FEDERAL SIGNAL CORP /DE/FSS
FEDERAL SIGNAL CORP /DE/ Income Taxes Disclosure
INCOME TAXES
The following table summarizes the components of Income tax expense:
| For the Years Ended December 31, | |||||||||||||||||
| (in millions of dollars) | 2025 | 2024 | 2023 | ||||||||||||||
| Current tax expense: | |||||||||||||||||
| Federal | $ | 43.8 | $ | 30.7 | $ | 33.7 | |||||||||||
| Foreign | 8.1 | 5.2 | 3.1 | ||||||||||||||
| State and local | 12.1 | 6.8 | 9.1 | ||||||||||||||
| Total current tax expense | 64.0 | 42.7 | 45.9 | ||||||||||||||
| Deferred tax expense (benefit): | |||||||||||||||||
| Federal | 11.5 | 0.8 | — | ||||||||||||||
| Foreign | 1.1 | 2.5 | (0.5) | ||||||||||||||
| State and local | 1.3 | 1.6 | 0.2 | ||||||||||||||
| Total deferred tax expense (benefit) | 13.9 | 4.9 | (0.3) | ||||||||||||||
| Total income tax expense | $ | 77.9 | $ | 47.6 | $ | 45.6 | |||||||||||
The following table summarizes Income before income taxes:
| For the Years Ended December 31, | |||||||||||||||||
| (in millions of dollars) | 2025 | 2024 | 2023 | ||||||||||||||
| U.S. | $ | 288.8 | $ | 234.5 | $ | 176.6 | |||||||||||
| Non-U.S. | 35.7 | 29.4 | 26.4 | ||||||||||||||
| Income before income taxes | $ | 324.5 | $ | 263.9 | $ | 203.0 | |||||||||||
The following table summarizes the differences between the statutory federal income tax rate and the effective income tax rate for the year ended December 31, 2025:
| 2025 | |||||||||||
| Dollars (in millions) | Percentages | ||||||||||
| Statutory federal income tax rate | $ | 68.2 | 21.0 | % | |||||||
State and local income taxes, net of federal income tax benefit (a) | 11.4 | 3.5 | |||||||||
| Foreign tax effects | 1.7 | 0.6 | |||||||||
| Effect of cross-border tax laws | |||||||||||
| Foreign-based intangible income | (2.7) | (0.8) | |||||||||
| Other | 0.4 | 0.1 | |||||||||
| Tax credits | (0.6) | (0.2) | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Executive compensation limitation | 4.5 | 1.4 | |||||||||
| Changes in unrecognized tax benefits | 0.3 | 0.1 | |||||||||
| Other adjustments | |||||||||||
| Excess tax benefits from stock compensation activity | (5.1) | (1.6) | |||||||||
| Other | (0.2) | (0.1) | |||||||||
| Effective income tax rate | $ | 77.9 | 24.0 | % | |||||||
(a) In 2025, state income taxes in Illinois, California, Minnesota, Florida, New Jersey, and Michigan made up the majority (greater than 50%) of the tax effect in this category.
The following table summarizes the differences between the statutory federal income tax rate and the effective income tax rate for the years ended December 31, 2024 and 2023:
| 2024 | 2023 | ||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| State income taxes, net of federal tax benefit | 4.0 | 3.8 | |||||||||
| Valuation allowance | (0.2) | (0.1) | |||||||||
| Worthless stock deduction benefits | (6.0) | — | |||||||||
| Remeasurement of deferred taxes | 0.1 | (0.1) | |||||||||
| Foreign derived intangible income | (1.0) | (1.7) | |||||||||
| Executive compensation limitation | 1.5 | 1.5 | |||||||||
| Foreign tax rate effects | 0.6 | 0.7 | |||||||||
| Excess tax benefits from stock compensation activity | (1.9) | (1.9) | |||||||||
| Other, net | (0.1) | (0.7) | |||||||||
| Effective income tax rate | 18.0 | % | 22.5 | % | |||||||
Summary
On July 4, 2025, H.R.1, new tax legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”), was enacted in the U.S. The OBBBA includes a broad range of tax provisions, including 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 new legislation did not have a material impact on the Company’s effective tax rate for the year ended December 31, 2025.
During the year ended December 31, 2023, the Company filed amended U.S. federal income tax returns for the 2015 through 2018 tax years to claim a worthless stock deduction. As of December 31, 2023, the amended tax returns were under examination by the applicable tax authorities and recovery of the refund claim was not considered more-likely-than-not. Accordingly, the aggregate refund claim of $13.6 million, including interest of $1.8 million, was recorded as an income tax receivable as of December 31, 2023, fully offset by a corresponding liability for unrecognized tax benefits.
In the first quarter of 2024, the tax authorities notified the Company that the amended tax returns had been approved, at which
point receipt of the refund claim was considered more-likely-than-not. As a result, the Company released the associated liability for unrecognized tax benefits and recognized a $13.0 million discrete tax benefit for the refund claim, net of taxes on the associated interest, for the year ended December 31, 2024. Following the receipt of the U.S. federal income tax refund of $14.0 million, including additional interest, during the second quarter of 2024, the Company began amending applicable state tax returns to reflect the worthless stock deduction, which resulted in the recognition of additional discrete state tax benefits aggregating to $2.9 million, net of federal tax effects, for the year ended December 31, 2024.
The Company recognized income tax expense of $77.9 million for the year ended December 31, 2025, compared to $47.6 million for the year ended December 31, 2024. The increase in income tax expense in 2025 was primarily due to higher pre-tax income levels and the non-recurrence of the aforementioned $15.9 million of discrete tax benefits, which were recognized in the prior-year period. Including these items, the Company’s effective tax rate for the year ended December 31, 2025 was 24.0%, compared to 18.0% in 2024.
The Company recognized income tax expense of $47.6 million for the year ended December 31, 2024, compared to $45.6 million for the year ended December 31, 2023. The increase in income tax expense in 2024 was primarily due to higher earnings, partially offset by the aforementioned $15.9 million of discrete tax benefits, and the recognition of $5.1 million in excess tax benefits associated with stock-based compensation activity. Including these items, the Company’s effective tax rate for the year ended December 31, 2024 was 18.0%, compared to 22.5% in 2023. The Company’s income tax expense and effective tax rate for the year ended December 31, 2023 also included the effects of the recognition of $3.9 million in excess tax benefits associated with stock-based compensation activity.
The following table summarizes income taxes paid (net of refunds) in the year ended December 31, 2025:
| (in millions of dollars) | 2025 | ||||
| Federal | $ | 49.4 | |||
| State | 8.5 | ||||
| Foreign | 7.0 | ||||
| Total income taxes paid (net of refunds) | $ | 64.9 | |||
Income taxes paid (net of refunds) in the year ended December 31, 2025 exceeded five percent of total income taxes paid (net of refunds) in the following jurisdictions:
| (in millions of dollars) | 2025 | ||||
| Foreign | |||||
| Canada | $ | 6.5 | |||
In 2024, the Company paid income taxes of $62.4 million and received the aforementioned $14.0 million U.S. federal income tax refund. In 2023, the Company paid income taxes of $46.2 million.
Deferred Taxes
The following table summarizes the Company’s deferred tax assets and liabilities:
| (in millions of dollars) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Properties and equipment | $ | 5.1 | $ | 3.2 | |||||||
| Accrued expenses | 40.9 | 40.1 | |||||||||
| Stock-based compensation | 3.6 | 3.5 | |||||||||
| Net operating loss and tax credit carryforwards | 10.8 | 11.0 | |||||||||
| Goodwill and intangibles | 5.6 | 4.9 | |||||||||
| Pension benefits | 13.5 | 14.5 | |||||||||
| Gross deferred tax assets | 79.5 | 77.2 | |||||||||
| Valuation allowance | (0.1) | (0.1) | |||||||||
| Total deferred tax assets | 79.4 | 77.1 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Properties and equipment | (63.1) | (48.6) | |||||||||
| Pension benefits | (13.3) | (12.8) | |||||||||
| Goodwill and intangibles | (61.5) | (62.4) | |||||||||
| Other | (3.3) | (1.9) | |||||||||
| Gross deferred tax liabilities | (141.2) | (125.7) | |||||||||
| Net deferred tax liabilities | $ | (61.8) | $ | (48.6) | |||||||
The deferred tax asset for net operating loss and tax credit carryforwards at December 31, 2025 includes state net operating loss carryforwards of $2.0 million, which will begin to expire in 2028, and foreign net operating loss carryforwards of $8.8 million, which have an indefinite carryforward period.
The deferred tax asset for tax loss and tax credit carryforwards at December 31, 2024 included state net operating loss carryforwards of $2.8 million and foreign net operating loss carryforwards of $8.2 million.
The $79.4 million of deferred tax assets at December 31, 2025 is anticipated to be realized through future taxable income or the future reversal of existing taxable temporary differences recorded as deferred tax liabilities at December 31, 2025. Should the Company determine that it is not more-likely-than-not to be able to realize its remaining deferred tax assets in the future, an adjustment to the valuation allowance would be recorded in the period such determination is made.
Generally, the Company has considered cash and cash equivalents held by subsidiaries outside the U.S. to be indefinitely reinvested in its foreign operations and the Company’s current plans do not demonstrate a need to repatriate such cash to fund U.S. operations. As of December 31, 2025, the Company continues to assert that its undistributed earnings of certain foreign subsidiaries are indefinitely reinvested. It is not practicable to determine the income tax liability that would be payable if such earnings were not permanently reinvested.
Valuation Allowances
ASC 740, Income Taxes, requires that the future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period, and projected future taxable income. If, based upon all available evidence, both positive and negative, it is more likely than not such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidance restricts the amount of reliance the Company can place on projected taxable income to support the recovery of the deferred tax assets.
We continually evaluate the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.
As of December 31, 2025, the Company’s valuation allowance was $0.1 million, which represents the estimated amount of state net operating loss carryforwards that are not more-likely-than not to be realized prior to expiration.
Unrecognized Tax Benefits
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| (in millions of dollars) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at January 1 | $ | 0.7 | $ | 12.5 | $ | 1.2 | |||||||||||
| Increases as a result of tax positions taken in the current year | — | — | 11.8 | ||||||||||||||
| Decreases from prior period positions | — | (11.8) | (0.5) | ||||||||||||||
| Foreign currency translation | 0.1 | — | — | ||||||||||||||
| Balance at December 31 | $ | 0.8 | $ | 0.7 | $ | 12.5 | |||||||||||
The Company’s accounting policy is to recognize interest and penalties related to income tax matters in income tax expense. Interest and penalties recognized in each of the three years in the period ended December 31, 2025 were insignificant. Accruals for interest and penalties of $0.7 million as of December 31, 2025 and $0.4 million as of December 31, 2024 were included in the Consolidated Balance Sheets, but are not included in the table above. Liabilities for unrecognized tax benefits, including interest and penalties, were $1.5 million as of December 31, 2025 and $1.2 million as of December 31, 2024, and were included within Other long-term liabilities on the Consolidated Balance Sheets. These liabilities would impact the Company’s effective tax rate, if recognized. The Company does not expect any significant change to its unrecognized tax benefits as a result of potential expiration of statute of limitations or settlements with the tax authorities within the next twelve months.
Status of Tax Returns
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2022 through 2024 tax years generally remain subject to examination by federal tax authorities, whereas the 2021 through 2024 tax years generally remain subject to examination by most state tax authorities. In significant foreign jurisdictions, the tax years from 2020 through 2024 generally remain subject to examination by their respective tax authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 29, 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.