SELECT MEDICAL HOLDINGS CORPSEM
SELECT MEDICAL HOLDINGS CORP Income Taxes Disclosure
Income Taxes
The components of the Company’s income tax expense from continuing operations for the years ended December 31, 2023, 2024, and 2025, are as follows:
| For the Year Ended December 31, | |||||||||||||||||
| 2023 | 2024 | 2025 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Current income tax expense: | |||||||||||||||||
| Federal | $ | 24,766 | $ | 50,372 | $ | 21,827 | |||||||||||
| State and local | 14,317 | 25,280 | 5,737 | ||||||||||||||
| Total current income tax expense | 39,083 | 75,652 | 27,564 | ||||||||||||||
| Deferred income tax expense (benefit) | (9,830) | (30,870) | 30,652 | ||||||||||||||
| Total income tax expense from continuing operations | $ | 29,253 | $ | 44,782 | $ | 58,216 | |||||||||||
Reconciliations of the statutory federal income tax rate to the effective income tax rate are as follows:
| For the Year Ended December 31, | |||||||||||
| 2023 | 2024 | ||||||||||
| Federal income tax at statutory rate | 21.0 | % | 21.0 | % | |||||||
| State and local income taxes, less federal income tax benefit | 11.8 | 6.5 | |||||||||
| Permanent differences | 1.8 | 1.7 | |||||||||
| Deferred income taxes — state income tax rate adjustment | (3.0) | 0.0 | |||||||||
| Deferred income taxes - covered employee adjustment | — | 0.9 | |||||||||
| Valuation allowance | (1.8) | 1.5 | |||||||||
| Limitation on officers’ compensation | 7.4 | 15.8 | |||||||||
| Tax credits | (2.7) | (1.6) | |||||||||
| Stock-based compensation | (1.2) | (5.4) | |||||||||
| Non-controlling interest | (12.2) | (15.0) | |||||||||
| Other | (0.2) | 0.2 | |||||||||
| Effective income tax rate | 20.9 | % | 25.6 | % | |||||||
| For the Year Ended December 31, 2025 | |||||||||||
| (in thousands, except percentages) | |||||||||||
| Federal income tax at statutory rate | $ | 57,290 | 21.0 | % | |||||||
State and local income taxes, less federal income tax benefit (1) | 8,536 | 3.1 | |||||||||
| Tax credits: | |||||||||||
| R&D credits | (1,145) | (0.4) | |||||||||
| Other tax credits | (2,174) | (0.8) | |||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Limitation on officers’ compensation | 3,535 | 1.3 | |||||||||
| Stock-based compensation | 1,306 | 0.5 | |||||||||
| Noncontrolling interest | (14,346) | (5.3) | |||||||||
| Other | 5,214 | 1.9 | |||||||||
| Effective income tax rate | $ | 58,216 | 21.3 | % | |||||||
_______________________________________________________________________________
(1) In 2025, state taxes in Michigan, New Jersey, Minnesota, and Pennsylvania made up the majority (greater than 50%) of the tax effect in this category.
The Company’s net cash paid for income taxes consisted of the following:
| For the Year Ended December 31, 2025 | |||||
| (in thousands) | |||||
| Federal | $ | 10,745 | |||
| Aggregated state and local jurisdictions | 5,731 | ||||
| Disaggregated state and local jurisdictions | |||||
| Florida | 1,284 | ||||
| New Jersey | 1,474 | ||||
| Ohio | 1,171 | ||||
| Pennsylvania | 5,617 | ||||
| Net cash paid for income taxes | $ | 26,022 | |||
The Company’s deferred tax assets and liabilities are as follows:
| December 31, | |||||||||||
| 2024 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets | |||||||||||
| Implicit discounts and adjustments | $ | 6,169 | $ | 4,166 | |||||||
| Compensation and benefit-related accruals | 44,651 | 46,459 | |||||||||
| Professional malpractice liability insurance | 14,081 | 14,724 | |||||||||
| Federal and state net operating loss and state tax credit carryforwards | 22,611 | 26,506 | |||||||||
| Interest limitation carryforward | 47,905 | 46,187 | |||||||||
| Stock awards | 2,314 | 995 | |||||||||
| Equity investments | 1,235 | 1,442 | |||||||||
| Operating lease liabilities | 174,165 | 192,152 | |||||||||
| Derivatives | — | 1,548 | |||||||||
| Research and experimental expenditures | 20,478 | 9,914 | |||||||||
| Excess capital loss | 4,941 | 1,131 | |||||||||
| Other | 384 | 399 | |||||||||
| Deferred tax assets | 338,934 | 345,623 | |||||||||
| Valuation allowance | (15,230) | (16,644) | |||||||||
| Deferred tax assets, net of valuation allowance | 323,704 | 328,979 | |||||||||
| Deferred tax liabilities | |||||||||||
| Investment in unconsolidated affiliates | $ | (20,228) | $ | (22,502) | |||||||
| Investment in consolidated affiliates | (3,511) | (3,613) | |||||||||
| Depreciation and amortization | (190,355) | (205,334) | |||||||||
| Deferred financing costs | (494) | (420) | |||||||||
| Operating lease right-of-use assets | (162,171) | (178,359) | |||||||||
| Other | (1,378) | (1,813) | |||||||||
| Deferred tax liabilities | (378,137) | (412,041) | |||||||||
| Deferred tax liabilities, net of deferred tax assets | $ | (54,433) | $ | (83,062) | |||||||
The Company’s deferred tax assets and liabilities are included in the consolidated balance sheet captions as follows:
| December 31, | |||||||||||
| 2024 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Other assets | $ | 27,064 | $ | 29,095 | |||||||
| Non-current deferred tax liability | (81,497) | (112,157) | |||||||||
| $ | (54,433) | $ | (83,062) | ||||||||
As of December 31, 2024 and 2025, the Company’s valuation allowance is primarily attributable to the uncertainty regarding the realization of state net operating losses and other net deferred tax assets of loss entities.
For the year ended December 31, 2024, the Company recorded a net valuation allowance increase of $0.7 million. The changes in the Company’s valuation allowance were recognized as a result of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. For the year ended December 31, 2025, the Company recorded a net valuation allowance increase of $1.4 million. The changes in the Company’s valuation allowance were recognized as a result of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized.
At December 31, 2024 and 2025, the Company’s net deferred tax liabilities of approximately $54.4 million and $83.1 million, respectively, consist of items which have been recognized for tax reporting purposes, but which will increase tax on returns to be filed in the future. The Company has performed an assessment of positive and negative evidence regarding the realization of the net deferred tax assets. This assessment included a review of legal entities with three years of cumulative losses, estimates of projected future taxable income, the effect on future taxable income resulting from the reversal of existing deferred tax liabilities in future periods, and the impact of tax planning strategies that management would and could implement in order to keep deferred tax assets from expiring unused. Although realization is not assured, based on the Company’s assessment, it has concluded that it is more likely than not that such assets, net of the determined valuation allowance, will be realized.
The total state net operating losses are approximately $607.9 million. State net operating loss carryforwards expire and are subject to valuation allowances as follows:
| State Net Operating Losses | Gross Valuation Allowance | ||||||||||
| (in thousands) | |||||||||||
| 2026 | $ | 23,592 | $ | 22,458 | |||||||
| 2027 | 40,402 | 38,795 | |||||||||
| 2028 | 47,292 | 44,776 | |||||||||
| 2029 | 27,019 | 21,800 | |||||||||
| Thereafter through 2042 | 469,567 | 345,522 | |||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 20, 2020 | |
| 2018 | Feb 21, 2019 | |
| 2017 | Feb 22, 2018 | |
| 2016 | Feb 23, 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.