POWER SOLUTIONS INTERNATIONAL, INC.PSIX

POWER SOLUTIONS INTERNATIONAL, INC. Income Taxes Disclosure

10-KFiled Mar 2, 20265 min read
Income Taxes
The Company’s operations are located in the United States, therefore, the tax footnote includes only federal and state domestic tax obligations. For the years ended December 2025 and 2024, the Company recognized pretax income of $103.4 million and $70.2 million, respectively.
Income tax (benefit) expense was as follows:
(in thousands)For the Year Ended December 31,
20252024
Current tax expense
Federal$2,510 $443 
State1,757 389 
Total current tax expense $4,267 $832 
Deferred tax (benefit) expense
Federal$(4,949)$229 
State(9,941)(139)
Total deferred tax (benefit) expense(14,890)90 
Total tax (benefit) expense$(10,623)$922 
A reconciliation between the Company’s effective tax rate on income before income taxes and the statutory tax rate in accordance with ASU 2023-09 is as follows: 
(in thousands)
For the Year Ended December 31,
20252024
AmountPercentAmountPercent
Statutory U.S. Federal tax rate$21,706 21.0 %$14,742 21.0 %
State income tax, net of federal benefit 1
(8,520)(8.3)%469 0.7 %
Tax credits(839)(0.8)%(670)(1.0)%
Changes in valuation allowance(24,091)(23.3)%(13,390)(19.0)%
Nontaxable and nondeductible items520 0.5 %27 — %
Changes in unrecognized tax benefits(443)(0.4)%(110)(0.2)%
Other 2
1,044 1.0 %(146)(0.2)%
Effective Tax Rate$(10,623)(10.3)%$922 1.3 %
1    The state and local jurisdictions contributing to the majority (greater than 50%) of the tax effect in this category include Wisconsin, Pennsylvania, Illinois, and Texas.
2    Other represents the aggregation of individually insignificant reconciling items that do not meet the quantitative threshold for separate presentation in accordance with ASC 740, as amended by ASU 2023-09.
Qualitative Explanation of Effective Tax Rate Drivers
The Company’s effective tax rate of (10.3)% for 2025 differed significantly from the statutory U.S. federal rate of 21.0% primarily due to a large decrease in the valuation allowance following the Company’s removal of substantial doubt about its
ability to continue as a going concern and improved financial performance. The reduction in the valuation allowance resulted in a significant tax benefit in 2025.
Significant components of deferred income tax assets and liabilities consisted of the following:
(in thousands)As of December 31,
20252024
Deferred tax assets:
Operating lease liability$14,203 $6,420 
Net operating loss carryforwards6,035 7,454 
Research and development credits2,584 4,818 
Other state credits2,284 3,142 
Inventory2,213 3,925 
Accrued warranty2,029 3,392 
Other accrued expenses1,544 5,042 
Capitalized research and development costs— 9,884 
Other2,266 2,973 
Total deferred tax assets33,158 47,050 
    Valuation allowance(183)(38,498)
Total deferred tax assets, net of valuation allowance$32,975 $8,552 
Deferred tax liabilities:
ROU operating lease asset$(13,452)$(5,827)
Intangible amortization(2,844)(1,846)
Depreciation on property, plant and equipment(3,357)(2,008)
Other— (439)
Total deferred tax liabilities$(19,653)$(10,120)
Net deferred tax asset (liability)
$13,322 $(1,568)
A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset.
Through March 31, 2025, the Company maintained a full valuation allowance against its deferred tax assets due to significant negative evidence, about realizability of the assets, including cumulative losses and substantial doubt about its ability to continue as a going concern. Due to the successful refinancing of its debt, the Company concluded that substantial doubt about its ability to continue as a going concern no longer exists. After evaluating all available evidence, including the alleviation of substantial doubt about the Company’s ability to continue as a going concern, recent and forecasted earnings, historical performance, and the Company’s improved financial condition, management determined that it is more likely than not that its deferred tax assets will be realized. As a result, the Company released most of its valuation allowance during the second quarter of 2025 and now maintains a valuation allowance related to a capital loss carryforward resulting in total valuation allowance of $0.2 million and $38.5 million as of December 31, 2025 and 2024, respectively. For 2025, the release of the valuation allowance of $38.3 million consisted of $24.1 million of federal and $14.2 million of state deferred tax assets.
As of December 31, 2025, the Company had $6.1 million in research and development and state tax credit carryforwards which begin to expire in 2026. As of December 31, 2025, the Company had $7.6 million of state net operating loss carryforwards that are available to offset taxable income in the future. The state net operating loss carryforwards begin to expire in 2031.
Cash payments for income taxes, disaggregated by jurisdiction, were as follows:
(in thousands)For the Year Ended December 31,
20252024
Federal $7,310 $652 
State1,708 962 
Total$9,018 $1,614 
Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:
(in thousands)For the Year Ended December 31,
20252024
State
Wisconsin$744 *
Pennsylvania460 *
Illinois*700 
Minnesota*126 
*Jurisdiction below the threshold for the period presented
The change in unrecognized tax benefits excluding interest and penalties were as follows:
(in thousands)For the Year Ended December 31,
20252024
Balance at beginning of year
$1,696 $1,819 
Additions based on tax positions related to the current year
153 129 
Additions for tax positions of prior years35 12 
Reduction for tax positions of prior years(623)$(264)
Balance at end of year
$1,261 $1,696 
The amount of unrecognized tax benefits, that if recognized, would affect the annual effective tax rate was approximately $1.3 million and $0 million as of December 31, 2025 and 2024, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2025 and 2024, the amount accrued for interest and penalties was not material.
The major jurisdictions subject to examination by the relevant tax authorities and open tax years, stated as the Company’s fiscal years, are as follows:
JurisdictionOpen Tax Years
U.S. Federal2017to2025
U.S. States2017to2025
Recent Tax Legislation
The One, Big, Beautiful Bill Act (the “Act”) was signed into law on July 4, 2025. The Act contains significant tax law changes with various effective dates affecting business taxpayers. Among the tax law changes that will impact the Company relate to the timing of certain tax deductions including depreciation expense, R&D expenditures and interest expense. As a result, the Company recognized incremental tax timing benefits primarily related to the restoration of 100% bonus depreciation and the ability to immediately expense R&D costs under Section 174. These changes did not have a material impact on the Company’s overall income tax expense for the year.
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Historical Timeline

Fiscal YearFiled
2025Mar 2, 2026Showing above
2024Mar 24, 2025
2023Mar 14, 2024
2022Apr 14, 2023
2021Mar 31, 2022
2020Mar 30, 2021
2019May 4, 2020
2018Dec 27, 2019
2017May 16, 2019
2015Feb 26, 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.

Other Available Disclosures

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