CPI Card Group Inc. Income Taxes Disclosure
11. Income Taxes
The components of income before income tax expense consist of the following:
December 31, | ||||||
| 2025 | | 2024 | |||
United States | $ | 21,669 | $ | 24,986 | ||
Foreign | 71 | 41 | ||||
Total | $ | 21,740 | $ | 25,027 | ||
The components of income tax expense consist of the following:
December 31, | ||||||
2025 | | 2024 | ||||
Current income tax expense: | ||||||
US federal |
| $ | 453 | $ | 7,494 | |
US state and local |
| 1,665 |
| 1,824 | ||
Foreign | 21 | 9 | ||||
Total current income tax expense | 2,139 |
| 9,327 | |||
Deferred income tax expense: | ||||||
US federal | 4,171 |
| (3,694) | |||
US state and local | 346 |
| (127) | |||
Foreign | — | — | ||||
Total deferred income tax expense | 4,517 |
| (3,821) | |||
Total income tax expense: | ||||||
US federal | 4,624 |
| 3,800 | |||
US state and local | 2,011 |
| 1,697 | |||
Foreign | 21 | 9 | ||||
Total income tax expense | $ | 6,656 | $ | 5,506 | ||
For the years ended December 31, 2025 and 2024, the effective tax rate differs from the U.S. federal statutory income tax rate as follows:
December 31, | ||||||||||||
2025 | | 2024 | | |||||||||
Amount | Percent | Amount | Percent | |||||||||
US federal statutory tax rate | $ | 4,565 | 21.0 | % | $ | 5,256 | 21.0 | % | ||||
1,743 | 8.0 |
| 1,428 | 5.7 |
| |||||||
Foreign tax effects: | ||||||||||||
United Kingdom | 3 | — | 2 | — | ||||||||
Effects of changes in tax laws or rates enacted in the current period | — | — | — | — | ||||||||
Effect of cross-border tax laws | — | — | — | — | ||||||||
Tax credits: | ||||||||||||
Research and development tax credits | (239) | (1.1) |
| (223) | (0.9) |
| ||||||
Other | (33) | (0.2) | (5) | — | ||||||||
Changes in valuation allowances | — | — | (1,757) | (7.0) | ||||||||
Nontaxable or nondeductible items: | ||||||||||||
Excess compensation (both current and future) | 557 | 2.6 | 691 | 2.8 | ||||||||
Share-based payment awards | 158 | 0.7 | (906) | (3.6) | ||||||||
Other | 323 | 1.5 | 135 | 0.5 | ||||||||
Changes in unrecognized tax benefits | (502) | (2.3) | (897) | (3.6) | ||||||||
Other adjustments: | ||||||||||||
Expiration of capital loss carryover | — | — | 1,757 | 7.0 | ||||||||
Other | 81 | 0.4 | 25 | 0.1 | ||||||||
$ | 6,656 | 30.6 | % | $ | 5,506 | 22.0 | % | |||||
(1) The majority of the state tax effect relates to Minnesota and California.
The increase in the Company’s effective tax rate for the year ended December 31, 2025 compared to the prior year related to non-deductible acquisition-related costs and increased state tax expenses related to the acquisition of Arroweye. The effective tax rate for the year ended December 31, 2024 was impacted by the increased deductibility of stock-based compensation realized upon certain stock option exercises and restricted stock unit vesting.
For the year ended December 31, 2025, the effective tax rate differs from the federal statutory rate primarily due to state income taxes, which had a tax rate impact of 8.0%. Other items impacting the effective tax rate in 2025 include tax deductibility limitations on executive compensation and permanent items. For the year ended December 31, 2024, the effective tax rate differs from the federal statutory rate primarily due to state income taxes, which had a tax rate impact of 5.7%. Other items impacting the effective tax rate in 2024 include tax deductibility limitations on executive compensation, permanent items and unrecognized tax benefits due to statute of limitations.
The amount of taxes paid (net of refunds received) consist of the following:
December 31, | ||||||
| 2025 | | 2024 | |||
US federal | $ | 5,000 | $ | 8,350 | ||
US state and local: | ||||||
Minnesota |
| 650 | 75 | |||
Other |
| 733 |
| 849 | ||
Subtotal | 1,383 |
| 924 | |||
Foreign: | ||||||
Other | 14 |
| 11 | |||
Subtotal | 14 |
| 11 | |||
Total |
| $ | 6,397 | $ | 9,285 | |
The components of the deferred tax assets and liabilities are as follows:
December 31, | ||||||
| 2025 | 2024 | ||||
Deferred tax assets: | ||||||
Accrued expense | $ | 3,250 | $ | 3,414 | ||
Net operating loss carryforward | 22,648 |
| 133 | |||
Stock-based compensation | 2,174 |
| 2,400 | |||
Interest limitation | 3,920 | 2,424 | ||||
Lease liability | 5,200 | 2,730 | ||||
Research and development costs | 722 | 2,070 | ||||
Other | 2,413 | 2,772 | ||||
Total gross deferred tax assets | 40,327 |
| 15,943 | |||
Valuation allowance |
| (15,556) |
| (872) | ||
Net deferred tax assets | 24,771 |
| 15,071 | |||
Deferred tax liabilities: | ||||||
Plant, equipment and leasehold improvements |
| (12,489) |
| (8,552) | ||
Intangible assets |
| (8,258) |
| (6,075) | ||
Right-of-use assets | (5,042) | (2,511) | ||||
Prepaid expenses and other | (1,233) | (1,251) | ||||
Total gross deferred tax liabilities |
| (27,022) |
| (18,389) | ||
Net deferred tax liabilities | $ | (2,251) | $ | (3,318) | ||
The valuation allowance as of December 31, 2025, is primarily related to Arroweye’s net operating losses that are limited to taxable income generated from acquired business, and the use of state interest deductions that may generate future state net operating losses, which may not be fully recognized.
The Company has state and local operating loss carryforwards which will expire at various dates from 2033 to 2038. The Company generally expects to be able to utilize these losses prior to expiration, but applied a valuation allowance to losses that may not be fully recognized.
The Company has recorded compensation for certain covered employees in excess of $1.0 million per year. Under Internal Revenue Code (IRC) Section 162(m), the Company is prohibited from deducting the amount of tax compensation that exceeds $1.0 million per year for these employees. The covered employees are defined as the CEO, Chief Financial Officer (“CFO”), and the three next-highest-compensated officers of the Company. The Company considers the impact of the estimated IRC Section 162(m) limitations on the future deductibility of existing temporary differences.
Unrecognized Tax Benefits
Unrecognized tax benefits represent the aggregate tax effect of differences between the tax return positions and the amounts otherwise recognized in the Company’s consolidated financial statements, and are reflected in “Accrued expenses” and “Other long-term liabilities” on the Company’s consolidated balance sheets. The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax provision only when based upon the technical merits, it is “more-likely-than-not” that the tax position will be sustained upon examination.
Balance as of December 31, 2024 | $ | 669 | |
Increase related to current year tax position | 97 | ||
Increase related to prior year tax position | 22 | ||
Decrease related to prior year tax position | — | ||
Decrease related to lapse of statute of limitations | (436) | ||
Balance as of December 31, 2025 | $ | 352 |
The amount of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate is $0.4 million and $0.7 million for the years ended December 31, 2025 and 2024, respectively.
The Company recognizes interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest and penalties related to unrecognized tax benefits was $0.1 million for each of the years ended December 31, 2025 and 2024. The Company remains subject to U.S. federal, state and foreign examinations for years after 2020.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Mar 4, 2025 | |
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.