Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

For financial reporting purposes, income before income taxes includes the following components (in thousands):

	2023		2022		2021
United States	$	165,869	$	141,288	$	92,823
Foreign (Canada)	434		187		193
Total	$	166,303	$	141,475	$	93,016

Income tax expense included in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 was as follows (in thousands): 

	2023		2022		2021
Current:
Federal	$	29,835	$	20,910	$	12,369
Foreign	116		50		52
State and local	10,298		7,299		3,397
Total	40,249		28,259		15,818
Deferred:
Federal	3,978		5,667		5,029
State and local	1,108		2,195		1,282
Total	5,086		7,862		6,311
Total income tax expense	45,335		36,121		22,129

The provision for income taxes attributable to income operations differed from the amount obtained by applying the federal statutory income tax rate to income before income taxes, as follows (in thousands, except percentages):

	2023			2022			2021
Tax at U.S. federal statutory rates	$	34,924		$	29,714		$	19,538
State taxes (net of federal benefit)	10,576			9,019			4,498
Reserves for uncertain tax positions	(241)			337			(104)
Share-based compensation	(5,820)			(6,832)			(4,187)
Non-deductible officers' compensation	5,485			2,507			1,267
Other, net	411			1,376			1,117
Provision for income taxes	$	45,335		$	36,121		$	22,129
Effective income tax rate	27.3		%	25.5		%	23.8		%

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022, were as follows (in thousands):

	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	1,515	$	1,473
Allowance for doubtful accounts	4,876		4,682
Employee benefits and compensation	38,137		37,075
Lease costs	7,398		6,871
Other deferred tax assets	1,888		574
Total gross deferred tax assets	53,814		50,675
Less: valuation allowance	(2,721)		(3,156)
Total deferred tax assets, net	51,093		47,519
Deferred tax liabilities:
Goodwill and other intangibles	77,005		68,306
Property and equipment	836		1,185
Other deferred tax liabilities	2,539		2,791
Total gross deferred tax liabilities	80,380		72,282
Deferred income taxes, net	$	(29,287)	$	(24,763)

We have established valuation allowances for deferred tax assets related to certain employee benefits and compensation and state net operating loss (“NOL”) carryforwards at December 31, 2023 and December 31, 2022.

The net decrease in the valuation allowance of $0.4 million for the year ended December 31, 2023 related to changes in the valuation allowance for NOLs and certain employee benefits and compensation.

In assessing the realization of deferred tax assets, management considers all available positive and negative evidence, including projected future taxable income, scheduled reversal of deferred tax liabilities, historical financial operations and tax planning strategies. Based upon review of these items, management believes it is more-likely-than-not that the Company will realize the benefits of these deferred tax assets, net of the existing valuation allowances.

We file income tax returns in the United States, Canada, and most state jurisdictions. CBIZ's federal income tax returns for years ending prior to January 1, 2020 are no longer subject to examination. With limited exceptions, our state and local income tax returns and non-U.S. income tax returns are no longer subject to tax authority examinations for years ending prior to January 1, 2019 and January 1, 2018, respectively.

The availability of NOLs and state tax credits are reported as a component of deferred tax assets, net of applicable valuation allowances, in the accompanying Consolidated Balance Sheets. At December 31, 2023, we had state net operating loss carryforwards of $50.8 million and a state tax credit carryforward of $0.1 million. The state net operating loss carryforwards expire on various dates between 2025 and 2044 and the state tax credit carryforward expires in 2028.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2023		2022		2021
Balance at January 1	$	2,111	$	1,594	$	1,536
Additions for tax positions of the current year	178		175		161
Additions for positions of prior years	103		486		400
Settlements of prior year positions	—		—		(374)
Lapse of statutes of limitation	(545)		(144)		(129)
Balance at December 31	$	1,847	$	2,111	$	1,594

Included in the balance of unrecognized tax benefits at December 31, 2023 are $1.1 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. We believe it is reasonably possible that certain of these unrecognized tax benefits could change in the next twelve months. We expect reductions in the liability for unrecognized tax benefits of approximately $0.2 million within the next twelve months due to expiration of statutes of limitation. Given the number of years that are currently subject to examination, we are unable to estimate the range of potential adjustments to the remaining balance of unrecognized tax benefits at this time.

We recognize interest expense and penalties related to unrecognized tax benefits as a component of income tax expense. During 2023, we recorded an immaterial increase in accrued interest, and, as of December 31, 2023, we had recognized a liability for interest expense and penalties of $0.3 million and $0.2 million, respectively, relating to unrecognized tax benefits. During 2022, we recorded an immaterial increase in accrued interest, and, as of December 31, 2022, we had recognized a liability for interest expense and penalties of $0.3 million and $0.2 million, respectively, relating to unrecognized tax benefits.