Neptune Insurance Holdings Inc.NP

Neptune Insurance Holdings Inc. Income Taxes Disclosure

10-KFiled Feb 26, 20263 min read
Income Taxes
Components of income tax expense include the following for the years ended December 31:
(In thousands)202520242023
Current:
Federal$10,468 $9,154 $5,910 
State$3,753 3,246 2,254 
14,221 12,400 8,164 
Deferred:
Federal$1,640 (516)(1,752)
State$361 (96)(441)
2,001 (612)(2,193)
$16,222 $11,788 $5,971 
A reconciliation of the statutory U.S. federal tax rate and the Company’s effective tax rates is as follows for the years ended December 31:
202520242023
Tax ExpenseRateTax ExpenseRateTax ExpenseRate
US federal statutory tax rate$11,264 21.0 %$9,740 21.0 %$5,010 21.0 %
State and local income taxes, net of federal income tax effect (1)
3,245 6.0 %2,488 5.4 %1,324 5.5 %
Foreign tax effects— — %— — %— — %
Effect of cross-border tax laws— — %— — %— — %
Effect of changes in tax laws or rates enacted in the current period— — %— — %— — %
Nontaxable or nondeductible items
Nondeductible executive compensation3,058 5.7 %— — %— — %
Stock compensation(2,911)(5.4)%10 — %— — %
IPO costs1,774 3.3 %— — %— — %
Other12 — %4 — %3 — %
Tax credits
Research and development tax credit(199)(0.4)%(346)(0.7)%(394)(1.6)%
Changes in valuation allowances— — %— — %— — %
Changes in unrecognized tax benefits— — %— — %— — %
Other items(21)— %(108)(0.3)%28 0.1 %
Effective income tax rate$16,222 30.2 %$11,78825.4%$5,97125.0%
(1)Taxes in Florida make up the majority of the effect of the state and local tax category.
The Company paid cash taxes, net of refunds, for the year ended December 31, as follows:
(In thousands)202520242023
 U.S. federal taxes $14,950 $4,900 $6,320 
 State and local taxes
    Florida 2,774 901 1,125 
    New Jersey 473 438 323 
    Other states 1,955 1,071 831 
         Total income taxes paid $20,152 $7,310 $8,599 
The following table summarizes components of deferred income tax assets and liabilities as of December 31:
(In thousands)20252024
Deferred tax assets (liabilities):
Cancellation reserves$750 $351 
Acquisition intangibles48 44 
163(j) interest expense limitations304 1,811 
Internally developed software- 735 
Stock compensation1,594 74 
Other5 6 
Deferred tax assets$2,701 $3,021 
Goodwill(289)(121)
Prepaid expenses(163)(97)
Internally developed software(1,448)- 
Deferred tax liabilities(1,900)(218)
Net deferred tax assets$801 $2,803 
The Company assessed the future realization of the tax benefit of its existing deferred tax assets and concluded based on projected future earnings that it is more likely than not that all of its deferred tax assets will be realized in the future. Accordingly, no valuation allowance was recorded as of December 31, 2025 or 2024.
As of December 31, 2025, the Company has not recorded a reserve for any uncertain tax positions, penalties, or interest as management has concluded that all positions meet the requirements to be recognized in the financial statements. Interest and penalties accrued by the Company are included in the General and administrative section of the consolidated statements of income. The Company’s U.S. federal and state income tax returns remain subject to examination by taxing authorities for tax years 2022 and after.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The impacts of this legislation have been reflected in the provision for income taxes for the year ended December 31, 2025. The new legislation allows the immediate expensing of domestic research and development costs, rather than capitalizing and amortizing these costs over 60 months. Taxpayers also are given the option to accelerate the remaining unamortized domestic research and development costs over one or two years beginning in 2025. There is no change to the treatment of foreign research and development costs. The Company elected to fully expense its remaining unamortized domestic research and development costs in 2025 and immediately deducted such costs incurred during the year.

We believe the changes to tax law described above are the most material impacts to the Company and have been reflected in the provision for the year ended December 31, 2025.
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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.

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