6. Income Taxes

The income tax expense for the years ended December 31, 2015, 2014 and 2013 is as follows (

in thousands

	December 31,
	2015			2014			2013
Current tax expense:
Federal	$	25,852		$	20,244		$	25,211
State		3,450			4,429			4,736
		29,302			24,673			29,947
Deferred tax expense (benefit):
Federal		(12,571	)		(12,421	)		(3,485	)
State		(1,449	)		131			(869	)
		(14,020	)		(12,290	)		(4,354	)
Total income tax expense	$	15,282		$	12,383		$	25,593

A reconciliation of the income tax expense calculated using the applicable federal statutory rates to the actual income tax expense for the years ended December 31, 2015, 2014 and 2013 is as follows (

in thousands

	December 31,
	2015		%		2014		%		2013		%
Computed at federal statutory rate	$	13,934		35.0	$	9,215		35.0	$	22,946		35.0
State and local tax expense, net of federal benefit		1,038		2.6		2,973		11.3		2,448		3.7
Other, net		310		0.8		195		0.7		199		0.3
Total income tax expense	$	15,282		38.4	$	12,383		47.0	$	25,593		39.0

The Company’s effective tax rate decreased to 38.4% for the year ended December 31, 2015 from 47.0% for the year ended December 31, 2014, primarily due to a change in unitary state apportionments and permanent differences. The principal differences between the statutory rate and the Company’s effective rate are state taxes and permanent differences.

Deferred income taxes are recognized for the future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014 were as follows (

in thousands

	December 31,
	2015			2014
Deferred tax assets:
Deferred stock-based compensation expense	$	9,059		$	7,739
Goodwill and intangible assets		10,449			10,416
Accounts receivable		-			2,576
Allowance for doubtful accounts		1,766			1,473
Deferred rent		1,119			783
Tenant improvements		1,392			1,339
Net operating loss carry-forwards		113			122
Accrued expenses and other		6,298			3,337
Total deferred tax assets		30,196			27,785
Deferred tax liabilities:
Goodwill and intangible assets		54,586			61,328
Property and equipment		3,098			6,107
Capitalized software cost		3,473			3,392
Total deferred tax liabilities		61,157			70,827
Total net deferred tax liabilities	$	30,961		$	43,042


Net current deferred tax assets	$	(7,460	)	$	(7,811	)
Net non-current deferred tax liabilities		38,421			50,853
Total net deferred tax liabilities	$	30,961		$	43,042

During 2015, the Company utilized $4.3 million in tax deductions arising from stock-based compensation, which resulted in an excess tax benefit of $1.6 million that was recorded to capital in excess of par value and an offsetting reduction to taxes payable.

The total amount of unrecognized tax benefits was approximately $1.3 million for both December 31, 2015 and 2014, respectively, (net of the federal benefit for state issues) that, if recognized, would favorably affect the Company’s future effective tax rate. The accrued liability for interest expense and penalties related to unrecognized tax benefits was $0.4 million and $0.2 million for December 31, 2015 and 2014, respectively. HMS includes interest expense and penalties in the provision for income taxes in the Consolidated Statements of Income. The amount of interest expense (net of federal and state income tax benefits) and penalties in the Consolidated Statements of Income for the years ended December 31, 2015 and 2014 was $0.4 million

and $0.2 million, respectively. The Company believes it is reasonably possible that amount of unrecognized tax benefits may decrease, by $0.8 million during 2016, due to the expiration of the statute of limitations in various state jurisdictions.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the twelve months ended December 31, 2015 and 2014 are as follows

(in thousands)

	December 31 ,
	2015			2014
Unrecognized tax benefits at January 1	$	1,329		$	1,034
Additions for tax positions of prior periods		565			484
Additions for tax positions of current periods		-			-
Reductions related to the expiration of statutes of limitations		(565	)		(189	)
Unrecognized tax benefits at December 31	$	1,329		$	1,329

At December 31, 2015, HMS had pre-tax net operating loss carryforwards of approximately $1.3 million, which will begin to expire in 2021.

The Company files income tax returns with the U.S. Federal government and various state jurisdictions. HMS is no longer subject to U.S. Federal income tax examinations for years before 2012. HMS operates in a number of state and local jurisdictions, most of which have never audited the Company’s records. Accordingly, HMS is subject to state and local income tax examinations based upon the various statutes of limitations in each jurisdiction. The Company is currently being examined by the State of New York.