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INCOME TAXES | 12 Months Ended
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Dec. 29, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The provision for income taxes is comprised of the following:
(in thousands) | 2024 | 2023 | 2022
Current taxes: |  |  |
Federal | $ | 150 |  | $ | 329 |  | $ | 1,360 |
State | 1,241 |  | 582 |  | 1,397 |
Foreign | 1,771 |  | 2,817 |  | 4,635 |
Total current taxes | 3,162 |  | 3,728 |  | 7,392 |
Deferred taxes: |  |  |
Federal | 28,484 |  | (8,109) |  | 3,434 |
State | 5,295 |  | (1,383) |  | 345 |
Foreign | 283 |  | (708) |  | (28) |
Total deferred taxes | 34,062 |  | (10,200) |  | 3,751 |
Provision for income taxes | $ | 37,224 |  | $ | (6,472) |  | $ | 11,143 |
Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in our pre-tax and taxable income or loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, valuation allowances recorded on deferred tax assets, and relative changes in expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items, tax credits, and non-deductible expenses on our effective tax rate is greater when our pre-tax income or loss is lower. The items accounting for the difference between income taxes computed at the statutory federal income tax rate and income taxes reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:
(in thousands, except percentages) | 2024 | % | 2023 | % | 2022 | %
Income tax expense (benefit) based on statutory rate | $ | (18,590) |  | 21.0 | % | $ | (4,335) |  | 21.0 | % | $ | 15,417 |  | 21.0 | %
Increase (decrease) resulting from: |  |  |  |  |  |
State income taxes, net of federal benefit | 591 |  | (0.7) |  | (1,384) |  | 6.7 |  | 3,008 |  | 4.1 |
Hiring tax credits, net | (4,123) |  | 4.7 |  | (4,997) |  | 24.2 |  | (7,911) |  | (10.8) |
Valuation allowance | 56,792 |  | (64.1) |  | — |  | — |  | — |  | — |
Uncertain tax positions | (99) |  | 0.1 |  | (206) |  | 1.0 |  | (1,336) |  | (1.8) |
Non-deductible goodwill impairment charge | — |  | — |  | 2,287 |  | (11.1) |  | — |  | — |
Non-deductible and non-taxable items | 664 |  | (0.8) |  | 1,178 |  | (5.7) |  | 1,377 |  | 1.9 |
Foreign taxes | 446 |  | (0.5) |  | 587 |  | (2.9) |  | 654 |  | 0.9 |
Other, net | 1,543 |  | (1.7) |  | 398 |  | (1.9) |  | (66) |  | (0.1) |
Total income tax expense (benefit) | $ | 37,224 |  | (42.0) | % | $ | (6,472) |  | 31.3 | % | $ | 11,143 |  | 15.2 | %
Our effective tax rate for fiscal 2024 was (42.0)%. The difference between the statutory federal income tax rate of 21.0% and our effective income tax rate was primarily due to the valuation allowance against our U.S. federal and state deferred tax assets. Of the total goodwill and intangible asset impairment charge of $9.5 million recorded during fiscal 2023, $8.9 million (tax effect of $2.3 million) related to goodwill from a stock acquisition, and accordingly was not deductible for tax purposes. The federal Work Opportunity Tax Credit (“WOTC”), our primary hiring tax credit, is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. WOTC is generally calculated as a percentage of wages over a twelve-month period up to worker maximums by targeted groups. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because 1) a small percentage of our workers qualify for one or more of the many targeted groups; 2) the targeted groups are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates. We recognize an adjustment to prior year hiring tax credits if credits certified by government offices differ from original estimates. The U.S. Congress has approved the WOTC program through the end of 2025. U.S. and foreign components of income (loss) before tax expense (benefit) was as follows:
(in thousands) | 2024 | 2023 | 2022
U.S. | $ | (97,733) |  | $ | (27,773) |  | $ | 56,964 |
Foreign | 9,209 |  | 7,128 |  | 16,452 |
Income (loss) before tax expense (benefit) | $ | (88,524) |  | $ | (20,645) |  | $ | 73,416 |
The components of deferred tax assets and liabilities were as follows:
(in thousands) | December 29, 2024 | December 31, 2023
Deferred tax assets: |  |
Allowance for credit losses | $ | 264 |  | $ | 590 |
Accounts payable and other accrued expenses | 8,630 |  | 11,242 |
Net operating loss carryforwards | 17,971 |  | 7,535 |
Tax credit carryforwards | 21,478 |  | 16,030 |
Accrued wages and benefits | 5,702 |  | 7,311 |
Deferred compensation | 11,411 |  | 12,356 |
Lease liabilities | 15,242 |  | 17,378 |
Other | 504 |  | 371 |
Total | 81,202 |  | 72,813 |
Valuation allowance | (64,488) |  | (834) |
Total deferred tax asset, net of valuation allowance | 16,714 |  | 71,979 |
Deferred tax liabilities: |  |
Prepaid expenses, deposits and other current assets | (526) |  | (655) |
Lease right-of-use assets | (12,295) |  | (14,052) |
Depreciation and amortization | (2,853) |  | (21,958) |
Workers’ compensation | (503) |  | (192) |
Total deferred tax liabilities | (16,177) |  | (36,857) |
Deferred income taxes, net | $ | 537 |  | $ | 35,122 |
Since deferred tax assets and liabilities attributable to different jurisdictions cannot be offset, deferred tax liabilities of $0.3 million and $0.3 million were included in other long-term liabilities on our Consolidated Balance Sheets as of December 29, 2024 and December 31, 2023, respectively. Our valuation allowance relates to certain deferred tax balances that we expect will not be utilized within the permitted carryforward periods as of December 29, 2024 and December 31, 2023. Based on our deferred tax asset realizability assessments performed during the fiscal year ended December 29, 2024, we recorded a valuation allowance against U.S. federal, state and certain foreign deferred tax assets. Our conclusion was driven by U.S. and foreign pre-tax losses beginning in 2023 and continuing into 2024, combined with the significant non-cash goodwill impairment charge of $59.1 million recorded during the fiscal year ended December 29, 2024. Changes to deferred taxes related to foreign currency translation were immaterial for fiscal 2024, 2023 and 2022. The following table summarizes our credit carryforwards and net operating losses (“NOLs”) along with their respective valuation allowance as of December 29, 2024:
(in thousands) | Carryover tax benefit | Valuation allowance | Expected benefit | Year expiration begins
Year-end tax attributes: |  |  |  |
Federal WOTCs | $ | 21,478 |  | $ | (21,478) |  | $ | — |  | 2042
State NOLs | 4,842 |  | (4,842) |  | — |  | Various
Federal NOLs | 12,944 |  | (12,944) |  | — |  | Indefinite
Foreign NOLs | 185 |  | (185) |  | — |  | Indefinite
Foreign alternative minimum tax credits | 392 |  | — |  | 392 |  | 2034
Total | $ | 39,841 |  | $ | (39,449) |  | $ | 392 |  |
The activity related to the income tax valuation allowance was as follows:
(in thousands) | 2024 | 2023 | 2022
Beginning balance | $ | 834 |  | $ | 2,152 |  | $ | 2,368 |
Charged to expense | 63,654 |  | (58) |  | (216) |
Release of allowance | — |  | (1,260) |  | — |
Ending balance | $ | 64,488 |  | $ | 834 |  | $ | 2,152 |
The following table summarizes the activity related to our unrecognized tax benefits:
(in thousands) | 2024 | 2023 | 2022
Beginning balance | $ | 592 |  | $ | 830 |  | $ | 1,881 |
Increases for tax positions related to the current year | 58 |  | 124 |  | 53 |
Decreases for tax positions related to prior years | — |  | — |  | — |
Reductions due to lapsed statute of limitations | (181) |  | (362) |  | (1,104) |
Ending balance | $ | 469 |  | $ | 592 |  | $ | 830 |
As of December 29, 2024, our liability for unrecognized tax benefits was $0.5 million. If recognized, $0.4 million would impact our effective tax rate. We do not believe the amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the fiscal year ended December 29, 2024. In general, the tax years 2021 through 2023 remain open to examination by the major taxing jurisdictions where we conduct business. Interest and penalties accrued related to the unrecognized tax benefits noted above were immaterial as of December 29, 2024.

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