Surgery Partners, Inc.SGRY
Surgery Partners, Inc. Income Taxes Disclosure
Income Taxes
The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes in the consolidated statements of operations. For the years ended December 31, 2025 and 2024, the Company had no accrued interest and penalties related to uncertain tax positions.
Income tax expense (benefit) is comprised of the following (in millions):
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | ||||||||||||||
| State | 1.1 | 3.1 | 1.4 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | 11.6 | 114.6 | (1.5) | |||||||||||||||||
| State | 5.3 | 16.9 | (0.2) | |||||||||||||||||
Total income tax expense (benefit) | $ | 18.0 | $ | 134.6 | $ | (0.3) | ||||||||||||||
A reconciliation of the provision for income taxes as reported in the consolidated statements of operations and the amount of income tax expense (benefit) computed by multiplying consolidated income (loss) in each year by the U.S. federal statutory rate of 21% follows (in millions). The reconciling item of $43.0 million reverses the earnings attributable to the non-controlling interest as the Company is not responsible for the tax associated with those earnings. State taxes in Texas and Tennessee for 2025 made up the majority (greater than 50%) of the tax effect in this category.
As of December 31, 2025 and December 31, 2024, the Company was in a cumulative three-year pre-tax loss position, which was considered significant negative evidence that could not be overcome by objective and verifiable positive evidence. Based on the weight of available evidence, the Company concluded that it was more likely than not that a portion of its net deferred tax assets will not be realized. Therefore, in accordance with ASC 740-10-30, the Company recorded a full valuation allowance, net of future reversing deferred tax liabilities, on its deferred tax assets to reflect the net realizable value as of the balance sheet dates.
Below is tabular rate reconciliation pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025:
Year Ended December 31, 2025 | ||||||||||||||
Amount | Percent | |||||||||||||
Tax expense at U.S. federal statutory rate | $ | 24.5 | 21.0 | % | ||||||||||
| State income tax, net of U.S. federal tax benefit | 6.3 | 5.4 | % | |||||||||||
| Change in federal valuation allowance | 18.1 | 15.5 | % | |||||||||||
| Net income attributable to non-controlling interests | (43.0) | (36.8) | % | |||||||||||
| Stock option compensation | (2.7) | (2.3) | % | |||||||||||
Non-deductible compensation | 4.1 | 3.5 | % | |||||||||||
| Differences related to divested facilities | 1.9 | 1.6 | % | |||||||||||
Other permanent items | 1.0 | 0.9 | % | |||||||||||
| Tax return reconciling differences | 7.5 | 6.4 | % | |||||||||||
| Other | 0.3 | 0.3 | % | |||||||||||
Total income tax expense (benefit) | $ | 18.0 | 15.4 | % | ||||||||||
Below is a reconciliation of the statutory federal income tax expense and the Company's total income tax expense for the years ended December 31, 2024 and 2023:
| 2024 | 2023 | |||||||||||||
Amount | Amount | |||||||||||||
Tax expense at U.S. federal statutory rate | $ | 30.8 | $ | 28.4 | ||||||||||
| State income tax, net of U.S. federal tax benefit | 19.9 | 0.9 | ||||||||||||
| Change in federal valuation allowance | 115.4 | 21.5 | ||||||||||||
| Net income attributable to non-controlling interests | (41.5) | (30.9) | ||||||||||||
| Stock option compensation | 5.5 | 0.1 | ||||||||||||
| Differences related to divested facilities | (3.3) | (18.9) | ||||||||||||
| Tax return reconciling differences | 8.0 | (1.0) | ||||||||||||
| Other | (0.2) | (0.4) | ||||||||||||
Total income tax expense (benefit) | $ | 134.6 | $ | (0.3) | ||||||||||
The components of temporary differences and the approximate tax effects that give rise to the Company’s net deferred tax balance are as follows (in millions):
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Medical malpractice liability | $ | 5.0 | $ | 3.8 | ||||||||||
| Accrued vacation and incentive compensation | — | 0.2 | ||||||||||||
| Net operating loss carryforwards | 144.7 | 142.9 | ||||||||||||
| Allowance for bad debts | 0.9 | 1.1 | ||||||||||||
| Capital loss carryforwards | — | 3.3 | ||||||||||||
| Section 163(j) interest | 229.4 | 191.6 | ||||||||||||
| Interest rate derivative liability | 3.6 | 2.5 | ||||||||||||
Right of use liability | 45.4 | 46.2 | ||||||||||||
| Software development costs | — | 2.1 | ||||||||||||
| Other deferred assets | 11.2 | 9.9 | ||||||||||||
| Total gross deferred tax assets | 440.2 | 403.6 | ||||||||||||
| Less: Valuation allowance | (317.9) | (284.7) | ||||||||||||
| Total deferred tax assets | 122.3 | 118.9 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Depreciation on property and equipment | (0.7) | (1.3) | ||||||||||||
| Basis differences of partnerships and joint ventures | (130.5) | (106.7) | ||||||||||||
Right of use asset | (30.9) | (36.8) | ||||||||||||
Deferred financing costs | (4.7) | (5.3) | ||||||||||||
| Amortization of intangible assets | (4.3) | (3.1) | ||||||||||||
| Interest rate derivative asset | — | (2.9) | ||||||||||||
Accrued vacation and incentive compensation | (1.6) | — | ||||||||||||
| Other deferred liabilities | (3.0) | (2.0) | ||||||||||||
| Total deferred tax liabilities | (175.7) | (158.1) | ||||||||||||
Net deferred tax liabilities | $ | (53.4) | $ | (39.2) | ||||||||||
The Company had federal NOL carryforwards of $532.4 million as of December 31, 2025, of which $424.6 million expire between 2031 and 2037. The remaining federal NOL carryforwards, which were generated after 2017, do not expire. The Company had state NOL carryforwards of $657.1 million as of December 31, 2025, which expire between 2026 and 2045. The Company had federal Section 163(j) interest limitation carryforwards of $961.5 million as of December 31, 2025, which do not expire.
The Company recorded a valuation allowance against deferred tax assets at December 31, 2025 and 2024 totaling $317.9 million and $284.7 million, respectively, which represents an increase of $33.2 million. The increase relates to recording valuation allowance on Section 163(j) interest carry-forward generated during 2025.
The Company, or one or more of its subsidiaries, files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for years prior to 2022 or state income tax examinations for years prior to 2021.
The Company made income tax payments of $1.2 million, $1.6 million and $1.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. In each of these periods the income tax payments related to states in which the Company does not have a NOL to offset taxable income. During the years ended December 31, 2025, 2024 and 2023, the Company made no federal income tax payments due to utilization of its NOL carryforwards. The Company paid state income taxes of $1.0 million to Texas for the year ended December 31, 2025.
A reconciliation of the beginning and ending liability for gross unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023 is as follows (in millions):
| December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Unrecognized tax benefits at beginning of year | $ | — | $ | — | $ | 0.1 | ||||||||||||||
Additions for tax provisions of the current year | — | — | — | |||||||||||||||||
Additions for acquired positions | — | — | — | |||||||||||||||||
Additions for tax positions of prior years | — | — | — | |||||||||||||||||
| Reductions for tax positions of prior years | — | — | (0.1) | |||||||||||||||||
Reductions for statute of limitations expirations | — | — | — | |||||||||||||||||
| Unrecognized tax benefits at end of year | $ | — | $ | — | $ | — | ||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 10, 2021 | |
| 2019 | Mar 13, 2020 | |
| 2018 | Mar 15, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 10, 2017 | |
| 2015 | Mar 11, 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.