BARRETT BUSINESS SERVICES INC Income Taxes Disclosure
Note 8 - Income Taxes
The provision for income taxes is as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current provision for income taxes |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
12,014 |
|
|
$ |
15,070 |
|
|
$ |
11,896 |
|
State |
|
|
3,445 |
|
|
|
3,613 |
|
|
|
1,854 |
|
Total current provision for income taxes |
|
|
15,459 |
|
|
|
18,683 |
|
|
|
13,750 |
|
Deferred provision for income taxes |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
1,627 |
|
|
|
(535 |
) |
|
|
2,784 |
|
State |
|
|
(135 |
) |
|
|
(319 |
) |
|
|
1,842 |
|
Total deferred provision for income taxes |
|
|
1,492 |
|
|
|
(854 |
) |
|
|
4,626 |
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
13,641 |
|
|
|
14,535 |
|
|
|
14,680 |
|
State |
|
|
3,310 |
|
|
|
3,294 |
|
|
|
3,696 |
|
Total provision for income taxes |
|
$ |
16,951 |
|
|
$ |
17,829 |
|
|
$ |
18,376 |
|
Deferred income tax assets and liabilities consist of the following components (in thousands):
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred income tax assets: |
|
|
|
|
|
|
||
Deferred compensation |
|
$ |
7,605 |
|
|
$ |
7,392 |
|
Workers' compensation claims liabilities |
|
|
6,930 |
|
|
|
5,423 |
|
Operating lease liability |
|
|
6,670 |
|
|
|
5,850 |
|
Tax effect of unrealized losses, net |
|
|
4,464 |
|
|
|
7,374 |
|
Equity based compensation |
|
|
832 |
|
|
|
857 |
|
Other |
|
|
752 |
|
|
|
1,164 |
|
Total deferred income tax assets |
|
|
27,253 |
|
|
|
28,060 |
|
Less: valuation allowance |
|
|
344 |
|
|
|
340 |
|
Net deferred income tax assets |
|
|
26,909 |
|
|
|
27,720 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
||
Tax depreciation in excess of book depreciation |
|
|
(12,132 |
) |
|
|
(10,230 |
) |
Amortization of software and intangibles |
|
|
(8,370 |
) |
|
|
(7,467 |
) |
Operating lease right-of-use |
|
|
(6,333 |
) |
|
|
(5,545 |
) |
Other |
|
|
— |
|
|
|
(1 |
) |
Total deferred income tax liabilities |
|
|
(26,835 |
) |
|
|
(23,243 |
) |
Net deferred income taxes |
|
$ |
74 |
|
|
$ |
4,477 |
|
The effective tax rate differed from the U.S. statutory federal tax rate due to the following:
|
|
|
|
|
Year Ended December 31, |
|
|
||||||||||||||||||||
|
|
2025 |
|
2024 |
|
2023 |
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Statutory tax rate |
|
$ |
14,994 |
|
|
|
21.0 |
|
% |
|
$ |
14,873 |
|
|
|
21.0 |
|
% |
|
$ |
14,488 |
|
|
|
21.0 |
|
% |
State and local income taxes, |
|
|
2,615 |
|
|
|
3.7 |
|
|
|
|
2,579 |
|
|
|
3.6 |
|
|
|
|
3,016 |
|
|
|
4.4 |
|
|
Tax credits |
|
|
(1,445 |
) |
|
|
(2.0 |
) |
|
|
|
(305 |
) |
|
|
(0.4 |
) |
|
|
|
(561 |
) |
|
|
(0.8 |
) |
|
Nontaxable or nondeductible items |
|
|
673 |
|
|
|
0.9 |
|
|
|
|
828 |
|
|
|
1.2 |
|
|
|
|
1,140 |
|
|
|
1.7 |
|
|
Nondeductible Officers' Compensation (162(m)) |
|
|
1,279 |
|
|
|
1.8 |
|
|
|
|
953 |
|
|
|
1.3 |
|
|
|
|
1,028 |
|
|
|
1.5 |
|
|
Equity-based compensation windfall tax difference |
|
|
(991 |
) |
|
|
(1.4 |
) |
|
|
|
(712 |
) |
|
|
(1.0 |
) |
|
|
|
(252 |
) |
|
|
(0.4 |
) |
|
Other nondeductible expenses (no item >5%) |
|
|
385 |
|
|
|
0.5 |
|
|
|
|
587 |
|
|
|
0.8 |
|
|
|
|
364 |
|
|
|
0.5 |
|
|
Changes in unrecognized tax benefits |
|
|
380 |
|
|
|
0.5 |
|
|
|
|
(293 |
) |
|
|
(0.4 |
) |
|
|
|
132 |
|
|
|
0.2 |
|
|
Changes in valuation allowances |
|
|
3 |
|
|
|
0.0 |
|
|
|
|
211 |
|
|
|
0.3 |
|
|
|
|
55 |
|
|
|
0.0 |
|
|
Other, net |
|
|
(269 |
) |
|
|
(0.4 |
) |
|
|
|
(64 |
) |
|
|
(0.1 |
) |
|
|
|
106 |
|
|
|
0.1 |
|
|
Effective tax rate |
|
$ |
16,951 |
|
|
|
23.7 |
|
% |
|
$ |
17,829 |
|
|
|
25.2 |
|
% |
|
$ |
18,376 |
|
|
|
26.6 |
|
% |
(1) State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category in all years reported.
On July 4, 2025, the One Big Beautiful Bill Act was signed into law, extending key provisions of the 2017 Tax Cuts and Jobs Act including, but not limited to, federal bonus depreciation and deductions for domestic research and development expenditures. This new legislation does not have a material impact on the Company's results of operations.
Under ASC 740, “Income Taxes,” management evaluates the realizability of the deferred tax assets on a quarterly basis under a “more-likely-than-not” standard. As part of this evaluation, management reviews all evidence both positive and negative to determine if a valuation allowance is needed. One component of this analysis is to determine whether the Company was in a cumulative loss position for the most recent 12 quarters. The Company was in a cumulative income position for the 12 quarters ended December 31, 2025. At December 31, 2025 and December 31, 2024, the Company had not recorded a valuation allowance against its deferred tax assets.
The Company is subject to income taxes in U.S. federal and multiple state and local tax jurisdictions. The Internal Revenue Service (the "IRS") is examining the Company’s federal tax returns for the years ended December 31, 2017 through 2021. BBSI received notices that the IRS intends to disallow certain wage-based tax credits claimed for the years 2017 through 2021, which could result in estimated total additional taxes of $8.0 million and of $5.2 million. The Company disagrees with the IRS determination to disallow certain wage-based credits taken by the Company and has filed U.S. Tax Court petitions challenging these notices. We believe that the Company has the technical merits to defend its position. Based on management’s more-likely-than-not assessment that the Company’s position is sustainable, no reserve for the aforementioned IRS notices of disallowance of wage-based tax credits or underpayment penalties has been recorded in the financial statements.
In the major jurisdictions where it operates, the Company is generally no longer subject to income tax examinations by tax authorities for tax years before 2017. As of December 31, 2025, total gross unrecognized tax benefits, excluding interest and penalties, of $0.8 million would affect the Company's effective tax rate if recognized in future periods. The Company had unrecognized tax benefit of $0.5 million and $0.8 million as of December 31, 2024 and December 31, 2023, respectively.
A portion of the consolidated income the Company generates is not subject to state income tax. Depending on the percentage of this income as compared to total consolidated income, the Company's state effective tax rate could fluctuate from expectations.
At December 31, 2025, the Company had no state or federal operating loss carryforwards or tax credit carryforwards.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Mar 1, 2024 | |
| 2022 | Mar 6, 2023 | |
| 2021 | Mar 7, 2022 | |
| 2020 | Mar 8, 2021 | |
| 2019 | Mar 3, 2020 | |
| 2018 | Mar 5, 2019 | |
| 2017 | Mar 6, 2018 | |
| 2016 | Mar 8, 2017 | |
| 2015 | May 26, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.