Paychex, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes (Tables)

Income Taxes (Tables)

12 Months Ended

May 31, 2022

Components of Deferred Tax Assets and Liabilities

The components of deferred tax assets and liabilities are as follows:


	May 31,
In millions	2022			2021
Deferred tax assets:
Compensation and employee benefit liabilities	$	56.8		$	53.0
Other current liabilities		21.3			19.8
Tax credit carry forward		0.2			0.2
Stock-based compensation		12.9			12.0
Unrealized losses on available-for-sale securities		33.6			—
Leases		20.5			29.0
Net operating loss (“NOL”) carry forwards		5.6			7.6
Tax benefit of uncertain tax positions		9.9			5.3
Gross deferred tax assets		160.8			126.9
Deferred tax liabilities:
Deferred contract costs		141.9			127.5
Capitalized software		50.8			49.0
Depreciation		8.1			8.9
Goodwill and intangible assets		103.5			111.3
Operating lease right-of-use assets		17.7			26.1
Revenue not subject to current taxes		—			1.9
Unrealized gains on available-for-sale securities		—			20.2
Other		4.3			—
Gross deferred tax liabilities		326.3			344.9
Net deferred tax liability	$	(165.5	)	$	(218.0	)

Components of Provision for Income Taxes

The components of the provision for income taxes are as follows:


	Year ended May 31,
In millions	2022			2021			2020
Current:
Federal	$	326.0		$	271.5		$	264.8
State		104.5			85.9			77.5
Non-U.S.		(1.0	)		0.3			0.7
Total current		429.5			357.7			343.0
Deferred:
Federal		0.9			(12.9	)		(0.8	)
State		0.9			(7.6	)		(3.5	)
Non-U.S.		0.5			(0.5	)		0.3
Total deferred		2.3			(21.0	)		(4.0	)
Income taxes	$	431.8		$	336.7		$	339.0

Reconciliation of U.S. Federal Statutory Tax Rate

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:


	Year ended May 31,
	2022				2021				2020
Federal statutory tax rate		21.0		%		21.0		%		21.0		%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit		4.6		%		4.3		%		4.0		%
Tax-exempt municipal bond interest		(0.2	)	%		(0.3	)	%		(0.4	)	%
Stock option windfall benefit		(0.9	)	%		(1.2	)	%		(0.9	)	%
Tax credits		(1.1	)	%		(0.6	)	%		(0.5	)	%
Other items		0.3		%		0.3		%		0.4		%
Effective income tax rate		23.7		%		23.5		%		23.6		%

Reconciliation of Gross Unrecognized Tax Benefits, Not Including Interest or Other Potential Offsetting Effects

A reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, not including interest or other potential offsetting effects, is as follows:


	Year ended May 31,
In millions	2022			2021			2020
Balance as of beginning of fiscal year	$	22.4		$	26.2		$	22.1
Additions for tax positions of the current year		11.1			5.5			4.1
Additions for tax positions of prior years		20.6			9.2			1.2
Reductions for tax positions of prior years		(1.8	)		—			(0.6	)
Settlements with tax authorities		(0.4	)		(15.2	)		—
Expiration of the statute of limitations		(1.7	)		(3.3	)		(0.6	)
Balance as of end of fiscal year	$	50.2		$	22.4		$	26.2