Paycom Software, Inc. Income Taxes Disclosure

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of our deferred tax assets and liabilities were as follows:

At December 31, 2025, we had net operating loss carryforwards for state income tax purposes of $1.3 million, which are available to offset future state taxable income that begin expiring in 2033.

Total net income tax payments, net of refunds, were $78.1 million in 2025, $134.8 million in 2024, and $138.8 million in 2023. The following table lists the components of the payments for income taxes, net of refunds:

As of December 31, 2025, 2024 and 2023, there were $3.5 million, $3.8 million and $3.8 million, respectively, of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.

Where applicable, we classify income tax-related interest and penalties as interest expense and other expense, respectively. During the years ended December 31, 2025, 2024 and 2023, we recorded interest and penalties with regard to uncertain tax positions of $0.0 million, $0.3 million and $0.8 million, respectively.

We recognize tax benefits from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. The tax benefits in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized on settlement.

We file income tax returns with the United States federal government and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2022.