NRC HEALTH Income Taxes Disclosure

(6)	Income Taxes

 

For the years ended December 31, 2025, 2024, and 2023, income before provision for income taxes consisted of the following (in thousands):

 

		2025				2024				2023
Federal		$	17,845			$	32,690			$	40,031
Foreign			—				—				(69	)
Income before income taxes		$	17,845			$	32,690			$	39,962

 

Income tax expense (benefit) consisted of the following components (in thousands):

 

		2025				2024				2023
Current:
Federal		$	2,673			$	6,817			$	8,220
State			1,119				1,742				1,924
Foreign			-				12				(32	)
Total current tax expense		$	3,792			$	8,571			$	10,112
Deferred:
Federal		$	2,166			$	(717	)		$	(891	)
State			287				53				(244	)
Foreign			-				-				14
Total deferred tax expense		$	2,453			$	(664	)		$	(1,121	)
Total tax expense		$	6,245			$	7,907			$	8,991

 

The effective tax rate of our provision (benefit) for income taxes differs from the federal statutory rate as follows (in thousands, except percentages):

 

		2025
Earnings from continuing operations, before income tax expense		$	17,845
US federal statutory income tax rate			3,747				21.00	%
Domestic federal reconciling items
Nontaxable and nondeductible items, net
Nontaxable and Nondeductible Items			33				0.19
Sec 162(m) Limit			1,384				7.76
Tax credits			(227	)			(1.27	)
Other adjustments			4				0.02
Domestic state and local income taxes, net of federal effect
State taxes			1,130	(1)			6.33
Worldwide changes in unrecognized tax benefits			174				0.97
Total		$	6,245				35.00	%

 

⁽¹⁾ In 2025, state taxes in California, Massachusetts, Minnesota, New Jersey, and Pennsylvania made up the majority (greater than 50 percent) of the tax effect in this category.

 

		2024				2023
Expected federal income taxes		$	6,865			$	8,392
Foreign tax rate differential			(2	)			(4	)
State income taxes, net of federal benefit and state tax credits			1,324				1,323
Share-based compensation			(167	)			(334	)
Federal tax credits			(401	)			(569	)
Uncertain tax positions			171				73
Non-deductible expenses			113				92
Other			4				18
Total		$	7,907			$	8,991

 

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

 

Deferred tax assets and liabilities at December 31, 2025, and 2024, were comprised of the following (in thousands):

 

		2025				2024
Deferred tax assets:
Allowance for doubtful accounts		$	20			$	10
Accrued expenses			482				526
Share-based compensation			1,263				1,148
Accrued bonuses			521				243
Uncertain tax positions			378				348
Research & experimental expenditures			1,472				3,925
Lease liabilities			296				422
Restricted stock			65				—
Deferred tax assets			4,497				6,622
Deferred tax liabilities:
Prepaid expenses			108				29
Deferred contract costs			620				387
Property and equipment			2,128				1,846
Intangible assets			7,381				7,245
Right of Use Asset			287				403
Other			(43	)			243
Deferred tax liabilities			10,481				10,153
Net deferred tax liabilities			(5,984	)			(3,531	)

 

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider projected future taxable income, carry-back opportunities, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences.

 

We capitalize costs of research or experimental expenditures including software development for tax purposes and amortize over a period of five years (attributable to domestic research) or 15 years (attributable to foreign research), beginning with the midpoint of the taxable year in which the expenses are paid or incurred. We capitalized costs of $2.0 million, $5.5 million, and $7.8 million for tax purposes in 2025, 2024 and 2023, respectively, resulting in deferred tax assets of $1.5 million, and $3.9 million at December 31, 2025, and 2024, respectively.

 

We had an unrecognized tax benefit of $2.2 million at December 31, 2025, and 2024, excluding interest of $136,000 and $68,000 at December 31, 2025, and 2024, respectively. Of this amount, $1.9 million at December 31, 2025, and 2024, represents the net unrecognized tax benefit that, if recognized, would favorably impact the effective income tax rate. The change in the unrecognized tax benefits for 2025 and 2024 was as follows (in thousands):

 

Balance of unrecognized tax benefits at December 31, 2023		$	1,943
Reductions due to lapse of applicable statute of limitations			(72	)
Reductions due to tax positions of prior years			—
Reductions due to settlement with taxing authorities			—
Additions based on tax positions related to the current year			305
Balance of unrecognized tax benefits at December 31, 2024		$	2,176
Reductions due to lapse of applicable statute of limitations			(101	)
Additions due to tax positions of prior years			—
Reductions due to settlement with taxing authorities			—
Additions based on tax positions related to the current year			139
Balance of unrecognized tax benefits at December 31, 2025		$	2,214

 

The Inflation Reduction Act of 2022 (“IRA”) includes an excise tax on certain stock repurchases. As a result, the Company capitalized excise taxes of $195,000 and $331,000 as part of the cost of treasury stock during 2025 and 2024, respectively. The IRA did not have any other material impact on the Company’s consolidated financial statements.

 

We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and, until our Canadian subsidiary was dissolved, in Canada federal and provincial jurisdictions. Tax years 2021 and forward remain subject to U.S. federal examination. Tax years 2018 and forward remain subject to state examination. Tax years 2020 and forward remain subject to Canadian federal and provincial examination.