Income Taxes.

MGE Energy and MGE Income Taxes.

MGE Energy files a consolidated federal income tax return that includes the operations of all subsidiary companies. The subsidiaries calculate their respective federal income tax provisions as if they were separate taxable entities.

On a consolidated and separate company basis, the income tax provision consists of the following provision (benefit) components for the years ended December 31:


	MGE Energy									MGE
(In thousands)	2025			2024			2023			2025			2024			2023
Current payable:
Federal	$	5,887		$	4,811		$	1,864		$	4,190		$	3,206		$	1,329
State		9,093			6,875			4,637			8,538			6,309			4,560
Net-deferred:
Federal		4,335			(2,695	)		16,317			3,567			(3,342	)		15,345
State		3,287			3,303			6,683			2,891			2,909			6,191
Amortized investment tax credits		(1,838	)		(1,698	)		(1,698	)		(1,838	)		(1,698	)		(1,698	)
Total income tax provision	$	20,765		$	10,596		$	27,803		$	17,348		$	7,384		$	25,727

The consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows:


	MGE Energy
	2025							2024							2023
(In thousands)	Amount			Percent				Amount			Percent				Amount			Percent
Statutory federal income tax rate	$	32,897			21.0		%	$	27,544			21.0		%	$	30,555			21.0		%
State income taxes, net of federal benefit(a)		9,843			6.3				8,239			6.3				9,078			6.2
Tax credits:
Amortized investment tax credits(b)		(1,697	)		(1.1	)			(2,775	)		(2.1	)			(952	)		(0.7	)
Production tax credits		(15,142	)		(9.7	)			(13,798	)		(10.5	)			(7,763	)		(5.3	)
Nontaxable or Nondeductible Items:
AFUDC equity, net(c)		(1,033	)		(0.6	)			(946	)		(0.7	)			(938	)		(0.6	)
Other, net, individually insignificant		135			0.1				90			0.1				6			—
Other Adjustments:
Amortization of utility excess deferred tax(d)		(4,238	)		(2.7	)			(7,758	)		(5.9	)			(2,183	)		(1.5	)
Effective income tax rate	$	20,765		13.3			%	$	10,596		8.2			%	$	27,803		19.1			%


	MGE
	2025							2024							2023
(In thousands)	Amount			Percent				Amount			Percent				Amount			Percent
Statutory federal income tax rate	$	30,270			21.0		%	$	25,133			21.0		%	$	29,000			21.0		%
State income taxes, net of federal benefit(a)		9,004			6.2				7,477			6.2				8,627			6.2
Tax credits:
Amortized investment tax credits(b)		(1,698	)		(1.2	)			(2,775	)		(2.3	)			(952	)		(0.7	)
Production tax credits		(15,142	)		(10.5	)			(13,798	)		(11.5	)			(7,763	)		(5.6	)
Nontaxable or Nondeductible Items:
AFUDC equity, net(c)		(1,033	)		(0.7	)			(946	)		(0.8	)			(938	)		(0.7	)
Other, net, individually insignificant		185			0.1				51			—				(64	)		—
Other Adjustments:
Amortization of utility excess deferred tax(d)		(4,238	)		(2.9	)			(7,758	)		(6.5	)			(2,183	)		(1.6	)
Effective income tax rate	$	17,348			12.0		%	$	7,384			6.1		%	$	25,727			18.6		%

(a)

State taxes in Wisconsin made up the majority (greater than 50 percent) of the tax effect in this category.

(b)

MGE accounts for investment tax credits using the deferral method. Under this method, the credits are initially recorded as a liability and amortized as an income tax benefit over the useful life of the related property. In addition, amortization for the year ended December 31, 2025, also reflects additional investment tax credit amortization on transferred credits included in the rate settlement for the period.

(c)

The impact of non-taxable income related to equity portion of the AFUDC, net of depreciation.

(d)

Included are impacts of the 2017 Tax Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting in recognition of IRS rules that restrict the rate at which the excess deferred taxes may be returned to utility customers. For the years ended December 31, 2025, 2024, and 2023, MGE recognized $4.2 million, $3.5 million, and $3.5 million, respectively. Included in the 2024 rate settlement was a one-time return to customers of excess deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules. For the year ended December 31, 2024, MGE recognized $4.1 million of deferred taxes not restricted by IRS normalization rules, compared to a net collection from customers of $1.3 million for the year ended December 31, 2023.

The significant components of deferred tax assets and liabilities that appear on the consolidated balance sheets as of December 31 are as follows:


	MGE Energy					MGE
(In thousands)	2025			2024		2025			2024
Deferred tax assets:
Investment in ATC	$	17,657		$	18,467	$	—		$	—
Federal tax credits		13,003			21,252		13,003			21,252
Accrued expenses		12,695			11,614		12,662			11,566
Pension and other postretirement benefits		1,319			6,878		1,319			6,878
Deferred tax regulatory account		38,021			37,892		38,021			37,892
Derivatives		477			13		477			13
Leases		7,455			7,521		7,455			7,521
Other		32,342			29,290		32,202			29,048
Gross deferred income tax assets		122,969			132,927		105,139			114,170
Less: valuation allowance		(863	)		—		(863	)		—
Net deferred income tax assets	$	122,106		$	132,927	$	104,276		$	114,170


	MGE Energy				MGE
(In thousands)	2025		2024		2025		2024
Deferred tax liabilities:
Property-related	$	346,043	$	334,728	$	346,043	$	334,728
Investment in ATC		54,359		54,262		—		—
Bond transactions		288		349		288		349
Pension and other postretirement benefits		22,671		26,801		22,671		26,801
Derivatives		477		13		477		13
Tax deductible prepayments		10,280		9,677		10,269		9,666
Leases		7,455		7,521		7,455		7,521
Other		18,331		15,973		18,271		16,053
Gross deferred income tax liabilities		459,904		449,324		405,474		395,131
Deferred income taxes, net	$	337,798	$	316,397	$	301,198	$	280,961

The components of federal and state tax benefit carryovers as of December 31, are as follows:


	MGE Energy				MGE
(In thousands)	2025		2024		2025		2024
Federal tax credits	$	13,003	$	21,252	$	13,003	$	21,252

Federal tax credit carryovers begin to expire in 2042. Federal tax credits represent the deferred tax asset.

See Footnote 1 for tax payments (receipts) made.

Accounting for Uncertainty in Income Taxes - MGE Energy and MGE.

The difference between the tax benefit amount taken on prior year tax returns, or expected to be taken on a current year tax return, and the tax benefit amount recognized in the financial statements is accounted for as an unrecognized tax benefit.

A tabular reconciliation of unrecognized tax benefits and interest is as follows:


(In thousands)
Unrecognized Tax Benefits:	2025			2024			2023
Unrecognized tax benefits, January 1,	$	1,546		$	1,615		$	2,485
Additions based on tax positions related to the current year		461			415			455
Additions based on tax positions related to the prior years		—			—			—
Reductions based on tax positions related to the prior years		(444	)		(484	)		(1,325	)
Unrecognized tax benefits, December 31,	$	1,562		$	1,546		$	1,615


(In thousands)
Interest on Unrecognized Tax Benefits:	2025			2024			2023
Accrued interest on unrecognized tax benefits, January 1,	$	117		$	130		$	189
Reduction in interest expense on uncertain tax positions		(65	)		(77	)		(149	)
Interest expense on uncertain tax positions		44			64			90
Accrued interest on unrecognized tax benefits, December 31,	$	96		$	117		$	130

Unrecognized tax benefits are classified with "Other deferred liabilities" on the consolidated balance sheets. The interest component recoverable in rates is offset by a regulatory asset.

As of December 31, 2025, 2024, and 2023, MGE Energy and MGE have an unrecognized tax benefit primarily related to temporary tax differences associated with the change in income tax method of accounting for electric generation and electric distribution repairs.

In addition, statutes of limitations will expire for MGE Energy and MGE tax returns. The impact of the statutes of limitations expiring is not anticipated to be material. The following table shows tax years that remain subject to examination by major jurisdiction:


	Taxpayer	Open Years
	MGE Energy and consolidated subsidiaries in federal return	2022 through 2025
	MGE Energy Wisconsin combined reporting corporation return	2021 through 2025

Historical Timeline

Fiscal Year	Filed
2025	Feb 24, 2026	Showing above
2024	Feb 25, 2025

2023	Feb 21, 2024

2022	Feb 22, 2023

2021	Feb 23, 2022

2020	Feb 24, 2021

2019	Feb 27, 2020

2018	Feb 22, 2019

2017	Feb 23, 2018

2016	Feb 24, 2017

2015	Feb 25, 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.

MGE ENERGY INC Income Taxes Disclosure

Historical Timeline

About Income Taxes Disclosures

Other Available Disclosures