Income Taxes

12 Months Ended

Dec. 31, 2025

Income Tax Disclosure [Abstract]

Income Taxes

12. INCOME TAXES

Pretax income exclusively from domestic-based operations for the years ended December 31, 2025, 2024 and 2023 was $216.8 million, $201.4 million and $192.1 million, respectively.

The provision for income taxes for the years ended December 31, 2025, 2024 and 2023 consists of the following (dollars in thousands):

	For the Year Ended December 31,
	2025		2024			2023
Current provision
Federal	$	42,512	$	40,947		$	32,792
State and local		10,813		10,308			7,903
Foreign		4		18			13
Total current provision		53,329		51,273			40,708
Deferred provision
Federal		1,683		3,375			2,640
State and local		1,910		(798	)		1,121
Total deferred provision		3,593		2,577			3,761
Total provision for income taxes	$	56,922	$	53,850		$	44,469

The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate:

	For the Year Ended December 31,
	2025						2024						2023
	Amount			Percent			Amount			Percent			Amount			Percent
US federal statutory income tax rate	$	45,536			21.0	%	$	42,302			21.0	%	$	40,345			21.0	%
Domestic federal
Tax Credits		(368	)		-0.2	%		(695	)		-0.3	%		(573	)		-0.3	%
Nontaxable and nondeductible items		2,396			1.1	%		3,394			1.7	%		1,180			0.6	%
Nondeductible compensation		2,162			1.0	%		2,584			1.3	%		2,180			1.1	%
Other		234			0.1	%		810			0.4	%		(1,000	)		-0.5	%
Changes in valuation allowances		31			0.0	%		-			0.0	%		-			0.0	%
Other		(1,433	)		-0.6	%		(233	)		-0.2	%		(315	)		-0.2	%
Domestic state and local income taxes, net of federal effect (1)		7,993			3.7	%		6,074			3.0	%		4,930			2.6	%
Foreign tax effects		4			0.0	%		18			0.0	%		13			0.0	%
Changes in unrecognized tax benefits		2,763			1.3	%		2,990			1.5	%		(1,111	)		-0.6	%
Total	$	56,922			26.3	%	$	53,850			26.7	%	$	44,469			23.1	%

_______________________

(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, Florida and Illinois for 2025, Illinois for 2024 and Illinois for 2023.

The effective income tax rate for 2024 was 26.7% compared to 23.1% for 2023. The increase in the effective income tax rate was primarily due a $4.5 million favorable adjustment in 2023 related to the recognition of the tax benefits associated with a previously disclosed prior year ordinary loss attributable to the stock of a worthless subsidiary, which decreased the overall effective tax rate by 2.4%.

The amounts of cash taxes paid by the Company are as follows (dollars in thousands):

	For the Year Ended December 31,
	2025		2024		2023
Federal	$	41,841	$	41,400	$	37,970
State		7,506		5,440		3,781
Income Taxes, net of amounts refunded	$	49,347	$	46,840	$	41,751

In 2025, 2024 and 2023, there were no individual state jurisdictions with cash taxes paid that equaled or exceeded 5% of total income taxes paid.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits as of December 31, 2025, 2024 and 2023 is as follows (dollars in thousands):

	2025			2024			2023
Gross unrecognized tax benefits, beginning of the year	$	30,280		$	25,686		$	24,658
Additions for tax positions of prior years		-			-			16
Additions for tax positions related to the current year		5,007			7,641			7,325
Reductions for tax positions of prior years		(496	)		(1,127	)		(5,083	)
Reductions due to lapse of applicable statute of limitations		(2,214	)		(1,920	)		(1,230	)
Subtotal		32,577			30,280			25,686
Interest and penalties		5,625			4,424			3,257
Total gross unrecognized tax benefits, end of the year	$	38,202		$	34,704		$	28,943

The total amount of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods was $30.2 million and $27.4 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, our short and long-term reserves, recorded within current accrued income taxes and other non-current liabilities, respectively, related to FASB’s interpretation No. 48 of ASC Topic 740-10, Accounting for Uncertainty in Income Taxes or (“FIN 48”), were $2.1 million and $30.4 million, respectively. We record interest and penalties related to unrecognized tax benefits within provision for income taxes on our consolidated statements of income. The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $5.6 million and $4.4 million as of December 31, 2025 and 2024, respectively. For the years ended December 31, 2025, 2024 and 2023, we recognized expenses of less than $1.0 million, less than $1.0 million and less than $0.7 million, respectively, related to interest and penalties from unrecognized tax benefits in our consolidated results of operations.

Perdoceo and its subsidiaries file income tax returns in the U.S. and in various state and local jurisdictions and are routinely examined by tax authorities in these jurisdictions. As of December 31, 2025, the Company's federal income tax returns are open to examinations for the tax years ended December 31, 2022 and forward.

Deferred income tax assets and liabilities result primarily from temporary differences in the recognition of various expenses for tax and financial statement purposes, and from the recognition of the tax benefits of net operating loss and tax credit carryforwards. Components of deferred income tax assets and liabilities as of December 31, 2025 and 2024 are as follows (dollars in thousands):

	December 31,
	2025			2024
Deferred income tax assets:
Accrued occupancy	$	14,658		$	18,419
Compensation and employee benefits		8,960			6,754
Tax net operating loss carry forwards		17,239			17,161
Valuation allowance		(10,617	)		(10,861	)
Allowance for doubtful accounts		8,193			7,775
Accrued settlements and legal		186			179
Accrued severance		322			614
Equity method for investments		-			1,180
Equity method for investments valuation allowance		-			(1,180	)
Capital loss		907			-
Capital loss valuation allowance		(907	)		-
Capitalized research and development		949			4,908
Deferred rent		13,507			-
Interest expense disallowance carry forward		3,988			4,299
Depreciation		-			4,081
Amortization		22,836			33,148
Other		1,711			1,676
Total deferred income tax assets		81,932			88,153
Deferred income tax liabilities:
Depreciation		8,395			-
Right of use asset, net		12,691			16,041
Available for sale short-term investments		348			80
Other		3,060			3,258
Total deferred income tax liabilities		24,494			19,379
Net deferred income tax assets	$	57,438		$	68,774

As of December 31, 2025, the Company has a gross deferred tax asset before valuation allowance of $357.8 million and a gross deferred tax liability of $103.4 million. As of December 31, 2024, the Company had a gross deferred tax asset before valuation allowance of $373.0 million and a gross deferred tax liability of $79.1 million.

Included among the Company’s gross deferred tax assets as of December 31, 2025, was a federal net operating loss ("NOL") carryforward of $17.9 million, tax basis amortizable intangible assets of $189.8 million, an interest expense disallowance carryforward of $18.1 million and state NOL carryforwards of $8.3 million. These acquired tax attributes are all subject to an annual utilization limitation. Excluding the acquired state NOLs mentioned above, we have state NOL carryforwards of approximately $212.4 million, which expire between tax years 2025 and 2037. Of this amount, approximately $52.0 million relates to separate state NOL carryforwards and $127.2 million relates to combined state NOL carryforwards, which we anticipate will not be utilized. Valuation allowances have been established against the full amounts of the deferred tax balances for these separate and combined state NOL carryforwards.

As of December 31, 2024, a valuation allowance of $12.0 million was maintained with respect to our equity investment in CCKF and state NOLs. During the year, the Company incurred a $3.8 million capital loss upon the sale of its equity investment in CCKF. In assessing whether the deferred tax asset on the capital loss was realizable, the Company considered the fact that capital losses can only be utilized to offset capital gains and there is neither an opportunity to carry back the capital loss nor are there any material capital gains anticipated within the allowed 5-year carryforward period. Therefore, we determined a full valuation allowance was needed with respect to the capital loss. As of December 31, 2025, our total valuation allowance was $11.5 million, primarily associated with our state NOLs attributable to jurisdictions where we no longer maintain active schools. We will continue to evaluate our valuation allowance in future years for any change in circumstances that causes a change in judgment about the realizability of these deferred tax assets.