Income Taxes
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09:
| | | | | | | | |
| ($ in Thousands) |
| Year Ended December 31, 2025 |
| $ | % |
| Earnings from continuing operations, before income tax expense | $ | 47,643 | | |
| | |
| U.S Federal Statutory Tax Rate | 10,005 | | 21.0 | % |
| State Taxes, Net of Federal Income Tax Effect (*) | 1,271 | | 2.7 | % |
| Nontaxable or Nondeductible Items | | |
| Utility Plant Related | (726) | | (1.5) | % |
| Tangible Property Repairs | (5,792) | | (12.2) | % |
| Other Adjustments | 63 | | 0.1 | % |
| Total Income Tax Expense | $ | 4,821 | | 10.1 | % |
(*) State taxes in Delaware make up the majority (greater than 50 percent) of the tax effect in this category.
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU No. 2023-09:
| | | | | | | | |
| Years Ended December 31, |
| 2024 | 2023 |
| Income Tax at Statutory Rate | $ | 10,764 | | $ | 6,839 | |
| Tax Effect of: | | |
| Utility Plant Related | (659) | (1,495) |
| Tangible Property Repairs | (4,535) | (5,475) |
| State Income Taxes-Net | 1,270 | 1,117 |
| Other | 65 | 55 |
| Total Income Tax Expense | $ | 6,905 | | $ | 1,041 | |
The Company paid income taxes as follows:
| | | | | |
| Year Ended |
| December 31, 2025 |
| Federal taxes Paid | $ | 236 | |
| |
| State Taxes Paid-New Jersey | 307 | |
| State Taxes Paid-Delaware | 1,092 | |
| State Taxes Paid-Other | 4 | |
| Total State Taxes Paid | $ | 1,403 | |
| |
| Total Income Taxes Paid | $ | 1,639 | |
The table above is in accordance with the guidance in ASU No. 2023-09.
The Company’s effective tax rate was 10.1%, 13.5% and 3.2% for the years ended December 31, 2025, 2024 and 2023, respectively.
The statutory Federal tax rate is 21.0% for the years ended December 31, 2025, 2024 and 2023. For states where the Company's subsidiaries are subject to a state income tax, the state corporate net income tax rates range from 8.25% to 9.0% for all periods presented. Our effective tax rate differs from the federal statutory tax rate primarily due to the recognition of the income tax benefits for the immediate deduction of repair expenditures on tangible property in the Middlesex System as well as other permanent book-to-tax differences.
Income tax expense (benefit) is comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | (In Thousands) | |
| | Years Ended December 31, | |
| | 2025 | | 2024 | | 2023 | |
| Current: | | | | | | | |
| Federal | | $ | 2,971 | | | $ | 1,554 | | | $ | 2,952 | | |
| State | | 1,292 | | | 1,126 | | | 1,066 | | |
| Deferred: | | | | | | | |
| Federal | | 295 | | | 3,802 | | | (3,261) | |
| State | | 317 | | | 482 | | | 348 | | |
| Investment Tax Credits | | (54) | | | (59) | | | (64) | | |
| Total Income Tax Expense | | $ | 4,821 | | | $ | 6,905 | | | $ | 1,041 | | |
As part of Middlesex’s March 2018 general rate case settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS as well as prospective recognition of the income tax benefits for the immediate deduction of repair costs on tangible property. This results in significant reductions in the Company’s effective income tax rate, current income tax expense and deferred income tax expense (benefit).
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. The components of the net deferred tax liability are as follows:
| | | | | | | | | | | | | | | | | |
| | (In Thousands) | |
| | December 31, | |
| | 2025 | | 2024 | |
| Utility Plant Related | | $ | 100,934 | | | $ | 95,877 | | |
| Customer Advances | | 850 | | | (3,525) | | |
| Employee Benefits | | 8,778 | | | 7,888 | | |
| Investment Tax Credits | | 128 | | | 181 | | |
| Other | | (215) | | | 814 | | |
| Total Accumulated Deferred Income Taxes | | $ | 110,475 | | | $ | 101,235 | | |
The Company has no material unrecognized tax benefits, interest, or penalties and does not expect significant changes to unrecognized tax benefits within the next 12 months.
An IRS examination of the Company's 2023 federal income tax returns commenced in February 2026. The Company is also obligated to report adjustments resulting from IRS settlements to state tax authorities.