CITIZENS, INC.CIA
CITIZENS, INC. Income Taxes Disclosure
CICA International is considered a controlled foreign corporation for federal income tax purposes. As a result, the insurance activity of CICA International is subject to Subpart F of the Internal Revenue Code ("IRC") and is included in Citizens’ taxable income. The Government of Puerto Rico approved a tax exemption decree for CICA International which freezes the income tax rate at 0% on taxable earnings up to $1.2 million and 4% on any taxable earnings in excess of $1.2 million for a minimum of 15 years.
A summary of the income (loss) before federal income tax expense, by jurisdiction, is as follows:
Years ended December 31, (In thousands) | 2025 | 2024 | |||||||||
Income (loss) before federal income tax: | |||||||||||
| United States | $ | 7,425 | (4,317) | ||||||||
| Puerto Rico | 10,045 | 19,297 | |||||||||
Total income before federal income tax | $ | 17,470 | 14,980 | ||||||||
Federal income tax expense (benefit) consists of:
Years ended December 31, (In thousands) | 2025 | 2024 | |||||||||
Current income tax expense (benefit) related to: | |||||||||||
United States | $ | — | 286 | ||||||||
Puerto Rico | 1,412 | 1,582 | |||||||||
Total current income tax expense | 1,412 | 1,868 | |||||||||
Deferred income tax expense (benefit) related to: | |||||||||||
United States | 2,477 | (908) | |||||||||
Puerto Rico | (1,010) | (892) | |||||||||
Total deferred income tax expense (benefit) | 1,467 | (1,800) | |||||||||
Total federal income tax expense (benefit) | $ | 2,879 | 68 | ||||||||
A reconciliation between the U.S. corporate income tax rate and the effective income tax rate is as follows:
Years ended December 31, (In thousands, except for %) | 2025 | % | 2024 | % | |||||||||||||||||||
Expected federal income tax expense (benefit): | $ | 3,669 | 21.0 | % | $ | 3,146 | 21.0 | % | |||||||||||||||
Foreign tax effects: | |||||||||||||||||||||||
Puerto Rico: | |||||||||||||||||||||||
| Statutory tax rate difference between Puerto Rico and United States | (1,708) | (9.7) | (3,280) | (21.9) | |||||||||||||||||||
Income tax exclusion | (48) | (0.3) | (48) | (0.3) | |||||||||||||||||||
| Other | 48 | 0.3 | (35) | (0.2) | |||||||||||||||||||
Effect of cross-border tax laws: | |||||||||||||||||||||||
Subpart F inclusions | 135 | 0.8 | (524) | (3.5) | |||||||||||||||||||
PFIC QEF inclusions | 688 | 3.9 | 800 | 5.3 | |||||||||||||||||||
| Other | 1 | — | 2 | — | |||||||||||||||||||
Nontaxable or nondeductible items: | |||||||||||||||||||||||
| Tax-exempt interest and dividends-received deduction | (15) | (0.1) | (23) | (0.1) | |||||||||||||||||||
Compensation limitation under Section 162(m) & 280(g) | 75 | 0.4 | (2) | — | |||||||||||||||||||
Other | 34 | 0.2 | 52 | 0.3 | |||||||||||||||||||
| Other | — | — | (20) | (0.1) | |||||||||||||||||||
| Total federal income tax expense (benefit) | $ | 2,879 | 16.5 | % | $ | 68 | 0.5 | % | |||||||||||||||
A summary of the total federal income tax payments made and refunds received by jurisdiction is as follows:
Years ended December 31, (In thousands) | 2025 | 2024 | |||||||||
Tax payments (refunds) | |||||||||||
| United States | $ | (519) | (828) | ||||||||
| Puerto Rico | 2,406 | 1,300 | |||||||||
Total tax payments | $ | 1,887 | 472 | ||||||||
The components of deferred federal income taxes are as follows:
December 31, (In thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating and capital loss carryforwards | $ | 2,136 | 1,774 | ||||||||
| Accrued policyholder dividends and expenses | 222 | 200 | |||||||||
| Deferred intercompany loss | 1,432 | 1,721 | |||||||||
Unrealized losses on investments available-for-sale | 12,555 | 15,816 | |||||||||
| Accrued compensation | 584 | 745 | |||||||||
| Lease liability | 1,542 | 1,628 | |||||||||
Fixed assets | 328 | 394 | |||||||||
| Other | 1,104 | 1,065 | |||||||||
| Total gross deferred tax assets | 19,903 | 23,343 | |||||||||
| Less: | |||||||||||
| Valuation allowance | 4,324 | 5,073 | |||||||||
| Net deferred tax assets | 15,579 | 18,270 | |||||||||
| Deferred tax liabilities: | |||||||||||
| DAC, COIA and intangible assets | (17,161) | (14,619) | |||||||||
| Future policy benefit reserves | (2,388) | (4,363) | |||||||||
Investments | (379) | (316) | |||||||||
| Tax reserves transition liability | — | (747) | |||||||||
| Right-of-use lease asset | (1,542) | (1,628) | |||||||||
| Other | (105) | (39) | |||||||||
| Total gross deferred tax liabilities | (21,575) | (21,712) | |||||||||
| Net deferred tax liability | $ | (5,996) | (3,442) | ||||||||
A summary of changes in the components of deferred federal and state income taxes is as follows:
December 31, (In thousands) | 2025 | 2024 | |||||||||
Balance at January 1, | $ | (3,442) | (1,102) | ||||||||
| Deferred tax benefit (expense) | (1,467) | 1,800 | |||||||||
| Investments available-for-sale | (3,241) | 3,031 | |||||||||
| Change in valuation allowance | 749 | (605) | |||||||||
Effects of unrealized gains (losses) on reserves | 1,405 | (6,566) | |||||||||
Balance at December 31, | $ | (5,996) | (3,442) | ||||||||
The Company and our subsidiaries have $7.1 million in net operating loss carryforwards in the U.S. at December 31, 2025. The Company and our subsidiaries have capital loss carryforwards of $2.9 million in the U.S. and $0.2 million in Puerto Rico at December 31, 2025, which begin expiring in 2026 and 2031, respectively.
At December 31, 2025 and 2024, we determined it was more likely than not that a portion of our capital deferred tax assets would not be realized in their entirety. Thus, the Company holds valuation allowances of $4.3 million and $5.1 million in other comprehensive income (loss) at December 31, 2025 and 2024, respectively.
The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority. The Company does not have any unrecognized tax benefits for December 31, 2025 and 2024.
The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. In the consolidated statements of operations and comprehensive income (loss), we received $0.1 million of interest income related to refunds for the year ended December 31, 2025 and none in 2024.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company had an immaterial impact to our income tax expense or effective tax rate for the enactment of OBBBA for the year ended December 31, 2025.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in response to the COVID-19 pandemic. The CARES Act, among other things, permitted net operating losses incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.
The Company's federal income tax return is filed on a consolidated basis with the following entities:
Citizens, Inc.
CICA Life Insurance Company of America
Magnolia Guaranty Life Insurance Company
Security Plan Life Insurance Company
Computing Technology, Inc.
The method of tax allocation among companies is subject to a written tax sharing agreement, approved by the Board of Directors, whereby allocation is made primarily on a separate return basis pursuant to the wait-and-see method. Under this method, consolidated group members are not given current credit or refunds for net operating losses until taxable income on a separate return basis is generated. Intercompany tax balances are settled at least annually.
The Company and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various U.S. states. Our subsidiaries are subject to examination by U.S. tax authorities for tax years ending after December 31, 2022.
The Company's Puerto Rico subsidiaries are subject to examination by Puerto Rico tax authorities for tax years ending after December 31, 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 13, 2025 | |
| 2023 | Mar 14, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 11, 2022 | |
| 2020 | Mar 10, 2021 | |
| 2019 | Mar 11, 2020 | |
| 2018 | Mar 26, 2019 | |
| 2017 | Mar 29, 2018 | |
| 2016 | Apr 27, 2017 | |
| 2015 | Mar 24, 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.