SAFETY INSURANCE GROUP INC Income Taxes Disclosure
13. | Income Taxes |
A summary of the income tax expense in the consolidated statements of operations is shown below.
Years Ended December 31, | |||||||||
2025 | 2024 | 2023 | |||||||
Current Income Taxes: | | | | | | | |||
Federal | $ | 29,049 | $ | 18,676 | $ | 3,614 | |||
State |
| 310 |
| 75 |
| 276 | |||
| 29,359 |
| 18,751 |
| 3,890 | ||||
Deferred Income Taxes: | |||||||||
Federal |
| (1,931) |
| 380 |
| 1,655 | |||
State |
| — |
| — |
| — | |||
| (1,931) |
| 380 |
| 1,655 | ||||
Total income tax expense | $ | 27,428 | $ | 19,132 | $ | 5,545 | |||
The income tax expense attributable to the consolidated results of operations is different from the amounts determined by multiplying income before federal income taxes by the statutory federal income tax rate. The sources of the difference and the tax effects of each were as follows for the periods indicated.
Years Ended December 31, | ||||||||||||||||||
2025 | 2024 | 2023 | ||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||
Federal income tax expense at statutory rate | | $ | 26,603 | 21.0 | % | | $ | 18,872 | 21.0 | % | | $ | 5,128 | 21.0 | % | |||
Investment income, net |
| (280) | (0.2) |
| (314) | (0.3) |
| (364) | (1.5) | |||||||||
State taxes, net |
| 245 | 0.2 |
| 59 | 0.1 |
| 218 | 0.9 | |||||||||
Nondeductible expenses |
| 1,073 | 0.9 |
| 695 | 0.7 |
| 400 | 1.6 | |||||||||
Tax related to share-based stock compensation |
| 237 | 0.2 |
| 156 | 0.2 |
| 213 | 0.9 | |||||||||
Other, net |
| (450) | (0.4) |
| (336) | (0.4) |
| (50) | (0.2) | |||||||||
$ | 27,428 | 21.7 | % | $ | 19,132 | 21.3 | % | $ | 5,545 | 22.7 | % | |||||||
The deferred income tax asset (liability) represents the tax effects of temporary differences attributable to the Company’s consolidated federal tax return group. Its components were as shown in the following table for the periods indicated.
Years Ended December 31, |
| ||||||
2025 | 2024 |
| |||||
Deferred tax assets: | | | | | |||
Discounting of loss reserves | $ | 6,543 | $ | 5,504 | |||
Discounting of unearned premium reserve |
| 26,488 |
| 24,723 | |||
Net unrealized losses on investments | 63 | 9,078 | |||||
Bad debt allowance |
| 183 |
| 207 | |||
Employee benefits |
| 3,783 |
| 4,164 | |||
Rent incentive |
| 342 |
| 456 | |||
Other |
| 189 |
| 123 | |||
Total deferred tax assets before valuation allowance |
| 37,591 |
| 44,255 | |||
Valuation allowance for deferred tax assets |
| — |
| — | |||
Total deferred tax assets |
| 37,591 |
| 44,255 | |||
Deferred tax liabilities: | |||||||
Deferred acquisition costs |
| (23,476) |
| (22,150) | |||
Investments |
| (8,143) |
| (8,493) | |||
Loss reserve transition adjustment |
| — |
| (277) | |||
Software development costs |
| (903) |
| (1,189) | |||
Premium acquisition expenses |
| (559) |
| (363) | |||
Depreciation |
| (394) |
| (583) | |||
Total deferred tax liabilities |
| (33,475) |
| (33,055) | |||
Net deferred tax assets (liability) | $ | 4,116 | $ | 11,200 | |||
The Company believes that the positions taken on its income tax returns for open tax years will be sustained upon examination by the Internal Revenue Service. Therefore, the Company has not recorded any liability for uncertain tax positions under ASC 740, Income Taxes.
During the years ended December 31, 2025 and 2024 there were no material changes to the amount of the Company’s unrecognized tax benefits or to any assumptions regarding the amount of its ASC 740 liability.
As of December 31, 2025 and 2024, the Company had no unrecognized tax benefits, and none which if recognized would affect the effective tax rate. The Company does not currently anticipate significant changes in the amount of unrecognized income tax benefits during the next twelve months.
The Company records interest and penalties associated with audits as a component of income before income taxes. Penalties are recorded in underwriting, operating and other expenses, and interest expense is recorded in interest expenses in the consolidated statements of operations. The Company had no interest and penalties related to income taxes accrued as of December 31, 2025 and 2024.
On July 4, 2025, the “One Big Beautiful Bill Act” (H.R.1) (the “Act”) was signed into law. This wide-ranging budget reconciliation legislation introduces significant changes across multiple areas of federal policy, including taxation, and social programs. The provisions of the Act do not currently have a material impact on the Company’s financial position or results of operations, nor are they expected to have a material impact in future periods.
In the Company’s opinion, adequate tax liabilities have been established for all open years. However, the amount of these tax liabilities could be revised in the near term if estimates of the Company’s ultimate liability are revised. All tax years prior to 2021 are closed.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 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.