
Deferred:
Federal(3,371)4,840 (10,752)
State and local801 (431)(1,374)
Total deferred expense (benefit)(2,570)4,409 (12,126)
Income tax expense (benefit)$25,683 $21,526 $(4,990)
For the years ended December 31, 2024, 2023 and 2022, the effective tax rate was 30.4%, 24.4% and 18.3%, respectively. The difference in the Company’s effective tax rates for the periods below primarily reflect tax treatment of taxable gains and losses of the Separate Account UVE-01 which is domiciled in Bermuda and not subject to state income taxes. See "—Note 18 (Variable Interest Entities)” for more information regarding the Company’s VIE captive insurance arrangement. The provision for income taxes differed from the statutory rate as follows for the periods presented:
For the Years Ended December 31,
202420232022
Expected provision at federal statutory tax rate
21.0 %21.0 %21.0 %
Increases (decreases) resulting from:
State income tax, net of federal tax benefit5.1 %2.2 %(1.4)%
Effect of change in tax rate0.1 %— %2.0 %
Disallowed meals & expenses0.3 %0.2 %(0.4)%
Disallowed compensation2.9 %1.5 %(3.7)%
Excess tax (benefit) shortfall 1.4 %— %(0.8)%
Other, net(0.4)%(0.5)%1.6 %
Effective income tax rate30.4 %24.4 %18.3 %
The Company recognized an excess income tax shortfall of $1.2 million during the year ended December 31, 2024 and an income tax benefit of $0.02 million during the year ended December 31, 2023 from stock-based compensation awards that vested and/or were exercised.
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 was not subject to the provisions of the CAMT section of the Inflation Reduction Act for the period ending December 31, 2024.
The Company accounts for income taxes using a balance sheet approach. As of December 31, 2024 and 2023, the significant components of the Company’s deferred income taxes consisted of the following (in thousands):
As of December 31,
20242023
Deferred income tax assets:
Unearned premiums$39,022 $37,149 
Advanced premiums2,210 2,312 
Unpaid losses and LAE4,812 4,244 
Share-based compensation2,025 3,640 
Accrued wages207 182 
Allowance for uncollectible receivables190 175 
Net operating loss carryforwards8,000 1,258 
Unrealized gain/loss— 1,211 
Other comprehensive income20,483 24,138 
Other754 499 
Total deferred income tax assets77,703 74,808 
Deferred income tax liabilities:
Deferred policy acquisition costs, net(29,749)(27,084)
Fixed assets(4,075)(4,014)
Other comprehensive income(1,232)— 
Unpaid loss and LAE transition adjustment(89)(179)
Other(395)(356)
Total deferred income tax liabilities(35,540)(31,633)
Net deferred income tax asset$42,163 $43,175 
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 was not warranted as of the periods ending December 31, 2024 and 2023.
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, 2024, 2023, and 2022, 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, 2023, 2022 and 2021 and intends to file the same for the tax year ended December 31, 2024. 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.
During the 2024 tax year, the Company was subject to audit by the state of New York for the years ending 2021 through 2023. The audit is still ongoing, however management does not anticipate the result of this audit to be material. The Company was also subject to audit during 2024 by the state of Minnesota for the periods ending 2020 - 2022, resulting in an adjustment that was de minimis. The Company files its income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. As of December 31, 2024, the Company’s 2021 through 2023 tax years are still subject to examination by the Internal Revenue Service and various tax years remain open to examination in certain state jurisdictions.