FIRST UNITED CORP/MD/ Income Taxes Disclosure

12. Income Taxes

The provision for income taxes from continuing operations consists of the following for the years ended December 31, 2025 and 2024:

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The reconciliation between the statutory federal income tax rate and effective income tax rate for the years ended December 31, 2025 and 2024 is as follows:

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The effective tax rate differs from the United States Federal statutory rate primarily due to tax credits, state and local taxes, and non-taxable and non-deductible items.  The Corporation operates exclusively in the United States and had no foreign income, foreign income tax expense, or foreign income taxes paid for the years ended December 31, 2025 and 2024.

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s temporary differences as of December 31, 2025 and 2024 are as follows:

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In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income of the appropriate character (for example, ordinary income or capital gain) within the carry-back or carry-forward period available under the tax law during the periods in which temporary differences are deductible. The Corporation has considered future market growth, forecasted earnings, future taxable income, and feasible and permissible tax planning strategies in determining whether it will be able to realize the deferred tax asset. If the Corporation were to determine that it will not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if the Corporation were to make a determination that it is more likely than not that the deferred tax assets for which there is a valuation allowance will be realized, the related valuation allowance would be reduced, and a benefit would be recorded.

At December 31, 2025, the Corporation had Maryland net operating losses (“NOLs”) and other MD carryforwards of $34.9 million for which a deferred tax asset of $2.6 million has been recorded. There has been and continues to be a full valuation allowance on these NOLs based on management’s belief that it is more likely than not that these NOLs will not be realized prior to the expiration of their carry-forward periods because the Corporation will not generate sufficient taxable income in the future to fully utilize the NOLs. The valuation allowance was $2.6 million at both  December 31, 2025 and 2024.

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Income taxes paid in the years ended December 31, 2025 and 2024 were as follows:

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For the years ended December 31, 2025 and 2024, the only state jurisdictions with cash taxes paid that equaled or exceeded 5% of total income taxes paid were Maryland and West Virginia.

The Corporation and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states jurisdictions.  The 2022-2024 tax years remain open under the standard statute of limitations.  Also, with few exceptions, the Corporation is no longer subject to state income tax examinations for tax years before 2022.  Management has identified no uncertain tax positions at December 31, 2025.

Any interest and penalties on income tax assessments or income tax refunds are recognized in the Consolidated Statements of Income as a components of interest expense (income) and other operating expense. There were no amounts of accrued tax-related interest and penalties at December 31, 2025 or 2024.  Furthermore, there were no net interest and penalties related to unrecognized tax benefits for the periods presented.