Enhabit, Inc.EHAB
Enhabit, Inc. Income Taxes Disclosure
Income Taxes
The significant components of Provision for (benefit from) income taxes are as follows (in millions):
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 3.8 | $ | 1.4 | $ | 0.2 | |||||||||||
| State and other | 0.2 | 0.3 | — | ||||||||||||||
| Total current expense | 4.0 | 1.7 | 0.2 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (0.2) | (5.4) | (9.3) | ||||||||||||||
| State and other | 0.2 | (0.3) | (2.3) | ||||||||||||||
| Total deferred benefit | — | (5.7) | (11.6) | ||||||||||||||
| Total income tax (benefit) expense related to continuing operations | $ | 4.0 | $ | (4.0) | $ | (11.4) | |||||||||||
A reconciliation of differences between the U.S. federal statutory tax rate and Enhabit’s effective tax rate is presented below:
Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
Tax at U.S. federal statutory rate | $ | 0.3 | 21.0 | % | $ | (33.2) | 21.0 | % | $ | (19.0) | 21.0 | % | |||||||||||||||||||||||
State and local income tax, net of federal (national) income tax effect(1) | 0.4 | 28.6 | % | 0.1 | (0.1) | % | (1.9) | 2.1 | % | ||||||||||||||||||||||||||
| Effect of changes in tax laws or rates enacted in the current period | (4.2) | (300.0) | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| General business credit - IRC section 38 | (0.5) | (35.7) | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| Changes in valuation allowances | 2.3 | 164.3 | % | 11.7 | (7.4) | % | — | — | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
Impairment of goodwill | 4.5 | 321.4 | % | 16.2 | (10.2) | % | 8.3 | (9.2) | % | ||||||||||||||||||||||||||
Stock-based compensation | 1.5 | 107.1 | % | 1.3 | (0.8) | % | 1.1 | (1.2) | % | ||||||||||||||||||||||||||
| Noncontrolling interest | (0.4) | (28.6) | % | (0.5) | 0.3 | % | (0.3) | 0.4 | % | ||||||||||||||||||||||||||
Other | 0.1 | 7.6 | % | 0.4 | (0.3) | % | 0.4 | (0.5) | % | ||||||||||||||||||||||||||
Effective Tax Rate | $ | 4.0 | 285.7 | % | $ | (4.0) | 2.5 | % | $ | (11.4) | 12.6 | % | |||||||||||||||||||||||
(1) State taxes in Alabama, Florida, Georgia, and Mississippi made up the majority (greater than 50 percent) of the tax effect in this category.
Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The significant components of deferred tax assets and liabilities are presented in the following table (in millions):
As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred income tax assets: | |||||||||||
| Operating lease liabilities | $ | 11.8 | $ | 12.4 | |||||||
| Accrued expenses and allowances | 1.5 | 2.9 | |||||||||
| Stock-based compensation | 4.5 | 3.3 | |||||||||
| Interest expense | 21.3 | 21.7 | |||||||||
| Total deferred income tax assets, gross | 39.1 | 40.3 | |||||||||
| Valuation allowance | (12.2) | (14.1) | |||||||||
| Total deferred income tax assets, net | 26.9 | 26.2 | |||||||||
| Deferred income tax liabilities: | |||||||||||
| Intangible assets | (21.5) | (19.1) | |||||||||
| Operating lease right-of-use assets | (11.4) | (12.1) | |||||||||
| Property, net | (2.9) | (3.2) | |||||||||
| Other deferred income tax liabilities | (2.6) | (3.3) | |||||||||
| Total deferred income tax liabilities | (38.4) | (37.7) | |||||||||
| Net deferred income tax liabilities | $ | (11.5) | $ | (11.5) | |||||||
The deferred tax asset for interest expense is attributable to a carryforward with an indefinite carryforward period. The Company recorded a valuation allowance against a portion of the deferred tax assets of $14.1 million for 2024, of which $5.4 million relates to deferred tax assets arising in a prior year. The Company reduced the valuation allowance by $1.9 million for 2025, relating to deferred tax assets originating in a prior year. The reduction in the valuation allowance is primarily attributable to provisions of the One Big Beautiful Bill Act enacted on July 4, 2025.
At the Distribution, the Company entered into the Tax Matters Agreement with Encompass. The Tax Matters Agreement governs the Company’s respective rights, responsibilities and obligations with respect to taxes including taxes, if any, incurred as a result of any failure of the Distribution to qualify as tax-free for U.S. federal income tax purposes. The Tax Matters Agreement provides rules that allocate tax liabilities in the event the Distribution or certain related transactions are not tax-free. In general, under the Tax Matters Agreement, each party is responsible for any taxes imposed on Encompass or the Company that arise from the failure of the Distribution or certain related transactions to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Section 355 of the Code, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant covenants made by that party in the Tax Matters Agreement.
Interest and penalties related to income tax matters are recognized in Provision for (benefit from) income taxes in the Consolidated Statements of Income. Interest recorded as part of the income tax provisions for 2025, 2024, and 2023 was not material. Accrued interest related to income taxes as of December 31, 2025 and 2024 was not material.
As of December 31, 2025 and 2024, the Company has not recorded any unrecognized income tax benefits for uncertain tax positions. Enhabit’s federal income tax returns have been examined through the date of the Distribution as part of the examinations of the Encompass consolidated federal income tax returns. All subsequent tax years are open for examination.
Income taxes paid (net of refunds received) were as follows:
| As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 1.3 | $ | — | $ | (8.4) | |||||||||||
| State | 0.1 | (0.8) | 0.2 | ||||||||||||||
Total income taxes paid (net of refunds received) | $ | 1.4 | $ | (0.8) | $ | (8.2) | |||||||||||
State activity in 2024 included refunds of $0.2 million from Alabama and Virginia, refunds of $0.1 million from Georgia, Louisiana, and Mississippi, and a refund of less than $0.1 million from Massachusetts. State activity in 2025 included a refund of $0.1 million from Oklahoma.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Mar 6, 2025 | |
| 2023 | Mar 15, 2024 | |
| 2022 | Apr 14, 2023 | |
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.