INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2015, 2014, and 2013 is comprised of:

(in thousands)	2015		2014			2013
Federal, current	$	124	$	(94	)	$	(816	)
Federal, deferred		18,185		12,830			7,560
State, current		426		187			102
State, deferred		3,087		1,851			657
	$	21,822	$	14,774		$	7,503

Income tax expense for the years ended December 31, 2015, 2014, and 2013 is summarized below:

(in thousands)	2015			2014			2013
Computed "expected" income tax expense	$	22,368		$	11,404		$	4,462
State income taxes, net of federal income tax effect		2,237			1,075			421
Per diem allowances		2,329			2,304			2,422
Tax contingency accruals		1,599			(104	)		(496	)
Valuation allowance , net		218			18			684
Tax credits		(7,151	)		(112	)		(250	)
Other, net		222			189			260
Actual income tax expense	$	21,822		$	14,774		$	7,503

Income tax expense varies from the amount computed by applying the federal corporate income tax rate of 35% to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem pay structure for drivers. Drivers who meet the requirements to receive per diem receive non-taxable per diem pay in lieu of a portion of their taxable wages. This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages, and employee benefits are slightly lower and our effective income tax rate is higher than the statutory rate. Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven, the impact of the per diem program on our effective tax rate is significant. Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings.

Tax credits generated at December 31, 2015, consisted of both federal and state tax credits in the amounts of $7.0 million and $0.1 million, respectively. The federal tax credit included a non-recurring tax credit in the amount of $6.5 million.

The temporary differences and the approximate tax effects that give rise to our net deferred tax liability at December 31, 2015 and 2014 are as follows:

(in thousands)	2015			2014
Deferred tax assets:
Insurance and claims	$	15,495		$	16,153
Net operating loss carryovers		15,348			18,347
Tax credits		10,585			1,477
Other		4,730			6,086
Deferred fuel hedge		10,947			8,144
Valuation allowance		(1,219	)		(1,001	)
Total deferred tax assets		55,886			49,206

Deferred tax liabilities:
Property and equipment		(125,188	)		(103,186	)
Other		(4,398	)		(2,186	)
Prepaid expenses		(3,281	)		(2,838	)
Total net deferred tax liabilities		(132,867	)		(108,210	)

Net deferred tax liability	$	(76,981	)	$	(59,004	)

In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes", an update to ASC 740, Income Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this ASU. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, with early adoption permitted. The Company has elected to early adopt this standard effective December 31, 2015, on a retrospective basis

and reclassified $14.7 million from net current deferred income tax assets to net noncurrent deferred income tax liabilities as of December 31, 2014.

The net deferred tax liability of $77.0 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but not paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance. Based on forecasted taxable income resulting from the reversal of deferred tax liabilities, primarily generated by accelerated depreciation for tax purposes in prior periods, and tax planning strategies available to us, no valuation allowance has been established at December 31, 2015 or 2014, except for $1.2 million and $1.0 million, respectively, related to certain state net operating loss carry forwards

. If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

As of December 31, 2015, we had a $3.2 million liability recorded for unrecognized tax benefits, which includes interest and penalties of $0.9 million. We recognize interest and penalties accrued related to unrecognized tax benefits in tax expense. As of December 31, 2014, we had a $1.6 million liability recorded for unrecognized tax benefits, which included interest and penalties of $0.7 million. Interest and penalties recognized for uncertain tax positions provided for a $0.2 million, $0.1 million, and a $0.3 million benefit in each of 2015, 2014, and 2013 respectively.

The following tables summarize the annual activity related to our gross unrecognized tax benefits (in thousands) for the years ended December 31, 2015, 2014, and 2013:

	2015			2014			2013
Balance as of January 1,	$	995		$	1,060		$	1,563
Increases related to prior year tax positions		1,737			246			-
Decreases related to prior year positions		-			-			-
Increases related to current year tax positions		-			42			24
Decreases related to settlements with taxing authorities		(182	)		(126	)		-
Decreases related to lapsing of statute of limitations		(156	)		(227	)		(527	)
Balance as of December 31,	$	2,394		$	995		$	1,060

If recognized, $2.7 million and $1.1 million of unrecognized tax benefits would impact our effective tax rate as of December 31, 2015 and 2014, respectively. Any prospective adjustments to our reserves for income taxes will be recorded as an increase or decrease to our provision for income taxes and would impact our effective tax rate.

Our 2012 through 2015 tax years remain subject to examination by the IRS for U.S. federal tax purposes, our major taxing jurisdiction. In the normal course of business,

we are also subject to audits by state and local tax authorities.

While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the more likely than not outcome of known tax contingencies. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution. We do not expect any significant increases or decreases for uncertain income tax positions during the next year.

Our federal net operating loss carryforwards of $28.6 million, along with a federal alternative minimum tax credit carryforward of $0.3 million are available to offset future federal taxable income, if any, through 2034, while our state net operating loss carryforwards and state tax credits of $122.9 million and $0.3 million, respectively expire over various periods through 2034 based on jurisdiction.