Paysign, Inc. Income Taxes Disclosure

13.     INCOME TAXES

 

The ASU standardizes categories for the effective tax rate reconciliation, requires disaggregation of income taxes paid and additional income tax-related disclosures, and is effective for the Company for annual fiscal periods beginning after December 15, 2024. The Company has adopted ASU 2023-09 for the 2025 calendar year retrospectively. Because the ASU affects disclosures only, the adoption did not affect the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets.

 

The income tax provision (benefit) on the statements of operations was comprised of the following for the years ended December 31:

Schedule of income tax provision (benefit)
		2025				2024
Current:
Federal		$	20,371			$	60,245
State			195,289				(36,735	)
Current income tax provision			215,660				23,510
Deferred:
Federal			1,997,287				409,091
State			268,694				(110,311	)
Deferred income tax provision			2,265,981				298,780
Income tax provision		$	2,481,641			$	322,290

 

For the years ended December 31, 2025 and 2024, the reconciliation of the federal statutory tax rate to the benefit rate for income taxes is as follows:

Schedule of reconciliation of federal statutory tax rate to benefit rate
		2025								2024
Federal taxes at U.S. statutory rate		$	2,106,983				21.0%			$	869,021				21.0%
State and local income tax, net of federal (national) income tax effect*			368,878				3.7				(70,824	)			(1.7	)
Foreign tax effect
Foreign taxes			(6,269	)			(0.1	)			(8,431	)			(0.2	)
Foreign rate change			5,406				0.1				6,512				0.2
Tax credits
Domestic R&D credits			(411,358	)			(4.1	)			(397,422	)			(9.6	)
Nontaxable or nondeductible items
Stock-based compensation			(660,802	)			(6.6	)			(322,307	)			(7.8	)
IRC Section 162(m) limitation			489,938				4.9				293,466				7.1
Other permanent differences			39,676				0.4				28,866				0.7
Change in valuation allowance			6,269				0.1				8,431				0.2
Changes in unrecognized tax benefits			77,405				0.8				115,382				2.8
Other adjustments
Return-to-provision adjustments			465,515				4.6				(200,404	)			(4.8	)
Other adjustments			–				–				–				–
Effective tax rate		$	2,481,641				24.7%			$	322,290				7.8%

 

*	State taxes in Michigan and New Jersey made up the majority (greater than 50 percent) of the tax effect in this category in 2025; State taxes in California, New Jersey, and South Carolina made up the majority (greater than 50 percent) of the tax effect in this category in 2024.

 

Deferred tax assets and liabilities are comprised of the following at December 31:

Schedule of deferred tax assets and liabilities
		2025				2024
Deferred tax assets:
Net operating loss carryforward		$	963,268			$	1,476,121
Operating lease obligation			1,426,104				693,128
Stock-based compensation			1,283,536				936,983
Tax credits			1,003,634				762,079
Intangible assets			–				869,419
Other Deferred Tax Assets			122,798				73,832
Deferred tax assets, gross			4,799,340				4,811,562
Deferred tax liabilities:
Intangible assets			(1,291,993	)			–
Fixed assets			(390,633	)			(130,082	)
Right-of-use assets			(1,356,081	)			(661,134	)
Deferred tax liabilities			(3,038,707	)			(791,216	)
Less valuation allowance			(25,664	)			(19,396	)
Deferred tax asset, net		$	1,734,969			$	4,000,950

 

As of December 31, 2025, the Company has gross Federal net operating loss carryforwards of $5.1 million, gross state net operating loss carryforwards of $2.0 million, and gross Mexico net operating loss carryforwards of approximately $86,000. The Company's Federal net operating losses can be carried forward indefinitely. The Company's state net operating losses have 15 years to indefinite carryforward periods and begin to expire in 2035. The Company's Mexico net operating losses have 10-year carryforward periods and begin to expire in 2032.

 

Pursuant to Sections 382 and 383 of the Internal Revenue Code ("IRC"), Federal and state tax laws impose significant restrictions on the utilization of net operating loss and other tax carryforwards in the event of a change in ownership of the Company. The Company does not expect IRC Sections 382 and 383 to significantly impact on the utilization of its net operating losses and other tax carryforwards.

 

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The Company continues to maintain a valuation allowance on its Mexico net operating losses. The Company's valuation allowance represents the amount of tax benefits that are likely to not be realized. The net change in the valuation allowance from December 31, 2024 was approximately $6,000.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Schedule of unrecognized tax benefits
Balance as of December 31, 2023		$	442,186
Additions for current year			79,484
Additions for prior year			35,896
Subtractions for current year			–
Balance as of December 31, 2024			557,566
Additions for current year			77,405
Additions for prior year			–
Subtractions for current year			–
Balance as of December 31, 2025		$	634,971

 

As of December 31, 2025 and 2024, the Company has no accrual for interest and penalties related to its unrecognized tax benefits. The balance of the unrecognized tax benefits as of December 31, 2025 are included in the deferred tax asset, net. Included in the balance of unrecognized tax benefits at December 31, 2025 is $634,971 of tax benefits that, if recognized would impact the effective tax rate. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months. The Company files income tax returns in the United States and various state jurisdictions. Beginning in 2022, the Company also files income tax returns in Mexico. With the exception of tax attributes created in prior years that may potentially be adjusted, the federal statute of limitations remains open for the 2020 tax year to present, the state statutes of limitations remain open for the 2020 tax year to present, and the foreign statute of limitations remains open for the 2022 tax year to present.

 

Income taxes paid (net of refunds received) for the year ended December 31:

Schedule of income taxes paid (net of refunds received)
		2025				2024
Federal		$	271,000			$	63,000
California			34,100				2,400
New Jersey			37,620				5,375
Pennsylvania			13,171				13,171
Rhode Island			10,500				10,500
South Carolina			9,600				6,700
Other States			38,195				35,485
Income taxes paid		$	414,186			$	136,631

 

Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law in 2020 and the subsequent extension of the CARES Act through September 30, 2021, the Company was eligible for a refundable employee retention credit subject to certain criteria. The Company has elected an accounting policy to recognize the government assistance when it is probable that the Company is eligible to receive the assistance and present the credit as a reduction of the related expense. During the years ended December 31, 2025 and 2024, the Company recorded $248,236 and $0, respectively, related to the employee retention credit included as a reduction of payroll expense within selling, general and administrative expenses in the consolidated statements of operations. As of December 31, 2025 and 2024 the Company has filed for refunds and recorded $345,228 and $1,129,164, respectively, in other receivables on the consolidated balance sheet.