Orion Group Holdings Inc Income Taxes Disclosure

11.Income Tax

The following table presents the components of income (loss) before income taxes were attributable to the following regions for each year ended December 31, as follows:

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The following table presents the components of our consolidated income tax expense for each year ended December 31, as follows:

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The table below provides the updated requirements of ASU 2023-09 for 2025. See “Note 2. Summary of Significant Accounting Policies – Recent Accounting Pronouncements” for additional details on the adoption of ASU 2023-09.

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The effective income tax rate for the year ended December 31, 2025 differs from the statutory federal income tax rate as follows:

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In the year ended 2025, the Company’s effective tax rate differed from the statutory federal rate of 21% primarily due to the tax impact from the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:

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In the year ended 2024, the Company’s effective tax rate differed from the statutory federal rate of 21% primarily due to the tax impact from the valuation allowance for current year activity, the statue expiration of an uncertain tax position, state income taxes and the non-deductibility of other permanent items.

In the year ended 2023, the Company’s effective tax rate differed from the statutory federal rate of 21% primarily due to the tax impact from the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

The Company’s effective tax rate can be volatile based on the amount of pretax income or loss in the reporting period. For example, when pretax income is lower, the effect of reconciling items to the U.S. statutory rate, such as nondeductible expenses, will have a greater impact on the effective tax rate.

The amounts of cash taxes paid by the Company in the year ended December 31, 2025 is as follows:

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Deferred Taxes

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The Company’s deferred tax assets and liabilities are as follows:

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The Company has net operating loss carryforwards for federal income tax purposes of $65.4 million as of December 31, 2025, which are available to reduce future taxable income. The Company’s federal net operating losses arose after the 2017 tax year and can be carried forward for an indefinite period of time but are limited to offset 80% of taxable income in any given year. The Company has state net operating losses of $140.5 million that expire beginning in 2027. A portion of the state losses that arose after the 2017 tax year may be carried forward indefinitely. Additionally, the Company has foreign tax credits of $3.4 million that can be carried forward for up to ten years. The Company has foreign tax credits that will expire in 2026.

The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to realize the existing deferred tax assets. The Company considers the scheduled reversal of deferred tax liabilities, available carryback periods, and tax-planning strategies in making this assessment. According to ASC subtopic 740-10, the Company’s history of losses is a significant piece of negative evidence. This negative evidence is weighed more heavily than the Company’s subjective positive evidence such as our estimated future taxable income and growth. Therefore, as of December 31, 2025, the Company continues to maintain a valuation allowance of $20.2 million. This valuation allowance decreased by $1.9 million during the year ended December 31, 2025 primarily to offset deferred tax liabilities generated during the period.

Uncertain Tax Benefits

The Company and its subsidiaries file consolidated federal income tax returns in the United States and also file in various states and foreign jurisdictions. With few exceptions, the Company remains subject to federal and state income tax examinations for the years of 2019-2024.

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The change in the total gross unrecognized tax benefits and prior year audit resolutions of the Company during the years ended December 31, 2025 and 2024 are reconciled in the table below:

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The Company’s policy is to recognize interest and penalties related to any unrecognized tax liabilities as additional tax expense. No interest or penalties have been accrued at December 31, 2025 and 2024. The Company believes it has appropriate and adequate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Although the Company believes its recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore, the Company’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. Although the Company believes that the estimates and assumptions supporting its assessments are reasonable, the final determination of tax audit settlements and any related litigation could be materially different from that which is reflected in historical income tax provisions and recorded assets and liabilities. If the Company were to settle an audit or a matter under litigation, it could have a material effect on the income tax provision, net income, or cash flows in the period or periods for which that determination is made. Any accruals for tax contingencies are provided for in accordance with U.S. GAAP.