Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Federated Hermes files a consolidated federal income tax return. Financial statement tax expense is determined under the liability method.

Income Tax Provision consisted of the following expense/(benefit) components for the years ended December 31: 

(in thousands)	2024		2023		2022
Current:
Federal	$	112,218	$	91,194	$	77,954
State	15,419		11,645		11,946
Foreign	477		(540)		580
Total Current	128,114		102,299		90,480
Deferred:
Federal	(4,760)		3,686		(1,589)
State	(446)		(185)		(360)
Foreign	(9,729)		751		(16,873)
Total Deferred	(14,935)		4,252		(18,822)
Total	$	113,179	$	106,551	$	71,658

The reconciliation between the statutory income tax rate and the effective tax rate consisted of the following for the years ended December 31: 

	2024		2023		2022
Expected Federal Statutory Income Tax Rate	21.0	%	21.0	%	21.0	%
Increase/(Decrease):
State and Local Income Taxes, net of Federal Benefit	3.2		2.4		2.9
Foreign Income Taxes	4.3		2.0		(1.8)
Non-Deductible Executive Compensation	1.1		1.0		1.2
Other	0.1		(0.5)		0.1
Effective Tax Rate	29.7	%	25.9	%	23.4	%

The effective tax rate for 2024 increased to 29.7% as compared to the effective tax rate for 2023 of 25.9% primarily due to a valuation allowance on foreign deferred tax assets and the impairment of an indefinite-lived intangible asset (2.3%), and a state tax law change and a state deferred tax adjustment (0.8%).

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities consisted of the following at December 31:

(in thousands)	2024		2023
Deferred Tax Assets
Tax Net Operating Loss Carryforwards	$	110,704	$	95,748
Lease Liability	27,480		26,652
Compensation and Related	15,272		16,719
Other	10,826		2,647
Total Deferred Tax Assets	164,282		141,766
Valuation Allowance	(100,214)		(76,282)
Total Deferred Tax Asset, net of Valuation Allowance	$	64,068	$	65,484
Deferred Tax Liabilities
Intangible Assets	$	204,885	$	216,093
Right-of-Use Asset	25,651		24,589
Other	4,489		11,094
Total Gross Deferred Tax Liability	$	235,025	$	251,776
Net Deferred Tax Liability	$	170,957	$	186,292

At December 31, 2024, Federated Hermes had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $110.7 million. The state net operating losses will expire through 2044, while most foreign net operating losses do not expire. A valuation allowance has been recognized for $38.3 million (or 99.6%) of the deferred tax asset for state tax net operating losses, and for $62.0 million (or 85.7%) of the deferred tax asset for foreign tax net operating losses. The valuation allowances were recorded due to management’s belief that it is more likely than not that Federated Hermes will not realize the full benefit of these net operating losses. For the deferred tax asset, net of valuation allowance related to foreign net operating losses, management has relied on future reversals of temporary taxable differences to support the realizable portion of the deferred tax asset.

At December 31, 2023, Federated Hermes had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $95.7 million. The state net operating losses will expire through 2043, while most foreign net operating losses do not expire. A valuation allowance has been recognized for $40.8 million (or 99.8%) of the deferred tax asset for state tax net operating losses, and for $35.5 million (or 64.7%) of the deferred tax asset for foreign tax net operating losses. The valuation allowances were recorded due to management’s belief that it is more likely than not that Federated Hermes will not realize the full benefit of these net operating losses. For the deferred tax asset, net of valuation allowance related to foreign net operating losses, management believes that it is more likely than not that it will realize the benefit of these net operating losses based on projections of future taxable income for the entities to which these relate.

Federated Hermes’ remaining deferred tax assets as of December 31, 2024 and 2023 primarily related to lease liabilities reported pursuant to ASC 842 and U.S. compensation-related expenses that have been recognized for book purposes but are not yet deductible for tax purposes. Management believes that it is more likely than not that Federated Hermes will receive the full benefit of these deferred tax assets due to the expectation that Federated Hermes will generate taxable income well in excess of these amounts in the years they become deductible.

Federated Hermes and its subsidiaries file annual income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and in certain foreign jurisdictions. Based upon its review of these filings, there were no material unrecognized tax benefits as of December 31, 2024 or 2023. Therefore, there were no material changes during 2024, and no reasonable possibility of a significant increase or decrease in unrecognized tax benefits within the next twelve months. Federated Hermes’ U.S. federal tax returns for tax years 2021 to 2024 remain open to examination, while filings in its major state tax jurisdictions from tax years 2020 to 2024 generally remain open to examination.