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, 2024

Components of Deferred Tax Assets and Liabilities

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


	May 31,
In millions	2024			2023
Deferred tax assets:
Compensation and employee benefit liabilities	$	60.3		$	52.4
Other current liabilities		12.4			17.3
Tax credit carry forward		0.2			0.2
Stock-based compensation		16.5			14.8
Unrealized losses on available-for-sale securities		40.1			43.4
Capitalization of research and development		68.6			54.1
Leases		13.9			15.9
Net operating loss (“NOL”) carry forwards		5.0			5.1
Tax benefit of uncertain tax positions		16.2			13.6
Gross deferred tax assets		233.2			216.8
Deferred tax liabilities:
Deferred contract costs		151.2			151.3
Capitalized software		58.2			56.5
Depreciation		0.3			2.4
Goodwill and intangible assets		91.8			99.1
Operating lease right-of-use assets		9.5			13.7
Other		7.7			5.7
Gross deferred tax liabilities		318.7			328.7
Net deferred tax liability	$	(85.5	)	$	(111.9	)

Components of Provision for Income Taxes

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


	Year ended May 31,
In millions	2024			2023			2022
Current:
Federal	$	433.5		$	418.1		$	326.0
State		117.4			117.1			104.5
Non-U.S.		6.5			(0.3	)		(1.0	)
Total current		557.4			534.9			429.5
Deferred:
Federal		(18.6	)		(34.2	)		0.9
State		(4.6	)		(7.4	)		0.9
Non-U.S.		(6.6	)		(2.4	)		0.5
Total deferred		(29.8	)		(44.0	)		2.3
Income taxes	$	527.6		$	490.9		$	431.8

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,
	2024				2023				2022
Federal statutory tax rate		21.0		%		21.0		%		21.0		%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit		4.0		%		4.2		%		4.6		%
Stock option windfall benefit		(0.4	)	%		(0.4	)	%		(0.9	)	%
Tax credits		(0.8	)	%		(0.7	)	%		(1.1	)	%
Other items		—		%		(0.1	)	%		0.1		%
Effective income tax rate		23.8		%		24.0		%		23.7		%

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	2024			2023			2022
Balance as of beginning of fiscal year	$	72.0		$	50.2		$	22.4
Additions for tax positions of the current year		20.6			20.6			11.1
Additions for tax positions of prior years		0.8			4.6			20.6
Reductions for tax positions of prior years		(3.8	)		(2.1	)		(1.8	)
Settlements with tax authorities		(0.3	)		(0.4	)		(0.4	)
Expiration of the statute of limitations		(2.1	)		(0.9	)		(1.7	)
Balance as of end of fiscal year	$	87.2		$	72.0		$	50.2