Paychex, Inc. Annual report [Section 13 and 15(d), not S-K Item 405]

Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes (Tables)

Income Taxes (Tables)

12 Months Ended

May 31, 2025

Components of Deferred Tax Assets and Liabilities

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


	May 31,
In millions	2025			2024
Deferred tax assets:
Compensation and employee benefit liabilities	$	69.2		$	60.3
Other current liabilities		15.8			12.4
Tax credit carry forward		10.4			0.2
Stock-based compensation		24.4			16.5
Unrealized losses on available-for-sale securities		13.6			40.1
Capitalization of research and development		133.4			68.6
Leases		15.6			13.9
Net operating loss (“NOL”) carry forwards		28.9			5.0
Tax benefit of uncertain tax positions		18.3			16.2
Gross deferred tax assets		329.6			233.2
Deferred tax liabilities:
Deferred contract costs		149.7			151.2
Capitalized software		167.7			58.2
Depreciation		2.0			0.3
Goodwill and intangible assets		429.8			91.8
Operating lease right-of-use assets		12.7			9.5
Other		6.6			7.7
Gross deferred tax liabilities		768.5			318.7
Net deferred tax liability	$	(438.9	)	$	(85.5	)

Components of Provision for Income Taxes

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


	Year ended May 31,
In millions	2025			2024			2023
Current:
Federal	$	418.8		$	433.5		$	418.1
State		118.4			117.4			117.1
Non-U.S.		(2.8	)		6.5			(0.3	)
Total current		534.4			557.4			534.9
Deferred:
Federal		(9.9	)		(18.6	)		(34.2	)
State		(2.7	)		(4.6	)		(7.4	)
Non-U.S.		(3.2	)		(6.6	)		(2.4	)
Total deferred		(15.8	)		(29.8	)		(44.0	)
Income taxes	$	518.6		$	527.6		$	490.9

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,
	2025				2024				2023
Federal statutory tax rate		21.0		%		21.0		%		21.0		%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit		4.2		%		4.0		%		4.2		%
Stock option windfall benefit		(0.4	)	%		(0.4	)	%		(0.4	)	%
Tax credits		(1.1	)	%		(0.8	)	%		(0.7	)	%
Other items		0.1		%		—		%		(0.1	)	%
Effective income tax rate		23.8		%		23.8		%		24.0		%

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	2025			2024			2023
Balance as of beginning of fiscal year	$	87.2		$	72.0		$	50.2
Additions for tax positions of the current year		20.1			20.6			20.6
Additions for tax positions of prior years		9.8			0.8			4.6
Reductions for tax positions of prior years		(5.5	)		(3.8	)		(2.1	)
Settlements with tax authorities		(0.0	)		(0.3	)		(0.4	)
Expiration of the statute of limitations		(5.6	)		(2.1	)		(0.9	)
Balance as of end of fiscal year	$	106.0		$	87.2		$	72.0