Paylocity Holding CorpPCTY
Paylocity Holding Corp Income Taxes Disclosure
(14) Income Taxes
(a) Income Taxes
Income tax expense (benefit) for the years ended June 30, 2023, 2024 and 2025 consists of the following:
| Year Ended June 30, | |||||||||||||||||
| 2023 | 2024 | 2025 | |||||||||||||||
| Current taxes | |||||||||||||||||
| Federal | $ | 1,702 | $ | 30,900 | $ | 65,188 | |||||||||||
| State and local | 2,625 | 11,524 | 18,918 | ||||||||||||||
| International | $ | — | $ | — | 999 | ||||||||||||
| Deferred taxes: | |||||||||||||||||
| Federal | 17,973 | 26,438 | (4,072) | ||||||||||||||
| State and local | (4,508) | 1,387 | 940 | ||||||||||||||
| International | $ | — | $ | — | $ | (37) | |||||||||||
| Total income tax expense (benefit) | $ | 17,792 | $ | 70,249 | $ | 81,936 | |||||||||||
(b) Tax Rate Reconciliation
Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 21% for the years ended June 30, 2023, 2024 and 2025 to pretax income as a result of the following:
| Year Ended June 30, | |||||||||||||||||
| 2023 | 2024 | 2025 | |||||||||||||||
| Income tax expense (benefit) at statutory federal rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| Increase (reduction) in income taxes resulting from: | |||||||||||||||||
| Research and development credit and other credits | (3.1) | (2.9) | (2.0) | ||||||||||||||
| Non-deductible expenses | 1.0 | 0.7 | 0.5 | ||||||||||||||
| Change in valuation allowance | (2.8) | (0.5) | — | ||||||||||||||
| Stock-based compensation expense | (6.1) | 2.7 | 1.8 | ||||||||||||||
| State and local income taxes, net of federal income tax benefit | 1.3 | 4.3 | 5.1 | ||||||||||||||
| Other | (0.1) | 0.1 | 0.1 | ||||||||||||||
| 11.2 | % | 25.4 | % | 26.5 | % | ||||||||||||
The effective tax rate for the years ended June 30, 2023, 2024 and 2025 was 11.2%, 25.4% and 26.5%, respectively, on pre-tax income of $158,614, $277,015 and $309,063, respectively. The decrease in the effective tax rate for June 30, 2023 was primarily due to stock-based compensation. The increase in the effective tax rate for years ended June 30, 2024 and 2025 were primarily due to state and local income tax.
(c) Components of Deferred Tax Assets and Liabilities
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2024 and 2025 are presented below.
| June 30, | |||||||||||
| 2024 | 2025 | ||||||||||
| Deferred tax assets: | |||||||||||
| Operating lease liabilities | $ | 14,141 | $ | 14,457 | |||||||
| Accrued expenses | 19,706 | 23,101 | |||||||||
| Stock-based compensation | 28,595 | 25,970 | |||||||||
| Net operating loss carryforwards | 4,282 | 20,471 | |||||||||
| Federal and state tax credits | 17,907 | 16,196 | |||||||||
| Research and development costs | 29,718 | 60,611 | |||||||||
| Total deferred tax assets | 114,349 | 160,806 | |||||||||
| Valuation allowance | — | (232) | |||||||||
| Net deferred tax assets | 114,349 | 160,574 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Deferred contract costs | (116,004) | (134,448) | |||||||||
| Operating lease right-of-use assets | (8,775) | (9,400) | |||||||||
| Intangible assets | (2,661) | (20,269) | |||||||||
| Depreciation | (10,559) | (8,976) | |||||||||
| Other | (358) | (2,286) | |||||||||
| Total deferred tax liabilities | (138,357) | (175,379) | |||||||||
| Net deferred tax liabilities | $ | (24,008) | $ | (14,805) | |||||||
As of June 30, 2025, the Company maintains a valuation allowance of $232 for certain state tax benefits which may not be realized. The increase to the valuation allowance is mainly due to the acquisition of certain Airbase Inc. state tax net operating loss carryforwards. Such assessment may change in the future as further evidence becomes available.
At June 30, 2025, the Company has gross net operating loss carryforwards for federal income tax purposes of approximately $56,746, all of which can be carried forward indefinitely. The Company has gross net operating loss carryforwards for state income tax purposes of approximately $125,204, of which $111,008 expire from 2030 to 2045, while the remaining $14,196 can be carried forward indefinitely. The Company also has gross state research and development tax credits and other state credit carryforwards of approximately $20,501, which expire between 2026 and 2045.
As of June 30, 2024 and 2025, the Company’s liabilities for unrecognized tax benefits, which would impact the Company’s effective tax rate if recognized, are presented below. The Company will include applicable penalties and interest when the benefit is recognized:
| Year Ended June 30, | |||||||||||
| 2024 | 2025 | ||||||||||
| Unrecognized tax benefits at beginning of the year | $ | 1,552 | $ | 2,435 | |||||||
| Additions for current year tax positions | 769 | 848 | |||||||||
| Additions for tax positions of prior periods | 114 | 23 | |||||||||
| Unrecognized tax benefit at end of year | $ | 2,435 | $ | 3,306 | |||||||
The Company files income tax returns with the United States federal government and various state jurisdictions. Certain tax years remain open for federal and state tax reporting jurisdictions in which the Company does business due to net operating loss and tax credit carryforwards from such years or utilized in a period remaining open for audit under normal statute of limitations relating to income tax liabilities. The Company, including its domestic subsidiaries, files a consolidated federal income tax return. For years before fiscal year ended June 30, 2022, the Company is no longer subject to U.S. federal examination; however, the Internal Revenue Service (IRS) has the ability to review years prior to fiscal year 2022 to the extent the Company utilized tax attributes carried forward from those prior years. The statute of limitations on state filings is generally to four years.
On July 4, 2025, the One Big Beautiful Bill Act (the “Act”) was enacted into law. The Act includes changes to U.S. income tax law that will be applicable to the Company beginning in fiscal 2026. The Act includes significant provisions such as accelerated tax deductions for qualified property and research expenditures. While the Company is still assessing the effects of these provisions, it is expected to mostly impact the Company’s consolidated balance sheet with material impacts to deferred tax assets and liabilities and income taxes payable in fiscal 2026.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 6, 2025 | Showing above |
| 2024 | Aug 2, 2024 | |
| 2023 | Aug 4, 2023 | |
| 2022 | Aug 5, 2022 | |
| 2021 | Aug 6, 2021 | |
| 2020 | Aug 7, 2020 | |
| 2019 | Aug 9, 2019 | |
| 2018 | Aug 10, 2018 | |
| 2017 | Aug 11, 2017 | |
| 2016 | Aug 12, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.