MANHATTAN ASSOCIATES INC Income Taxes Disclosure

3. Income Taxes

We are subject to future federal, state, and foreign income taxes and have recorded net deferred tax assets on the Consolidated Balance Sheets at December 31, 2025 and 2024. Deferred tax assets and liabilities are determined based on the difference between the financial accounting and tax bases of assets and liabilities. We present below significant components of our deferred tax assets and liabilities as of December 31, 2025 and 2024 are as follows (in thousands):

We currently have a tax holiday in India under the Special Economic Zone Act through March 2029. As a result of this holiday, we had pre-tax income of approximately $18.3 million, for the year ended December 31, 2025, $9.1 million of which was not subject to tax. The impact on diluted earnings per share if the income had been fully taxable would have been a decrease of $0.05 per share in 2025.

We have tax credit carry-forwards of approximately $3.7 million available to offset future state tax. These tax credit carry-forwards expire in 2028 to 2036. These credits represent a deferred tax asset of $3.0 million after consideration of the federal benefit of state tax deductions. We have foreign operating loss carry-forwards of approximately $0.1 million available to offset future foreign tax, which expire in 2030. A valuation allowance of $2.0 million has been established for these credits because the ability to use them is not more likely than not. We also have a tax credit carry-forward of approximately $5.6 million available to offset future foreign tax. This tax credit carryforward begins expiring in 2037.

The Company asserts permanent reinvestment on undistributed foreign earnings. The undistributed earnings and profits are considered previously taxed income and would not be subject to U.S. income taxes upon repatriation of those earnings, in the form of dividends. As the undistributed earnings and profits are considered to be permanently reinvested, no provision for local withholdings taxes have been provided, however, upon repatriation of those earnings, in the form of dividends, we could be subject to additional local withholding taxes.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law. The OBBBA includes significant changes to U.S. corporate tax provisions of the Tax Cuts and Jobs Act. Notably, it allows an immediate deduction for domestic research and development expenditures, reinstates 100% bonus depreciation, and modifies international tax provisions. The acceleration of the deduction for domestic research and development expenditures reduces our cash taxes owed for 2025 and 2026.

Our unrecognized tax benefits totaled $12.1 million and $9.1 million as of December 31, 2025 and 2024, respectively. Included in these amounts are unrecognized tax benefits totaling $11.2 million and $8.5 million as of December 31, 2025 and 2024, respectively, which, if recognized, would affect the effective tax rate.

We recognize potential accrued interest and penalties related to unrecognized tax benefits within our global operations in income tax expense. For the years ended December 31, 2025, 2024 and 2023, the Company recognized the following income tax expense: $0.5 million, $0.6 million, and $0.1 million, respectively, for the potential payment of interest and penalties. Accrued interest and penalties were $0.8 million and $1.3 million for the years ended December 31, 2025 and 2024. We conduct business globally and, as a result, file income tax returns in the United State federal jurisdiction and in many state and foreign jurisdictions. We are generally no longer subject to U.S. federal, state, and local, or non-US income tax examinations for the years before 2015. Due to the expiration of statutes of limitations in multiple jurisdictions globally during 2027, the Company anticipates it is reasonably possible that unrecognized tax benefits may decrease by $1.6 million.