Note 6 - Income Taxes

3 Months Ended

Mar. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

6. Income Taxes

The Company’s effective tax rate increased to 42.0% for the three months ended March 31, 2016 from 41.7% for the three months ended March 31, 2015, primarily due to changes in interest on prior state unrecognized tax benefits and permanent differences.

During the three months ended March 31, 2016, the Company utilized an immaterial amount in tax deductions arising from stock-based compensation.

As of March 31, 2016 and 2015, the total amount of unrecognized tax benefits was approximately $1.9 million and $1.4 million, respectively (net of the federal benefit for state issues) that, if recognized, would favorably affect the Company’s future effective tax rate. As of March 31, 2016 and 2015, the accrued liability for interest expense and penalties related to unrecognized tax benefits was $0.6 million and $0.3 million, respectively. HMS includes interest expense and penalties in the provision for income taxes in the unaudited Consolidated Statements of Income. The amount of interest expense (net of federal and state income tax benefits) and penalties in the unaudited Consolidated Statements of Income for the three months ended March 31, 2016 and 2015 was $0.2 million and an immaterial amount, respectively. The Company believes it is reasonably possible that the amount of unrecognized tax benefits may decrease, by $1.6 million during 2016, due to the expiration of the statute of limitations in various state jurisdictions.

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HMS files income tax returns with the U.S. Federal government and various state and local 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. HMS is currently being examined by the Internal Revenue Service and the State of New York.