GREEN DOT CORPGDOT
GREEN DOT CORP Income Taxes Disclosure
Income Taxes
The components of income tax expense included in our consolidated statements of operations were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 10,972 | $ | 15,036 | $ | 20,304 | |||||||||||
| State | 2,896 | 3,881 | 5,413 | ||||||||||||||
| Foreign | 651 | 861 | 666 | ||||||||||||||
| Current income tax expense | 14,519 | 19,778 | 26,383 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (7,449) | (9,040) | (4,031) | ||||||||||||||
| State | (2,906) | (2,666) | (2,730) | ||||||||||||||
| Foreign | (1) | (161) | 87 | ||||||||||||||
| Deferred income tax benefit | (10,356) | (11,867) | (6,674) | ||||||||||||||
| Income tax expense | $ | 4,163 | $ | 7,911 | $ | 19,709 | |||||||||||
Income tax expense differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| U.S. federal statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes, net of federal tax benefit | 2.1 | 2.0 | 2.2 | ||||||||||||||
| Foreign tax rate differential | 1.0 | (1.5) | (0.3) | ||||||||||||||
| General business credits | 10.2 | (25.0) | (3.2) | ||||||||||||||
| Stock-based compensation | (31.4) | 28.8 | 3.2 | ||||||||||||||
| Bank owned life insurance income | 2.6 | (4.2) | (0.7) | ||||||||||||||
| Bank owned life insurance surrender | (10.0) | — | — | ||||||||||||||
| Nondeductible penalties | (22.4) | 29.1 | 0.1 | ||||||||||||||
| Global intangible low-tax income tax | (1.4) | 2.0 | 0.3 | ||||||||||||||
| IRC 162(m) limitation | 12.7 | 0.4 | 0.8 | ||||||||||||||
| Change in valuation allowance | (1.9) | — | — | ||||||||||||||
| Other | (1.0) | 1.5 | 0.1 | ||||||||||||||
| Effective tax rate | (18.5) | % | 54.1 | % | 23.5 | % | |||||||||||
Note 14—Income Taxes (continued)
The effective tax rate for the year ended December 31, 2024 and 2023 differs from the statutory federal income tax rate of 21%, primarily due to state income taxes, net of federal tax benefits, general business credits, stock-based compensation, nondeductible penalties, cash surrender value growth in bank owned life insurance policies, and the IRC 162(m) limitation on the deductibility of executive compensation. The net decrease in the effective tax rate for the year ended December 31, 2024 as compared to the prior year ended December 31, 2023 is primarily due to a decrease of $2.9 million in the amount of compensation expense subject to the IRC 162(m) limitation on the deductibility of certain executive compensation, a decrease of $0.8 million in state income tax expense, net of federal benefits, and the impact of general business credits. These decreases were partially offset by an increase of $2.9 million in the expense related to tax shortfalls from stock-based compensation, an increase of $0.8 million in the expense related to nondeductible penalties, an increase of $0.4 million in the valuation allowance on a portion of our unrealized loss on equity securities, and the surrender of our existing bank owned life insurance policies which resulted in a tax charge of $1.5 million and surrender penalties of $0.7 million. The increase in nondeductible penalties is primarily related to the tax effect associated with the civil money penalty for the Consent Order discussed in Note 21 - Commitments and Contingencies.
We have made a policy election to account for Global Intangible Low-Taxed Income ("GILTI") in the year the GILTI tax is incurred. For the year ended December 31, 2024, the provision for GILTI tax expense was not material to our financial statements.
The tax effects of temporary difference that give rise to significant portions of our deferred tax assets and liabilities were as follows:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 8,424 | $ | 8,349 | |||||||
| Stock-based compensation | 8,370 | 8,695 | |||||||||
| Reserve for overdrawn accounts | 6,736 | 6,441 | |||||||||
| Accrued liabilities | 5,051 | 3,071 | |||||||||
| Lease liabilities | 1,895 | 1,110 | |||||||||
| Internal-use software costs | 7,768 | — | |||||||||
| Tax credit carryforwards | 13,296 | 12,641 | |||||||||
| Unrealized loss on available-for-sale securities | 91,583 | 94,338 | |||||||||
| Other | 5,840 | 4,259 | |||||||||
| Unrealized loss on equity securities | 628 | — | |||||||||
| Capital loss carryforwards | 13 | — | |||||||||
| Gross deferred tax assets | 149,604 | 138,904 | |||||||||
| Valuation allowance | (519) | — | |||||||||
| Total deferred tax assets | $ | 149,085 | $ | 138,904 | |||||||
| Deferred tax liabilities: | |||||||||||
| Internal-use software costs | $ | — | $ | 1,458 | |||||||
| Property and equipment, net | 1,274 | 1,237 | |||||||||
| Deferred expenses | 312 | 390 | |||||||||
| Intangible assets | 21,335 | 17,786 | |||||||||
| Lease right-of-use assets | 1,759 | 894 | |||||||||
| Total deferred tax liabilities | 24,680 | 21,765 | |||||||||
| Net deferred tax assets | $ | 124,405 | $ | 117,139 | |||||||
We establish a valuation allowance when we consider it more-likely-than-not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2024, we provided a valuation allowance against a portion of our unrealized loss on equity securities as we believe it is more-likely-than-not that the tax benefits related to this portion of the loss will not be realized.
Note 14—Income Taxes (continued)
We are subject to examination by the Internal Revenue Service (the "IRS"), and various state tax authorities. We remain subject to examination of our federal income tax returns for the years ended December 31, 2017 through 2023. We generally remain subject to examination of our various state income tax returns for a period of to five years from the respective dates that the returns were filed. The IRS initiated an examination of our 2017 U.S. federal tax return during the second quarter ended June 30, 2020 and the examination remains ongoing as of December 31, 2024. We do not expect that this examination will have a material impact on our consolidated financial statements.
As of December 31, 2024, we had federal net operating loss carryforwards of approximately $11.1 million, state net operating loss carryforwards of approximately $120.1 million, and capital loss carryforwards of approximately $0.1 million which will be available to offset future income. If not used, the federal net operating losses will expire between 2030 and 2034. In regard to the state net operating loss carryforwards, approximately $62.6 million will expire between 2028 and 2044, while the remaining balance of approximately $57.5 million, does not expire and carries forward indefinitely. The capital loss carryforwards will expire in 2028. The net operating losses are subject to an annual IRC Section 382 limitation which restricts their utilization against taxable income in future periods. In addition, we have state business tax credits of approximately $22.7 million that can be carried forward indefinitely and other state business tax credits of approximately $0.3 million that will expire between 2025 and 2027.
As of December 31, 2024 and 2023, we had a liability of $12.5 million and $12.1 million, respectively, for unrecognized tax benefits related to various federal and state income tax matters excluding interest, penalties and related tax benefits. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Beginning balance | $ | 12,109 | $ | 11,178 | $ | 10,972 | |||||||||||
Increases related to positions taken during prior years | 27 | 543 | 6 | ||||||||||||||
Increases related to positions taken during the current year | 1,339 | 1,431 | 1,260 | ||||||||||||||
| Decreases related to positions taken during prior years | (44) | — | — | ||||||||||||||
Decreases related to positions settled with tax authorities | (86) | (90) | — | ||||||||||||||
Decreases due to a lapse of applicable statute of limitations | (804) | (953) | (1,060) | ||||||||||||||
| Ending balance | $ | 12,541 | $ | 12,109 | $ | 11,178 | |||||||||||
| The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate | $ | 11,999 | $ | 11,611 | $ | 10,720 | |||||||||||
We recognized accrued interest and penalties related to unrecognized tax benefits for the years ended December 31, 2024, 2023 and 2022, of approximately $1.6 million, $1.2 million and $0.9 million, respectively.
For tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 requires taxpayers to capitalize and amortize research and development costs pursuant to IRC Section 174. Section 174 requires taxpayers to capitalize research and development costs and amortize them over 5 years for expenditures attributed to domestic research and 15 years for expenditures attributed to foreign research. During the year ended December 31, 2024 our cash paid for taxes was adversely impacted by the requirement to capitalize and amortize research and development expenses under Section 174. Although Congress is considering legislation that would reinstate and extend Section 174 expensing for certain research and experimental expenditures, the possibility that this will happen is uncertain.
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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.