PAYCHEX INC Income Taxes Disclosure

Note L — Income Taxes

On July 4, 2025, the One Big Beautiful Bill Act ("The Act") was enacted into law. The most significant provisions applicable to the Company relate to accelerated tax deductions for qualified property and research expenditures as reflected in the deferred tax table above. There was no material impact on the Company's effective tax rate as a result of The Act.

The deferred tax asset related to NOL carry forwards is comprised of $2.1 million of federal NOL carry forwards, $8.4 million of state NOL carry forwards, and $5.4 million of foreign NOL carry forwards. The federal NOL carry forwards were acquired through various acquisitions. Certain federal NOL carry forwards have indefinite lives, while others expire between the fiscal years ending May 31, 2028 and May 31, 2037. The state NOL carry forwards expire between the fiscal years ending May 31, 2027 through May 31, 2045.

The effective income tax rates in all periods were impacted by recognition of net discrete tax benefits related to employee stock-based compensation payments.

Uncertain income tax positions: The Company is subject to U.S. federal income tax, numerous local and state tax jurisdictions within the U.S., and taxes in the Company's foreign operations in Europe, Canada, India, and Israel. The Company maintains a reserve for uncertain tax positions. As of May 31, 2026, the reserve for uncertain tax positions, including interest and net of benefits, was $120.6 million, of which $120.1 million was included in long-term liabilities and $0.5 million was netted in the deferred tax on the Consolidated Balance Sheets. As of May 31, 2025, the total reserve for uncertain tax positions, including interest and net of federal benefits, was $108.6 million, of which $100.6 million was included in long-term liabilities and $8.0 million was netted in deferred tax on the Consolidated Balance Sheets.

The reserve as of May 31, 2026 substantially relates to the Company’s uncertain tax positions for certain U.S. federal and state income tax matters. The Company believes the reserve for uncertain tax positions, including interest and net of federal benefits, of $120.6 million as of May 31, 2026 adequately covers open tax years and uncertain tax positions up to and including fiscal 2026 for major taxing jurisdictions. As of May 31, 2026 and 2025, the $120.1 million and $100.6 million, respectively, of unrecognized tax benefits, including interest and net of federal benefit, if recognized, would impact the Company’s effective income tax rate.

The Company has concluded all U.S. federal income tax matters through fiscal 2017. Fiscal years 2018, 2020, and 2023 are currently under audit by the IRS. With limited exception, state income tax audits by taxing authorities are closed through fiscal 2022, primarily due to expiration of the statute of limitations.

The Company continues to follow its policy of recognizing interest and penalties accrued on tax positions as a component of income taxes on the Consolidated Statements of Income and Comprehensive Income. The amount of accrued interest and penalties associated with the Company’s tax positions is immaterial to the Consolidated Balance Sheets. The amount of interest and penalties recognized for fiscal years 2026, 2025, and 2024 was immaterial to the Company’s results of operations.