20.

INCOME TAXES

The provision for income taxes is comprised of the following (in thousands):


	Fiscal Years Ended
	January 3, 2026			December 28, 2024			December 30, 2023
Current:
Federal	$	12,850		$	30,557		$	31,513
State		(584	)		13,879			13,051
Total current expense		12,266			44,436			44,564
Deferred:
Federal		5,911			(20,040	)		(10,040	)
State		1,361			(9,788	)		(7,157	)
Total deferred expense (benefit)		7,272			(29,828	)		(17,197	)
Total income tax expense	$	19,538		$	14,608		$	27,367

The Company has no foreign income or income tax requirements. The provision for income taxes solely relates to domestic income and expense. The reconciliation between the provision for income taxes at the federal statutory rate and the effective tax rate is as follows (in thousands):


	Fiscal Years Ended
	January 3, 2026				December 28, 2024				December 30, 2023
				%				%				%
Federal tax (benefit) expense at statutory rate	$	(19,602	)	21.0%	$	(16,429	)	21.0%	$	27,284		21.0%
State and local income tax (benefit) expense, net of federal income tax (1)		(657	)	0.7%		2,103		(2.7)%		4,637		3.6%
Federal tax credits:
Work Opportunity Tax Credit		(3,113	)	3.3%		(2,559	)	3.3%		(3,102	)	(2.4)%
Other federal tax credits		(105	)	0.1%		(84	)	0.1%		(76	)	(0.1)%
Nontaxable or nondeductible items:
Nondeductible compensation		3,455		(3.7)%		28,854		(36.9)%		101		0.1%
Nondeductible goodwill impairment		35,704		(38.3)%		—		0.0%		—		0.0%
Income tax (refunds recognized) due from employee retention credits		(6,318	)	6.8%		(4,367	)	5.6%		1,612		1.2%
Nondeductible fringe benefits		600		(0.6)%		864		(1.1)%		640		0.5%
Other nondeductible expenses		188		(0.2)%		167		(0.2)%		307		0.2%
Change to uncertain tax positions		7,147		(7.7)%		6,348		(8.1)%		108		0.1%
Other adjustments:
Provision to return true-up		2,239		(2.4)%		(289	)	0.4%		(4,482	)	(3.4)%
Other		—		0.0%		—		0.0%		338		0.3%
Total income tax expense	$	19,538		(20.9)%	$	14,608		(18.7)%	$	27,367		21.1%

(1)

For the fiscal year ended January 3, 2026, state taxes in Illinois, Oregon, Massachusetts, and Pennsylvania made up the majority (greater than 50 percent) of the tax effect in this category. For the fiscal years ended December 28, 2024 and December 30, 2023, state taxes in California and Illinois made up the majority (greater than 50 percent) of the tax effect in this category.

Deferred tax assets and liabilities consist of the following (in thousands):


	January 3, 2026			December 28, 2024
Deferred tax assets:
Lease obligations	$	419,158		$	382,615
Interest and financing costs		38,768			43,677
Compensation payments		25,143			25,725
Self-insurance obligations		31,046			17,493
Net operating loss		732			1,095
Accumulated other comprehensive loss		1,605			—
Other		7,395			5,817
Total deferred tax assets		523,847			476,422
Deferred tax liabilities:
Right-of-use assets		(388,364	)		(355,686	)
Intangible assets		(115,263	)		(113,611	)
Property and equipment		(42,211	)		(37,096	)
Insurance Claims		(13,463	)		—
Accumulated other comprehensive income		—			(936	)
Total deferred tax liabilities		(559,301	)		(507,329	)
Deferred income taxes, net	$	(35,454	)	$	(30,907	)

The Company had no federal net operating loss carryforwards as of January 3, 2026 and had $1.1 million as of December 28, 2024. The Company had $9.8 million and $12.2 million of state and local net operating loss carryforwards as of January 3, 2026 and December 28, 2024, respectively. State net operating loss carryforwards expire in years commencing in 2037 through 2043.

No valuation allowance was required as of January 3, 2026, December 28, 2024, and December 30, 2023. The Company will continue to reassess the carrying amount of its deferred tax assets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


Balance at December 31, 2022		768
Gross increases in tax positions for prior years		216
Gross increases in tax positions for current year		135
Balance as of December 30, 2023		1,119
Gross increases in tax positions for prior years		31
Gross increases in tax positions for current year		206
Balance as of December 28, 2024		1,356
Gross increases in tax positions for current year		206
Lapse of tax statute of limitations		(758	)
Balance at January 3, 2026	$	804

Due to the ERC cash receipt during the fiscal year ended December 30, 2023, previously-filed corporate income tax returns were amended during the fiscal year ended December 28, 2024 to reflect the impact of the additional ERCs claimed as of December 30, 2023. Any adjusted net operating loss carryforwards from the amended 2020 and 2021 returns were incorporated into the 2022 returns. The resulting $2.9 million income tax liability, including interest, was paid during the fiscal year ended December 28, 2024. Due to the unprecedented nature of ERC legislation and the changing administrative guidance, not all of the ERC reimbursements received have met the Company's recognition criteria. In December 2022, the Company recorded a receivable related to uncertain tax positions associated with the deferred ERC liabilities. As of December 28, 2024, the Company's receivable related to uncertain tax positions was $7.9 million and $3.1 million within prepaid expenses and other current assets and other assets, respectively, and as of January 3, 2026, the Company's receivable was reduced to $3.1 million within other assets on the consolidated balance sheets in connection with the portion of ERC recognized during the fiscal year ended January 3, 2026. Refer to Note 2, Government Assistance, Note 5, Prepaid Expenses and Other Current Assets, Note 9, Other Assets, Note 11, Other Current Liabilities, and Note 13, Other Long-term Liabilities, for additional details.

As of January 3, 2026 and December 28, 2024, the Company recorded liabilities for uncertain tax positions of $0.3 million and $1.1 million in other current liabilities and $0.6 million and $0.7 million in other long-term liabilities, respectively, on the consolidated balance sheets. The Company recognizes accrued interest and penalties related to uncertain tax positions in federal and state income tax expense in the consolidated statements of operations and comprehensive (loss) income. There were no material amounts related to interest and penalties for uncertain tax positions for the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023. There is one open state examination as of January 3, 2026. The Company is no longer subject to examination by tax authorities for years before 2022.

In July 2025, the One Big Beautiful Bill Act was signed into law, enacting significant changes to the United States federal income tax rules. The enactment of this legislation did not have a material impact on the Company's effective tax rate for the fiscal year ended January 3, 2026.

The components of cash paid for income taxes, net of refunds were as follows (in thousands):


	Fiscal Years Ended
	January 3, 2026		December 28, 2024		December 30, 2023
Federal	$	10,152	$	37,059	$	18,300
State		4,998		10,608		11,145
Total cash paid for taxes, net of refunds	$	15,150	$	47,667	$	29,445

No individual tax jurisdictions represented at least five percent of total cash paid for taxes, net of refunds.

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.

KinderCare Learning Companies, Inc. Income Taxes Disclosure

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