KELLY SERVICES INCKELYA
KELLY SERVICES INC Income Taxes Disclosure
17. Income Taxes
Earnings (loss) before taxes and equity in net earnings of affiliate for the years 2025, 2024 and 2023 were taxed under the following jurisdictions:
| 2025 | 2024 | 2023 | |||||||||
| Domestic | $ | (97.6) | $ | (33.2) | $ | 29.9 | |||||
| Foreign | 18.8 | 11.3 | (5.0) | ||||||||
| Total | $ | (78.8) | $ | (21.9) | $ | 24.9 | |||||
The provision for income taxes was as follows:
| Current tax expense: | 2025 | 2024 | 2023 | ||||||||
| U.S. federal | $ | (0.6) | $ | (0.7) | $ | 1.0 | |||||
| U.S. state and local | 0.8 | (0.8) | 2.5 | ||||||||
| Foreign | 6.6 | 8.0 | 9.9 | ||||||||
| Total current | 6.8 | 6.5 | 13.4 | ||||||||
| Deferred tax (benefit) expense: | |||||||||||
| U.S. federal | 151.5 | (24.9) | (36.8) | ||||||||
| U.S. state and local | 14.9 | (2.6) | (3.6) | ||||||||
| Foreign | 2.1 | (0.3) | 15.5 | ||||||||
| Total deferred | 168.5 | (27.8) | (24.9) | ||||||||
| Total provision | $ | 175.3 | $ | (21.3) | $ | (11.5) | |||||
Deferred income taxes reflect the temporary differences between the asset and liability basis for financial reporting purposes and the amounts used for income tax purposes, at the relevant tax rate. The deferred tax assets and liabilities are comprised of the following:
| 2025 | 2024 | |||||||
| Fixed assets and right-of-use assets | $ | (12.2) | $ | (15.2) | ||||
| Intangible assets and goodwill | 15.4 | 0.1 | ||||||
| Employee compensation and benefit plans | 82.6 | 77.0 | ||||||
| Operating lease liabilities | 16.0 | 17.7 | ||||||
| Net operating loss carryforwards | 10.3 | 10.9 | ||||||
| Capital loss carryforward | 18.2 | 19.6 | ||||||
| Credit carryforwards | 240.0 | 230.6 | ||||||
| Other, net | 23.1 | 23.6 | ||||||
| Valuation allowance | (230.2) | (34.2) | ||||||
| Net deferred tax assets | $ | 163.2 | $ | 330.1 | ||||
The Company has U.S. work opportunity credit and other general business credit carryforwards of $207.3 million which will expire from 2034 to 2045, foreign tax credit carryforwards of $32.7 million which will expire from 2026 to 2035 and minimal state and foreign credit carryforwards which are either indefinite or will expire from 2026 to 2043. The net tax effect of federal, state and foreign loss carryforwards at year-end 2025 totaled $28.5 million, comprised of $18.2 million of capital loss carryforwards that expire in 2029 and $10.3 million of net operating loss carryforwards of which $8.3 million have no expiration and $2.0 million expire between 2026 and 2045.
The valuation allowance is determined in accordance with the provisions of ASC 740, “Income Taxes,” which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance. During 2025, the Company recorded a charge of $197.6 million to establish a valuation allowance for its U.S. general business credit carryforwards and to increase the allowance for its foreign tax credit carryforwards, certain state loss carryforwards, and future deductible items. The allowance on attributes with a limited life was principally due to cumulative losses in recent years, which were driven by goodwill impairment charges. Cumulative losses are a significant piece of negative evidence that limits the ability to consider other evidence, such as projections for future growth. The valuation allowance against U.S. general business credit carryforwards at year-end 2025 is $161.8 million after considering the future deductibility of the credits upon expiration. The foreign tax credit carryforward valuation allowance is $32.7 million at year-end 2025 and $15.0 million at year-end 2024. During 2024, the Company generated a capital loss carryforward as a result of the sale of its EMEA staffing operations. A valuation allowance of $18.2 million is recorded against the capital loss carryforward at year-end 2025 and $19.2 million is recorded at year-end 2024. As of year-end 2024, the Company’s uncertainty in the ability to create future capital gains and its lack of adequate U.S. foreign source income to fully utilize foreign tax credit carryforwards, represented sufficient negative evidence to require a partial valuation allowance under ASC 740. The Company will continue to evaluate the need for valuation allowances against deferred tax assets on a quarterly basis and may adjust the allowance as circumstances change. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support realization of the deferred tax assets.
At year-end 2025, we adopted ASU 2023-09 “Income Taxes (Topic 740): Improvements To Income Tax Disclosures” on a prospective basis. As required by the ASU, the following table presents the differences between income taxes from continuing operations for financial reporting purposes and the U.S. statutory rate of 21% in 2025:
| 2025 | % | |||||||
| Pretax book income | $ | (78.8) | — | |||||
| (16.5) | 21.0% | |||||||
| Domestic state and local income taxes, net of federal income tax effect | 12.4 | (15.7) | ||||||
| Foreign tax effects | 4.7 | (6.0) | ||||||
| Cross-border tax laws | 0.7 | (0.9) | ||||||
| Tax credits | ||||||||
| Work opportunity credits | (7.4) | 9.3 | ||||||
| Changes in valuation allowance | 181.2 | (229.9) | ||||||
| Nontaxable and nondeductible items | ||||||||
| Life insurance cash surrender value (gain) loss | (7.2) | 9.1 | ||||||
| Goodwill impairment | 6.2 | (7.8) | ||||||
| Other | 1.1 | (1.4) | ||||||
| Unrecognized tax benefits | 0.1 | (0.1) | ||||||
| Total | $ | 175.3 | (222.4)% | |||||
For 2025, the majority of the effect of the state and local income tax category was attributable to California, Michigan, New Jersey and Pennsylvania.
The following table presents the required disclosures prior to our adoption of ASU 2023-09 and reconciles the differences between income taxes from continuing operations for financial reporting purposes and the U.S. statutory rate of 21% in 2024 and 2023:
| 2024 | 2023 | |||||||
| $ | (4.6) | $ | 5.2 | |||||
| State income taxes, net of federal benefit | (2.7) | (0.9) | ||||||
| Foreign tax rate differential | 0.9 | 4.6 | ||||||
| U.S. work opportunity credits | (7.8) | (8.5) | ||||||
| Life insurance cash surrender value | (6.2) | (6.5) | ||||||
| Foreign items | 0.3 | 3.0 | ||||||
| Foreign-derived intangible income deduction | (3.0) | (2.3) | ||||||
| Sale of foreign subsidiaries | 0.4 | — | ||||||
| Foreign business taxes | — | 1.1 | ||||||
| Change in deferred tax realizability | (0.4) | 4.4 | ||||||
| Non-deductible expenses | 2.1 | 0.7 | ||||||
| Uncertain tax positions | — | (0.3) | ||||||
| Stock compensation | 0.4 | 0.7 | ||||||
| Outside basis difference | — | (13.1) | ||||||
| MRP earnout liability revaluation | (0.7) | — | ||||||
| Other | — | 0.4 | ||||||
| Total | $ | (21.3) | $ | (11.5) | ||||
The Company's tax benefit or expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S. work opportunity credits and the change in cash surrender value of non-taxable investments in life insurance policies. It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes or changes in judgment regarding the realizability of deferred tax assets.
As noted in the rate reconciliation tables above, several items have contributed to the variance in the Company's income tax expense/benefit over the last three years. 2025 was impacted by $197.6 million of federal and state valuation allowances against U.S. general business credit carryforwards and other deferred tax assets, and a $6.2 million impact from a non-tax deductible goodwill impairment charge. This was offset by a pretax loss, which included an $18.4 million benefit from the impairment of tax-deductible goodwill and a $7.2 million benefit from tax-exempt life insurance cash surrender value gains. 2024 benefited from a pretax loss, which included an $18.4 million benefit from the impairment of tax-deductible goodwill and a $6.2 million benefit from tax-exempt life insurance cash surrender value gains. 2023 benefited from recording a $15.0 million federal and state benefit on the outside basis difference in held for sale assets and a $6.5 million benefit from tax-exempt life insurance cash surrender value gains.
In 2024 and 2023, Foreign items include foreign tax credits, foreign non-deductible expenses and non-taxable income. Foreign business taxes include the French business tax and other taxes based on revenue less certain expenses and are classified as income taxes under ASC 740.
A provision has not been made for additional income taxes on foreign subsidiary undistributed earnings which are indefinitely reinvested. If these earnings were to be repatriated, the Company could be subject to foreign withholding tax, federal and state income tax, net of federal benefit and income taxes on foreign exchange gains or losses, of $5.1 million.
The U.S. work opportunity tax credit program is a temporary provision in the U.S. tax law and expires for employees hired after 2025. While the credit has routinely been extended, it is uncertain whether it will again be extended. In the event the program is not renewed, we will continue to receive credits for qualified employees hired prior to 2026.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, introducing multiple changes to the U.S. tax code. The OBBBA did not have any material impact on the Company’s consolidated financial statements and related disclosures.
The new Organization for Economic Cooperation and Development (“OECD”) Pillar Two global minimum tax rules became effective in 2024 in several jurisdictions in which the Company does business. This did not have a material impact to the Company in 2025 or 2024.
The unrecognized tax benefit is $0.5 million in 2025, $0.5 million in 2024 and $0.6 million in 2023 with immaterial additions and reductions during each period. If recognized, they would have a favorable effect of $0.4 million in 2025, $0.4 million in 2024 and $0.5 million in 2023 on income tax expense.
The Company recognizes both interest and penalties as part of the income tax provision. The Company recognized $0.1 million of expense in 2023, no significant expenses or benefits in 2024, and $0.1 million of expense in 2025 for interest and penalties. Accrued interest and penalties were $0.3 million at year-end 2025 and $0.2 million at year-end 2024.
The Company files income tax returns in the U.S. and in various states and foreign countries. The tax periods open to examination by the major taxing jurisdictions to which the Company is subject include the U.S. for fiscal years 2022 forward, Canada for fiscal years 2018 forward, Puerto Rico for fiscal years 2021 forward, Mexico for fiscal years 2020 forward, and Germany for fiscal years 2010 forward.
The Company and its subsidiaries have various income tax returns in the process of examination. The unrecognized tax benefit and related interest and penalty balances include an insignificant amount for 2025, related to tax positions which are reasonably possible to change within the next twelve months due to income tax audits, settlements and statute expirations.
Income taxes paid (net of refunds received) for the years 2025, 2024 and 2023 were $4.5 million, $10.9 million and $8.9 million, respectively. For 2025, the specific cash taxes paid are as follows, with each state, local and foreign jurisdiction being immaterial:
| 2025 | |||||
| Federal | $ | (1.2) | |||
| State and local | 0.6 | ||||
| Foreign | 5.1 | ||||
| Total income taxes paid | $ | 4.5 | |||
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Feb 17, 2022 | |
| 2021 | Feb 18, 2021 | |
| 2019 | Feb 13, 2020 | |
| 2018 | Feb 14, 2019 | |
| 2017 | Feb 20, 2018 | |
| 2016 | Feb 18, 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.