Income Taxes

6 Months Ended

Jul. 02, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's effective tax rate was 15% and 12% for the three-month and six-month periods ended July 2, 2023, respectively, and 9% and 17% for the three-month and six-month periods ended July 3, 2022, respectively.

The Company has defined its major tax jurisdictions as the United States, Ireland, China, and Korea, and within the United States, Massachusetts. The statutory tax rate is 12.5% in Ireland, 25% in China, and 22% in Korea compared to the U.S. federal statutory corporate tax rate of 21%. These foreign tax rate differences resulted in a net decrease to the effective tax rate for both the three-month and six-month periods ended July 2, 2023 and July 3, 2022.

The Company recorded a net discrete tax expense totaling $399,000 and a net discrete tax benefit totaling $3,195,000 for the three-month and six-month periods ended July 2, 2023, and a net discrete tax benefit totaling $2,352,000 and a net discrete tax expense totaling $3,986,000 for the same periods in 2022.

Discrete tax items for the six-month period ended July 2, 2023 included (1) an increase in tax expense of $1,766,000 related to stock-based compensation; (2) a net decrease in tax expense of $3,051,000 due primarily to the release of tax reserves on state tax credits and foreign audit settlements; (3) a decrease in tax expense of $2,198,000 for adjustments to certain deferred tax assets; and (4) a net increase in tax expense of $288,000 for return-to-provision adjustments.

Discrete tax items for the six-month period ended July 3, 2022 included (1) an increase in tax expense of $176,000 related to stock-based compensation; (2) a decrease in tax expense of $1,577,000 arising from audit settlements; (3) an increase in tax expense of $2,316,000 to establish a reserve against certain deferred tax assets; and (4) an increase in tax expense of $3,071,000 consisting primarily of transfer pricing and return-to-provision adjustments.

The Company’s reserve for income taxes, including gross interest and penalties, was $19,239,000 as of July 2, 2023, which was classified as a non-current liability. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period.

Within the United States, the tax years 2019 through 2021 remain open to examination by the IRS, and 2018 through 2021 remain open to examination by various state tax authorities. The tax years 2017 through 2022 remain open to examination by various international taxing authorities in other jurisdictions in which the Company operates.