Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Tax Cuts and Jobs Act was enacted in December 2017, which reduced the U.S. federal corporate tax rate from 35.0% to 21.0% effective January 1, 2018. As a result, we revalued our net deferred income tax assets and recorded $5.4 million of additional Income tax expense in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2017.

The provision for income taxes from continuing operations consists of the following (in thousands):

	YEARS ENDED DECEMBER 31,
	2018		2017		2016
Current tax expense:
Federal	$	12,730	$	15,060	$	16,677
State	5,454		3,244		3,829
Deferred tax expense (1)	989		12,505		2,676
Total Income tax expense	$	19,173	$	30,809	$	23,182

(1) Includes the impact of TCJA for the year ended December 31, 2017.

The provision for income taxes from continuing operations shown above varied from the statutory federal income tax rate for those periods as follows:

	YEARS ENDED DECEMBER 31,
	2018		2017		2016
Federal income tax rate	21.0	%	35.0	%	35.0	%
State income taxes, net of Federal tax effect	5.7		3.8		6.8
Non-deductible compensation and meals and entertainment	1.0		0.7		1.2
Tax credits	(2.2	)	(2.2	)	(2.1	)
Valuation allowance on foreign tax credit	—		2.5		—
Enactment of TCJA	—		9.1		—
Other	(0.6	)	(0.8	)	0.5
Effective tax rate	24.9	%	48.1	%	41.4	%

The 2018 effective tax rate was favorably impacted by the TCJA. The 2017 effective tax rate was unfavorably impacted due to the revaluation of our net deferred tax assets as a result of TCJA. The 2016 effective tax rate was unfavorably impacted by certain one-time non-cash adjustments.

Deferred tax assets and liabilities are composed of the following (in thousands):

	DECEMBER 31,
	2018			2017
Deferred tax assets:
Accounts receivable reserves	$	738		$	611
Accrued liabilities	1,825			1,953
Deferred compensation obligation	5,545			5,423
Stock-based compensation	723			598
Pension and post-retirement benefit plans	3,471			3,767
Goodwill and intangible assets	—			526
Foreign tax credit	1,630			1,632
Other	344			289
Deferred tax assets	14,276			14,799
Deferred tax liabilities:
Prepaid expenses	(190		)	(251		)
Fixed assets	(1,277		)	(1,482		)
Goodwill and intangible assets	(1,057		)	—
Other	(254		)	(17		)
Deferred tax liabilities	(2,778		)	(1,750		)
Valuation allowance	(1,747		)	(1,733		)
Deferred tax assets, net	$	9,751		$	11,316

At December 31, 2018, Kforce had approximately $3.4 million of state tax net operating losses (“NOLs”) which will be carried forward to be offset against future state taxable income. The state tax NOLs expire in varying amounts through 2037.

In evaluating the realizability of Kforce’s deferred tax assets, management assesses whether it is more likely than not that some portion, or all, of the deferred tax assets, will be realized. Management considers, among other things, the ability to generate future taxable income (including reversals of deferred tax liabilities) during the periods in which the related temporary differences will become deductible. The valuation allowance includes a foreign tax credit, which we expect may not be realizable as a result of reduction in our foreign income.

Kforce is periodically subject to IRS audits, as well as state and other local income tax audits for various tax years. During 2018, the IRS commenced an audit for the tax year ended December 31, 2016. No adjustments have been proposed to date. During 2018, the Company also received a notice of examination by the North Carolina Department of Revenue for the years ended December 31, 2016, 2015 and 2014. No adjustments have been proposed to date. The Company has not received a notice of examination by any other jurisdictions for any other tax year open under statute. Although Kforce has not experienced any material liabilities in the past due to income tax audits, Kforce can make no assurances concerning any future income tax audits.

Uncertain Income Tax Positions

The following table presents a reconciliation of the beginning and ending balance of unrecognized tax benefits for the years ended (in thousands):

	DECEMBER 31,
	2018			2017			2016
Unrecognized tax benefits, beginning	$	1,127		$	1,115		$	788
Additions for prior year tax positions	41			50			454
Additions for current year tax positions	—			29			—
Lapse of statute of limitations	(248		)	(67		)	(102		)
Reductions for tax positions of prior years	(14		)	—			(25		)
Unrecognized tax benefits, ending	$	906		$	1,127		$	1,115

As of December 31, 2018, the amount of unrecognized tax benefit that would impact the effective tax rate, if recognized, is $0.7 million. Kforce does not expect any significant changes to its uncertain tax positions in the next 12 months.

Kforce and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Global files income tax returns in the Philippines. With a few exceptions, Kforce is no longer subject to federal, state, local, or non-U.S. income tax examinations by tax authorities for years before 2016.