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, 2023

Components of Deferred Tax Assets and Liabilities

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


	May 31,
In millions	2023			2022
Deferred tax assets:
Compensation and employee benefit liabilities	$	52.4		$	56.8
Other current liabilities		17.3			21.3
Tax credit carry forward		0.2			0.2
Stock-based compensation		14.8			12.9
Unrealized losses on available-for-sale securities		43.4			33.6
Capitalization of research and development		54.1			—
Leases		15.9			20.5
Net operating loss (“NOL”) carry forwards		5.1			5.6
Tax benefit of uncertain tax positions		13.6			9.9
Gross deferred tax assets		216.8			160.8
Deferred tax liabilities:
Deferred contract costs		151.3			141.9
Capitalized software		56.5			50.8
Depreciation		2.4			8.1
Goodwill and intangible assets		99.1			103.5
Operating lease right-of-use assets		13.7			17.7
Other		5.7			4.3
Gross deferred tax liabilities		328.7			326.3
Net deferred tax liability	$	(111.9	)	$	(165.5	)

Components of Provision for Income Taxes

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


	Year ended May 31,
In millions	2023			2022			2021
Current:
Federal	$	418.1		$	326.0		$	271.5
State		117.1			104.5			85.9
Non-U.S.		(0.3	)		(1.0	)		0.3
Total current		534.9			429.5			357.7
Deferred:
Federal		(34.2	)		0.9			(12.9	)
State		(7.4	)		0.9			(7.6	)
Non-U.S.		(2.4	)		0.5			(0.5	)
Total deferred		(44.0	)		2.3			(21.0	)
Income taxes	$	490.9		$	431.8		$	336.7

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,
	2023				2022				2021
Federal statutory tax rate		21.0		%		21.0		%		21.0		%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit		4.2		%		4.6		%		4.3		%
Tax-exempt municipal bond interest		(0.2	)	%		(0.2	)	%		(0.3	)	%
Stock option windfall benefit		(0.4	)	%		(0.9	)	%		(1.2	)	%
Tax credits		(0.7	)	%		(1.1	)	%		(0.6	)	%
Other items		0.1		%		0.3		%		0.3		%
Effective income tax rate		24.0		%		23.7		%		23.5		%

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	2023			2022			2021
Balance as of beginning of fiscal year	$	50.2		$	22.4		$	26.2
Additions for tax positions of the current year		20.6			11.1			5.5
Additions for tax positions of prior years		4.6			20.6			9.2
Reductions for tax positions of prior years		(2.1	)		(1.8	)		—
Settlements with tax authorities		(0.4	)		(0.4	)		(15.2	)
Expiration of the statute of limitations		(0.9	)		(1.7	)		(3.3	)
Balance as of end of fiscal year	$	72.0		$	50.2		$	22.4