Hilltop Holdings Inc. Income Taxes Disclosure

15. Income Taxes

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The significant components of the income tax provision are as follows (in thousands).

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The income tax provision differs from the amount that would be computed by applying the statutory federal income tax rate to income before income taxes as a result of the following (in thousands). The applicable corporate federal income tax rate was 21% for all periods presented.

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The effective tax rate for 2025 was higher than the applicable statutory rate due to the impact of nondeductible expenses, nondeductible compensation expense and other permanent adjustments, partially offset by investments in tax-exempt instruments, state refund claims and return to provision activity. The effective tax rate for 2024 was lower than the applicable statutory rate due to investments in tax-exempt instruments, state refund claims and return to provision activity, partially offset by the impact of nondeductible expenses, nondeductible compensation expense and other permanent adjustments. The effective tax rate for 2023 was lower than the applicable statutory rate due to the impacts of excess tax benefits on share-based payment awards, investments in tax-exempt instruments and changes in accumulated tax reserves, partially offset by nondeductible expenses and the booking of additional taxes from a recent change in the source of funding for an acquired non-qualified, deferred compensation plan.

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The following table presents cash paid for income taxes, net of refunds by jurisdiction for all periods presented (in thousands). No state jurisdiction exceeded 5% of total income taxes paid, net of refunds, for all periods presented.

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The components of the tax effects of temporary differences that give rise to the net deferred tax asset included in other assets within the consolidated balance sheets are as follows (in thousands).

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At December 31, 2025 and 2024, the Company had net operating loss carryforwards for state income tax purposes of $1.2 million and $0.9 million, respectively, on a tax effected basis at applicable rates for respective tax years. These net operating loss carryforwards expire in 2037 and later years. The net operating loss carryforwards are expected to be fully realized prior to any expiration. Further, at December 31, 2025 and 2024, the Company had no net operating loss carryforwards for federal income tax purposes.

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Based on the Company’s evaluation of its deferred tax assets, management determined that no valuation allowance against its gross deferred tax assets was necessary at December 31, 2025 or 2024.

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GAAP requires the measurement of uncertain tax positions. Uncertain tax positions are the difference between a tax position taken, or expected to be taken, in a tax return and the benefit recognized for accounting purposes. At December 31, 2025 and 2024, the total amount of gross unrecognized tax benefits was $2.2 million and $2.4 million, respectively, of which $1.8 million and $1.9 million, respectively, if recognized, would favorably impact the Company’s effective tax rate.

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The aggregate changes in gross unrecognized tax benefits, which excludes interest and penalties, are as follows (in thousands).

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Specific positions that may be resolved include issues involving apportionment and tax credits. At December 31, 2025, the unrecognized tax benefit is a component of taxes receivable, which is included in other assets within the consolidated balance sheet.

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The Company files income tax returns in U.S. federal and numerous state jurisdictions. The Company is subject to tax examinations in numerous jurisdictions in the United States until the applicable statute of limitations expires. The Company is no longer subject to U.S. federal tax examinations for tax years prior to 2022. The Company is open for various state tax examinations for tax years 2021 and later.

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On July 4, 2025, legislation referred to as “H.R. 1: One Big Beautiful Bill Act” (“OBBBA”) was signed into law and, among other changes, will modify the tax year in which certain business deductions, primarily depreciation of capital asset additions, are allowed and therefore will influence the time within which income tax payments must be made. The Company presently expects the permanent disallowance of certain business expenses under the OBBBA and related rules will increase the Company’s future effective income tax rate slightly.