CREDIT ACCEPTANCE CORPCACC
CREDIT ACCEPTANCE CORP Income Taxes Disclosure
INCOME TAXES
Income Tax Provision
The income tax provision consists of the following:
| (In millions) | For the Years Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Income before provision for income taxes: | $ | 565.4 | $ | 329.5 | $ | 367.6 | |||||||||||
| Current provision for income taxes: | |||||||||||||||||
| Federal | 83.5 | 116.1 | 97.1 | ||||||||||||||
| State | 20.4 | 32.9 | 20.2 | ||||||||||||||
| 103.9 | 149.0 | 117.3 | |||||||||||||||
| Deferred provision for income taxes: | |||||||||||||||||
| Federal | 32.2 | (47.9) | (26.4) | ||||||||||||||
| State | 2.4 | (22.5) | (11.6) | ||||||||||||||
| 34.6 | (70.4) | (38.0) | |||||||||||||||
| Interest and penalties expense: | |||||||||||||||||
| Interest | 3.0 | 3.0 | 2.2 | ||||||||||||||
| Penalties | — | — | — | ||||||||||||||
| 3.0 | 3.0 | 2.2 | |||||||||||||||
| Provision for income taxes | $ | 141.5 | $ | 81.6 | $ | 81.5 | |||||||||||
Income Tax Payments
Income tax payments during the year, net of refunds, are comprised of the following:
| (In millions) | For the Years Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 252.9 | $ | 82.7 | $ | 19.7 | |||||||||||
| State: | |||||||||||||||||
| Pennsylvania | (a) | 6.3 | 3.9 | ||||||||||||||
| New York | (a) | (a) | 3.9 | ||||||||||||||
| Alabama | (a) | (a) | 2.8 | ||||||||||||||
| Other | 26.4 | 14.7 | 1.6 | ||||||||||||||
| State total | 26.4 | 21.0 | 12.2 | ||||||||||||||
| Total cash paid for income taxes (net of refunds) | $ | 279.3 | $ | 103.7 | $ | 31.9 | |||||||||||
(a) The amount of income taxes paid during the year does not meet the 5% disaggregation threshold and is included in “Other.”
Deferred Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities consist of the following:
| (In millions) | As of December 31, | ||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Allowance for credit losses | $ | 884.0 | $ | 831.7 | |||||||
| Stock-based compensation | 15.9 | 14.3 | |||||||||
| Deferred state net operating loss | 32.3 | 25.3 | |||||||||
| Other, net | 34.6 | 15.2 | |||||||||
| Total deferred tax assets | 966.8 | 886.5 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Valuation of Loans receivable | 1,310.4 | 1,195.8 | |||||||||
| Deferred Loan origination costs | 1.8 | 1.8 | |||||||||
| Other, net | 8.6 | 8.0 | |||||||||
| Total deferred tax liabilities | 1,320.8 | 1,205.6 | |||||||||
| Net deferred tax liability | $ | 354.0 | $ | 319.1 | |||||||
The deferred state net operating loss tax asset arising from the operating loss carryforward for state income tax purposes is expected to expire at various times beginning in 2034, if not utilized. We do not anticipate expiration of the net operating loss carryforwards prior to their utilization.
Effective Income Tax Rate
A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
| (In millions) | For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||||||||||
| U.S. federal statutory income tax rate | $ | 118.7 | 21.0 | % | $ | 69.2 | 21.0 | % | $ | 77.2 | 21.0 | % | ||||||||||||||||||||||||||
| State and local income taxes (1) (2) | 21.1 | 3.7 | % | 10.4 | 3.1 | % | 9.9 | 2.7 | % | |||||||||||||||||||||||||||||
| Non-deductible executive compensation expense | 5.5 | 1.0 | % | 7.1 | 2.1 | % | 4.8 | 1.3 | % | |||||||||||||||||||||||||||||
| Excess tax benefits from stock-based compensation plans | (4.1) | -0.7 | % | (5.3) | -1.6 | % | (10.9) | -3.0 | % | |||||||||||||||||||||||||||||
| Other | 0.3 | 0.0 | % | 0.2 | 0.2 | % | 0.5 | 0.2 | % | |||||||||||||||||||||||||||||
| Effective income tax rate | $ | 141.5 | 25.0 | % | $ | 81.6 | 24.8 | % | $ | 81.5 | 22.2 | % | ||||||||||||||||||||||||||
(1) For the years ended December 31, 2025, 2024, and 2023, the majority of the tax effect in this category was attributable to state income taxes in New Jersey, Tennessee, Illinois, and Pennsylvania; New Jersey and Indiana; and New Jersey, Michigan, New York, Pennsylvania, Maryland, and Alabama, respectively.
(2) Includes uncertain tax benefits applicable to states income taxes.
State and local income taxes
For the year ended December 31, 2025, the impact of state and local income taxes on our effective income tax rate increased from 2024, primarily due to a revision of deferred tax estimates during 2025. For the year ended December 31, 2024, the impact of state and local income taxes on our effective income tax rate increased from 2023, primarily due to an adjustment to an uncertain tax position estimate for state income taxes during the second quarter of 2024 and changes in state tax laws that were enacted during the second quarter of 2024.
Non-deductible executive compensation expense
We recognize non-deductible executive compensation expense as an increase of provision for income taxes or a reduction of benefit for income taxes. For the year ended December 31, 2025, the impact of non-deductible executive compensation expense on our effective income tax rate decreased from 2024, due to a decrease in non-deductible executive compensation expense and an increase in pre-tax income. For the year ended December 31, 2024, the impact of non-deductible executive compensation expense on our effective income tax rate increased from 2023, primarily due to an increase in non-deductible executive compensation expense.
Excess tax benefits from stock-based compensation
We recognize an excess tax benefit or tax deficiency when the deduction for the stock-based compensation expense of a stock award for tax purposes differs from the cumulative stock-based compensation expense recognized in the financial statements. The excess tax benefit or tax deficiency is recognized in provision for income taxes in the period in which the amount of the deduction is determined, which is when restricted stock vests, restricted stock units are settled in common stock, or stock options are exercised. Excess tax benefits reduce our effective income tax rate, while tax deficiencies increase our effective income tax rate. The decrease in the impact of excess tax benefits on our effective income tax rate for the year ended December 31, 2025 as compared to 2024 was due to a lower realized tax deduction from stock compensation and an increase in pre-tax income. The decrease in the impact of excess tax benefits on our effective income tax rate for the year ended December 31, 2024 as compared to 2023 was primarily due to a decrease in the number of restricted stock units that were settled in common stock during 2024 due to the timing of long-term stock award grants.
Unrecognized Tax Benefits
The following table is a summary of changes in gross unrecognized tax benefits:
| (In millions) | For the Years Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefits at January 1, | $ | 73.0 | $ | 61.0 | $ | 57.1 | |||||||||||
| Additions for tax positions of the current year | 16.5 | 20.3 | 16.2 | ||||||||||||||
| Additions for tax positions of prior years | — | 2.8 | — | ||||||||||||||
| Reductions for tax positions of prior years | (0.1) | (0.2) | (0.1) | ||||||||||||||
| Settlements | — | (3.2) | (3.7) | ||||||||||||||
| Reductions as a result of a lapse of the statute of limitations | (10.0) | (7.7) | (8.5) | ||||||||||||||
| Unrecognized tax benefits at December 31, | $ | 79.4 | $ | 73.0 | $ | 61.0 | |||||||||||
The total amount of gross unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods was $79.4 million as of December 31, 2025. As of December 31, 2025, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months. Accrued interest related to uncertain tax positions was $20.9 million and $17.9 million as of December 31, 2025 and 2024, respectively.
We are subject to income tax in federal, state, and local jurisdictions. We are generally no longer subject to tax examinations on federal returns filed for years prior to 2022 and state and local returns filed for years prior to 2019.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 12, 2025 | |
| 2023 | Feb 12, 2024 | |
| 2022 | Feb 10, 2023 | |
| 2021 | Feb 11, 2022 | |
| 2020 | Feb 12, 2021 | |
| 2019 | Feb 11, 2020 | |
| 2018 | Feb 8, 2019 | |
| 2017 | Feb 9, 2018 | |
| 2016 | Feb 10, 2017 | |
| 2015 | Feb 12, 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.