TACTILE SYSTEMS TECHNOLOGY INC Income Taxes Disclosure
Note 14. Income Taxes
The provision (benefit) for income tax expense consisted of the following:
Year Ended December 31, | |||||||||
(In thousands) | | 2025 | | 2024 | | 2023 | |||
Current income taxes, Federal | $ | 2,290 | $ | 4,304 | $ | 5,045 | |||
Current income taxes, State | 1,400 | 1,365 | 1,440 | ||||||
3,690 | 5,669 | 6,485 | |||||||
Deferred income taxes, Federal |
| 7,163 |
| 702 |
| (19,046) | |||
Deferred income taxes, State | 1,364 | 365 | (332) | ||||||
8,527 | 1,067 | (19,378) | |||||||
Unrecognized tax benefit, Federal |
| 36 |
| (207) |
| 148 | |||
Unrecognized tax benefit, State | — | — | — | ||||||
36 | (207) | 148 | |||||||
Total provision (benefit) for income taxes | $ | 12,253 | $ | 6,529 | $ | (12,745) | |||
The components of our deferred tax assets and liabilities were as follows:
At December 31, | ||||||
(In thousands) | | 2025 | | 2024 | ||
Deferred tax assets: | ||||||
Operating lease liability | $ | 4,034 | $ | 4,755 | ||
Net operating loss carryforwards | — | 1 | ||||
Accounts receivable and inventory reserves | 2,930 | 5,406 | ||||
Stock-based compensation | 2,519 | 5,818 | ||||
Accrued liabilities |
| 2,638 |
| 1,766 | ||
Warranty reserves | 589 | 752 | ||||
Intangible assets | 755 | 875 | ||||
Business credits | 830 | 761 | ||||
R&D expenses | — | 3,253 | ||||
Other |
| 712 |
| 342 | ||
Total deferred tax assets | 15,007 | 23,729 | ||||
Deferred tax liabilities: | ||||||
Right of use operating lease assets |
| (3,488) |
| (4,177) | ||
Fixed assets | (802) | (877) | ||||
Prepaid expenses | (151) | (209) | ||||
R&D expenses | (710) | — | ||||
Other | (73) | (155) | ||||
Total deferred tax liabilities | (5,224) | (5,418) | ||||
Net deferred tax assets | $ | 9,783 | $ | 18,311 | ||
A reconciliation of income tax expense (benefit) to the statutory federal tax rate is as follows:
Year Ended December 31, | ||||||||||||||||||
($ In thousands) | | 2025 | 2024 | 2023 | ||||||||||||||
US Federal Statutory Tax Expense/Rate | $ | 6,581 | 21.00 | % | $ | 4,933 | 21.00 | % | $ | 3,304 | 21.00 | % | ||||||
State and Local Income Taxes, Net of Federal Benefit (1) | 2,184 | 6.97 | 1,330 | 5.66 | (3,765) | (23.93) | ||||||||||||
Tax Credits - Research & Experimentation | (265) | (0.85) | (350) | (1.49) | (244) | (1.55) | ||||||||||||
Change in Valuation Allowance | — | — | — | — | (13,223) | (84.04) | ||||||||||||
Nontaxable or Nondeductible Items - Meals & Entertainment |
| 424 |
| 1.35 | 393 | 1.67 | 322 | 2.04 | ||||||||||
Nontaxable or Nondeductible Items - Executive Compensation | 258 | 0.82 | 252 | 1.07 | 137 | 0.87 | ||||||||||||
Nontaxable or Nondeductible Items - Other | 132 | 0.43 | 131 | 0.56 | 165 | 1.05 | ||||||||||||
Changes in Unrecognized Tax Benefits | 65 | 0.21 | (167) | (0.71) | 82 | 0.52 | ||||||||||||
Other Reconciling Items - Stock Based Compensation | 2,811 | 8.97 | — | — | — | — | ||||||||||||
Other Reconciling Items | 63 | 0.20 | 7 | 0.03 | 477 | 3.03 | ||||||||||||
Net tax expense / effective rate | $ | 12,253 | 39.10 | % | $ | 6,529 | 27.79 | % | $ | (12,745) | (81.01) | % | ||||||
| (1) | State taxes in California, Pennsylvania, Illinois, New York, Texas, Maryland, and Tennessee made up the majority (greater than 50 percent) of the tax effect in this line item. |
A reconciliation of income taxes paid is as follows
December 31, | |||||||||
(In thousands) | | 2025 | | 2024 | | 2023 | |||
United States - Federal | $ | 1,300 | $ | 5,650 | $ | 5,138 | |||
United States - California | 160 | 73 | 127 | ||||||
United States - Tennessee | 239 | 13 | 21 | ||||||
United States - Other States | 801 | 1,130 | 2,067 | ||||||
Total Income Taxes Paid | $ | 2,500 | $ | 6,866 | $ | 7,353 | |||
A reconciliation of unrecognized tax benefits (“UTB”) is as follows:
December 31, | |||||||||
(In thousands) | | 2025 | | 2024 | | 2023 | |||
Balance beginning of the year | $ | 547 | $ | 702 | $ | 612 | |||
Gross changes — tax positions in prior year | (22) | (272) | — | ||||||
Gross changes — tax positions in current year | 95 | 117 | 90 | ||||||
Balance end of the year | $ | 620 | $ | 547 | $ | 702 | |||
Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. These differences relate primarily to different methods used for income tax purposes including depreciation and amortization, warranty and vacation accruals, and deductions related to allowances for doubtful accounts receivable, and inventory reserves.
As of December 31, 2025, the Company had no remaining state net operating loss ("NOL") carryforwards.
The Company is subject to income tax examinations in the U.S. federal jurisdiction as well as in various state jurisdictions. U.S. federal and state tax years prior to 2022 are closed to examination. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense on our Consolidated Statement of Operations. The Company is not under exam in any jurisdictions.
The effective tax rate for the twelve months ended December 31, 2025, was an expense of 39.1%, compared to 27.8% for the twelve months ended December 31, 2024. We recorded an income tax expense of $12.3 million and $6.5 million for the twelve months ended December 31, 2025 and 2024, respectively.
We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, all deferred tax assets are expected to be realizable. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Feb 21, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 26, 2018 | |
| 2016 | Feb 27, 2017 | |
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.