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, 2026

Components of Deferred Tax Assets and Liabilities

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


	May 31,
In millions	2026			2025
Deferred tax assets:
Compensation and employee benefit liabilities	$	71.5		$	69.2
Other current liabilities		27.2			15.8
Tax credit carry forward		0.8			10.4
Stock-based compensation		16.2			24.4
Unrealized losses on AFS securities		13.1			13.6
Capitalization of research and development		26.9			133.4
Leases		16.0			15.6
Net operating loss (“NOL”) carry forwards		15.9			28.9
Tax benefit of uncertain tax positions		20.4			18.3
Gross deferred tax assets		208.0			329.6
Deferred tax liabilities:
Deferred contract costs		173.3			149.7
Capitalized software		177.0			167.7
Goodwill, intangible assets, and fixed assets		374.4			431.8
Operating lease right-of-use assets		14.0			12.7
Other		6.7			6.6
Gross deferred tax liabilities		745.4			768.5
Net deferred tax liability	$	(537.4	)	$	(438.9	)

Components of Provision for Income Taxes

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


	Year ended May 31,
In millions	2026			2025			2024
Current:
Federal	$	324.4		$	418.8		$	433.5
State		122.9			118.4			117.4
Non-U.S.		(0.2	)		(2.8	)		6.5
Total current		447.1			534.4			557.4
Deferred:
Federal		101.4			(9.9	)		(18.6	)
State		2.3			(2.7	)		(4.6	)
Non-U.S.		0.0			(3.2	)		(6.6	)
Total deferred		103.7			(15.8	)		(29.8	)
Income taxes	$	550.8		$	518.6		$	527.6

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,
	2026							2025 (2)							2024 (2)
dollars in millions	Amount			%				Amount			%				Amount			%
Federal statutory tax rate	$	485.3			21.0		%	$	456.9			21.0		%	$	465.8			21.0		%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit (1)		98.5			4.3		%		92.2			4.2		%		91.2			4.1		%
Foreign tax effects		0.1			0.0		%		(0.7	)		0.0		%		0.2			0.0		%
Tax credits		(30.7	)		(1.3	)	%		(20.1	)		(0.9	)	%		(18.4	)		(0.9	)	%
Nontaxable or nondeductible items		(0.2	)		0.0		%		2.9			0.1		%		(8.7	)		(0.4	)	%
Changes in unrecognized tax benefits		(3.9	)		(0.2	)	%		(5.3	)		(0.2	)	%		(1.0	)		(0.0	)	%
Other adjustments		1.7			0.0		%		(7.3	)		(0.4	)	%		(1.5	)		(0.0	)	%
Effective income tax rate	$	550.8			23.8		%	$	518.6			23.8		%	$	527.6			23.8		%

(1)

State taxes in California, New York State, New York City, and New Jersey made up the majority (greater than 50%) of the tax effect in this category.

(2)

Disclosures for 2025 and 2024 were adjusted for retrospective application of ASU 2023-09. Refer to Note A for further information on the adoption of ASU 2023-09.

Summary of Income Taxes Paid, Net of Refunds By Significant Jurisdiction

The following is income taxes paid, net of refunds by significant jurisdiction:


	Year ended May 31,
	2026			2025			2024
Federal	$		205.0	$		406.0	$		439.0
State
California			26.3		*			*
Other			79.0		*			*
Total State			105.3			106.4			100.5
Foreign		*			*			*
Total income tax payments, net of refunds	$		310.3	$		512.4			539.5

* Jurisdiction below threshold for period presentation.

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	2026			2025			2024
Balance as of beginning of fiscal year	$	106.0		$	87.2		$	72.0
Additions for tax positions of the current year		16.1			20.1			20.6
Additions for tax positions of prior years		1.2			9.8			0.8
Reductions for tax positions of prior years		(8.3	)		(5.5	)		(3.8	)
Settlements with tax authorities		—			(0.0	)		(0.3	)
Expiration of the statute of limitations		(3.6	)		(5.6	)		(2.1	)
Balance as of end of fiscal year	$	111.4		$	106.0		$	87.2