Income Taxes

The Company’s effective tax rate decreased to (

9.3%

) for the

three

months ended

March 31, 2019

from

32.0%

for the

three

months ended

March 31, 2018.

The effective tax rate for the

three

months ended

March 31, 2019

includes discrete tax benefits related to net equity compensation deductions offset by interest on uncertain tax benefits. For the

three

months ended

March 31, 2019,

the differences between the federal statutory rate and our effective tax rate are tax expense items related to state taxes, equity compensation impacts, unrecognized tax benefits, including interest, officer compensation deduction limits, research and development tax credits, and other permanent differences.

Included in Other liabilities on the Consolidated Balance Sheets, are the total amount of unrecognized tax benefits of approximately

$5.0

million and

$4.8

million, as of

March 31, 2019

and

December 31, 2018,

respectively, (net of the federal benefit for state issues) that, if recognized, would favorably affect the Company’s future effective tax rate. Also included in Other liabilities on the Consolidated Balance Sheets, are accrued liabilities for interest expense and penalties related to unrecognized tax benefits of

$0.9

million and

$0.7

million as of

March 31, 2019

and

December 31, 2018,

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, 2019

and

2018

was

$0.2

million and

$0.2

million, respectively. The Company believes it is reasonably possible that the amount of unrecognized tax benefits

may

decrease by

$1.8

million over the next

twelve

months, due to the expiration of the statute of limitations in federal and various state jurisdictions.

HMS files income tax returns with the U.S. Federal government and various state, territory, and local jurisdictions. HMS is

longer subject to U.S. Federal income tax examinations for years before

2013.

HMS operates in a number of state and local jurisdictions. Accordingly, HMS is subject to state and local income tax examinations based on the various statutes of limitations in each jurisdiction.