NATIONAL HEALTHCARE CORP Income Taxes Disclosure

Note 12 – Income Taxes

 

Income before income taxes was as follows (in thousands):

 

 

		Year Ended December 31,
		2025				2024				2023
United States		$	162,432			$	136,408			$	88,738
Income before income taxes		$	162,432			$	136,408			$	88,738

 

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

 

		Year Ended December 31,
		2025				2024				2023
Current tax provision
Federal		$	25,589			$	12,900			$	14,520
State			7,049				3,490				3,137
Foreign			–				–				–
Total current tax provision			32,638				16,390				17,657
Deferred tax provision
Federal			5,638				13,841				4,142
State			1,550				4,091				1,651
Foreign			–				–				–
Total deferred tax provision			7,188				17,932				5,793
Income tax provision		$	39,826			$	34,322			$	23,450

 

The deferred tax assets and liabilities, consisting of temporary differences tax effected at the respective income tax rates, are as follows (in thousands):

 

		December 31,
		2025				2024
Deferred tax assets:
Accrued risk reserves		$	2,361			$	2,012
Accrued expenses			9,547				7,695
Stock based compensation			1,350				1,181
Deferred revenue			2,941				3,154
Operating lease liabilities			11,963				19,896
Other			1,105				847
Total gross deferred tax assets			29,267				34,785
Less: valuation allowance			(212	)			(517	)
Deferred tax assets less valuation allowance		$	29,055			$	34,268
Deferred tax liabilities:
Unrealized gains on marketable securities		$	(35,415	)		$	(28,581	)
Deferred gain on sale of assets, net			(2,048	)			(2,055	)
Book basis in excess of tax basis of intangible assets			(6,283	)			(5,655	)
Book basis in excess of tax basis of securities			(2,787	)			(4,042	)
Book basis in excess of tax basis of fixed assets			(10,460	)			(6,579	)
Long–term investments			(2,605	)			(2,652	)
Operating lease assets			(12,144	)			(20,254	)
Total deferred tax liabilities		$	(71,742	)		$	(69,818	)
Net deferred tax liability		$	(42,687	)		$	(35,550	)

 

A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows (dollars in thousands):

 

 

		Year Ended December 31,
		2025
Tax provision at federal statutory rate		$	34,111				21.0	%
State and Local Income Taxes, net of federal benefit (1)			7,834				4.8
Changes in Valuation Allowances			(305	)			(0.2	)
Nontaxable and Nondeductible Items			(237	)			(0.2	)
Changes in Unrecognized tax benefits			(389	)			(0.2	)
Other Adjustments			(1,188	)			(0.7	)
Effective tax rate		$	39,826				24.5	%

 

⁽¹⁾ The states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include Tennessee.

 

A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows (in thousands):

 

	Year Ended December 31,
	2024				2023
Tax provision at federal statutory rate	$	28,646			$	18,635
Increase in income taxes resulting from:
State, net of federal benefit		6,349				4,600
Unrecognized tax benefits		690				1,227
Expiration of statute of limitations		(932	)			(1,491	)
Tax (expense) benefit of noncontrolling interest		(34	)			317
Other, net		(397	)			162
Total increases		5,676				4,815
Effective income tax expense	$	34,322			$	23,450

 

Our deferred tax assets have been evaluated for realization based on historical taxable income, tax planning strategies, the expected timing of reversals of existing temporary differences and future taxable income anticipated. Our deferred tax assets, with the exception of certain deferred tax assets associated with unrealized losses on marketable securities, are more likely than not to be realized in full due to the existence of sufficient taxable income of the appropriate character under the tax law.  As such, the only valuation allowance relates to unrealized losses on marketable securities.

 

Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment. Under ASC Topic 740, tax positions are evaluated for recognition using a more–likely–than–not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

 

In accordance with current guidance, the Company has established a liability for unrecognized tax benefits, which are differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured. Generally, a liability is created for an unrecognized tax benefit because it represents a company’s potential future obligation to a taxing authority for a tax position that was not recognized per above. We believe that our liabilities reflect the anticipated outcome of known uncertain tax positions in conformity with ASC Topic 740 Income Taxes. Our liabilities for unrecognized tax benefits are presented in the consolidated balance sheets within other noncurrent liabilities.

 

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

 

		Deferred Tax Asset				Liability For Unrecognized Tax Benefits				Liability For Interest and Penalties				Liability Total
Balance, January 1, 2023		$	4,754			$	8,505			$	2,678			$	11,183
Additions based on tax positions related to the current year			1,454				1,454				–				1,454
Additions (reductions) for tax positions of prior years			(198	)			324				1,583				1,907
Reductions for statute of limitation expirations			(361	)			(1,030	)			(823	)			(1,853	)
Balance, December 31, 2023			5,649				9,253				3,438				12,691
Additions based on tax positions related to the current year			835				835				–				835
Additions (reductions) for tax positions of prior years			(1,380	)			(1,097	)			859				(238	)
Reductions for statute of limitation expirations			(232	)			(592	)			(572	)			(1,164	)
Balance, December 31, 2024			4,872				8,399				3,725				12,124
Additions based on tax positions related to the current year			754				754				–				754
Additions (reductions) for tax positions of prior years			(531	)			(409	)			(934	)			1,576
Reductions for statute of limitation expirations			(233	)			(602	)			(568	)			(1,403	)
Balance, December 31, 2025		$	4,862			$	8,142			$	2,223			$	13,051

 

Unrecognized tax benefits of $4,040,000, net of federal benefit at December 31, 2025, attributable to permanent differences, would favorably impact our effective tax rate if recognized. We do not expect significant increases or decreases in unrecognized tax benefits for the 2026 year, except for the effect of decreases related to the lapse of statute of limitations estimated at $964,000.

 

Interest and penalties expense related to U.S. federal and state income tax returns are included within income tax expense.  The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2022 (with few state exceptions).

 

The amount of cash income taxes paid by the Company were as follows (in thousands):

 

 

		Year Ended December 31,
		2025
Federal		$	20,688
State
Tennessee			1,785
Other states			2,246
Total income taxes paid, net		$	24,719

 

The amount of cash income taxes paid by the Company during the years ended December 31, 2024 and 2023 was $17,525,000 and $14,571,000, respectively.