Willdan Group, Inc. Income Taxes Disclosure
11. INCOME TAXES
On January 2, 2026, the Company adopted ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. ASU 2023-09 amends the rules on income tax disclosures to require entities to disclose specific categories in the rate reconciliation, the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and income tax expense or benefit from continuing operations (separated by federal, state, and foreign). ASU 2023-09 further requires entities to disclose their income tax payments to international, federal, state, and local jurisdictions, among other changes.
As permitted by ASU 2023-09, the Company adopted this standard on a basis starting with its fiscal year 2025 annual reporting period.
The provision for income taxes is comprised of (1):
Fiscal Year |
| |||||||||
| 2025 | | 2024 | | 2023 |
| ||||
(in thousands) | ||||||||||
Current federal taxes | $ | (341) | $ | 361 | $ | 61 | ||||
Current state taxes |
| 1,234 |
| 1,207 |
| 676 | ||||
Current foreign taxes | 18 | 18 | — | |||||||
Deferred federal taxes |
| (11,570) |
| 1,677 |
| 2,022 | ||||
Deferred state taxes |
| (1,904) |
| 846 |
| 906 | ||||
$ | (12,563) | $ | 4,109 | $ | 3,665 | |||||
| (1) | Revenue from the Company’s foreign operations was immaterial for fiscal years 2025, 2024, and 2023. |
The provision for income taxes reconciles to the amounts computed by applying the statutory federal tax rate of 21% for fiscal years 2025, 2024, and 2023 to the Company’s income before income taxes. The sources and tax effects of the differences for fiscal years 2025, 2024 and 2023 are as follows:
Fiscal Year | |||||||
| 2025 | | |||||
(in thousands) | Percent | ||||||
US federal statutory tax rate | $ | 8,398 | 21.0 | % | |||
State and local income taxes, net of federal income tax effect (1) |
| (605) |
| (1.5) | % | ||
Tax credits | |||||||
Research and development tax credit | (852) | (2.1) | % | ||||
Other - tax credits | (29) | (0.1) | % | ||||
Nontaxable and nondeductible items | |||||||
Officer compensation |
| 1,328 |
| 3.3 | % | ||
Stock compensation | (2,610) | (6.5) | % | ||||
Other - nondeductible items | 211 | 0.5 | % | ||||
Other | |||||||
Energy efficiency building deduction | (18,509) | (46.3) | % | ||||
Other | 83 | 0.2 | % | ||||
Foreign tax effects | 22 | 0.1 | % | ||||
Effective tax rate | $ | (12,563) | (31.4) | % | |||
| (1) | The state and local jurisdiction that contribute to the majority (greater than 50%) of the tax effect in this category include California, New York State, and New York City. |
Fiscal Year | ||||||
2024 | | 2023 |
| |||
(in thousands) | ||||||
Computed “expected” federal income tax expense | $ | 5,603 | $ | 3,064 | ||
Permanent differences |
| 52 |
| 194 | ||
Nondeductible executive compensation | 600 | 121 | ||||
Stock options and disqualifying dispositions | (910) | 560 | ||||
Energy efficient building deduction | (2,053) | (717) | ||||
Current and deferred state income tax expense, net of federal benefit |
| 1,694 |
| 1,250 | ||
Research and development tax credit | (813) | (867) | ||||
Change in valuation allowance | (85) | — | ||||
Other |
| 21 |
| 60 | ||
Provision for income taxes | $ | 4,109 | $ | 3,665 | ||
Effective tax rate | 15.4 | % | 25.1 | % | ||
The Company's effective tax rate includes the impact of discrete items such as the excess tax benefit on stock compensation deductions. Stock compensation deductions are recognized in the period in which stock awards vest, or exercise, and are calculated as the difference between the recorded stock compensation expense and the amount realized at the vesting or exercise date. In addition, the Company’s effective tax rate includes estimates related to deductions related to energy-efficiency building deduction under Section 179D. These estimates are calculated based on the most readily available information including building-specific data, estimated project completion dates, estimated deduction rates, and related tax law guidance. Changes related to estimates are recognized in the period in which they occur.
The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and liabilities are as follows:
January 2, | December 27, | |||||
| 2026 | | 2024 | |||
(in thousands) | ||||||
Deferred tax assets: | ||||||
Other accrued liabilities | $ | 4,942 | $ | 4,642 | ||
Federal and state net operating losses | 18,751 | 11,451 | ||||
Lease liability | 4,882 | 4,269 | ||||
Stock compensation | 1,902 | 1,509 | ||||
Capitalized research and development | 6,369 | 5,058 | ||||
Credit carryforwards | 4,236 | 2,395 | ||||
Excess business interest limitation | 746 | — | ||||
Other |
| 367 |
| 212 | ||
Total deferred tax assets |
| 42,195 |
| 29,536 | ||
Valuation allowance |
| (1,106) |
| (1,106) | ||
Net deferred tax assets | $ | 41,089 | $ | 28,430 | ||
Deferred tax liabilities: | ||||||
Deferred revenue | $ | (2,687) | $ | (2,899) | ||
Fixed assets | (1,390) | (2,813) | ||||
Intangible assets | (5,194) | (5,475) | ||||
Lease right-of-use assets | (4,432) | (3,806) | ||||
Prepaids | (756) | — | ||||
Other | — | (91) | ||||
Total deferred tax liabilities |
| (14,459) |
| (15,084) | ||
Net deferred tax asset | $ | 26,630 | $ | 13,346 | ||
As of January 2, 2026, the Company had federal and state operating loss carryovers of $67.0 million and $78.6 million, respectively. As of January 2, 2026, the Company had a federal tax credit carryforward of $4.2 million, and an immaterial amount of state tax credit carryforward. The federal net operating losses begin to expire in 2028. The majority of the state net operating loss carryovers will begin to expire in 2031.
During each fiscal year, management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets. During fiscal year 2025, no change was made to the tax valuation allowance as the available positive and negative evidence did not warrant for any changes. During fiscal year 2024, $0.1 million of the valuation allowance was released due to expected future utilization of deferred tax assets.
As of January 2, 2026 and December 27, 2024, the Company’s liabilities related to uncertain tax positions were immaterial to the consolidated financial statements. The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar . The Company may also be subject to examination on certain state and local jurisdictions for the .
The Company's policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of January 2, 2026 and December 27, 2024, the Company did not have any unrecognized tax benefits. In addition, during the fiscal year 2025, the Company did not have any additions or reductions of unrecognized tax benefits.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The legislation did not have a material impact on the Company's income tax expense for the year ended December 31, 2025. In addition, OBBA did not have a material impact to the Company's effective income tax rate for 2025. The OBBBA makes permanent some key tax provisions for tax year 2026, primarily the repeal of the energy-efficiency building deduction under Section 179D for property for which construction begins after June 30, 2026.
The cash paid for income taxes, net of refunds, during the year was as follows:
Fiscal Year | |||
| 2025 | ||
(in thousands) | |||
Federal | $ | 901 | |
State and Local |
| ||
California | 943 | ||
New York | 170 | ||
New York City | 106 | ||
Other |
| 198 | |
Foreign |
| ||
20 | |||
Total | $ | 2,338 | |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Feb 27, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 8, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 17, 2021 | |
| 2019 | Mar 6, 2020 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 9, 2018 | |
| 2016 | Mar 16, 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.