Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

13. Income Taxes

A summary of the income tax expense in the consolidated statements of operations is shown below.

	Years Ended December 31,
	2021		2020		2019
Current Income Taxes:
Federal	$	28,222	$	31,133	$	19,280
State		15		267		43
		28,237		31,400		19,323
Deferred Income Taxes:
Federal		5,323		5,159		4,757
State		—		—		—
		5,323		5,159		4,757
Total income tax expense	$	33,560	$	36,559	$	24,080

The income tax expense attributable to the consolidated results of operations is different from the amounts determined by multiplying income before federal income taxes by the statutory federal income tax rate. The sources of the difference and the tax effects of each were as follows for the periods indicated.

	Years Ended December 31,
	2021		2020		2019
Federal income tax expense at statutory rate	$	34,496	$	36,702	$	25,973
Investment income, net		(1,060)		(1,394)		(1,626)
State taxes, net		11		211		34
Nondeductible expenses		613		697		488
Tax windfall related to share-based stock compensation		(101)		(298)		(1,003)
Other, net		(399)		641		214
Total income tax expense	$	33,560	$	36,559	$	24,080

The deferred income tax (liability) asset represents the tax effects of temporary differences attributable to the Company’s consolidated federal tax return group. Its components were as shown in the following table for the periods indicated.

	Years Ended December 31,
	2021		2020
Deferred tax assets:
Discounting of loss reserves	$	5,447	$	5,421
Discounting of unearned premium reserve		16,813		17,217
Bad debt allowance		430		433
Employee benefits		4,364		3,609
Rent incentive		797		912
Total deferred tax assets before valuation allowance		27,851		27,592
Valuation allowance for deferred tax assets		—		—
Total deferred tax assets		27,851		27,592
Deferred tax liabilities:
Deferred acquisition costs		(15,335)		(15,742)
Investments		(10,319)		(4,349)
Net unrealized gains on investments		(11,025)		(18,720)
Loss reserve transition adjustment		(1,108)		(1,385)
Software development costs		(3,591)		(3,053)
Premium acquisition expenses		(380)		(379)
Depreciation		(1,333)		(1,575)
Total deferred tax liabilities		(43,091)		(45,203)
Net deferred tax liability	$	(15,240)	$	(17,611)

The Company believes that the positions taken on its income tax returns for open tax years will be sustained upon examination by the Internal Revenue Service (“IRS”).  Therefore, the Company has not recorded any liability for uncertain tax positions under ASC 740, Income Taxes.

During the years ended December 31, 2021 and December 31, 2020 there were no material changes to the amount of the Company’s unrecognized tax benefits or to any assumptions regarding the amount of its ASC 740 liability.

As of December 31, 2021 and December 31, 2020, the Company had no unrecognized tax benefits, and none which if recognized would affect the effective tax rate. The Company does not currently anticipate significant changes in the amount of unrecognized income tax benefits during the next twelve months.

The Company records interest and penalties associated with audits as a component of income before income taxes. Penalties are recorded in underwriting, operating and other expenses, and interest expense is recorded in interest expenses in the consolidated statements of operations. The Company had no interest and penalties related to income taxes accrued as of December 31, 2021 and 2020.

In the Company’s opinion, adequate tax liabilities have been established for all open years. However, the amount of these tax liabilities could be revised in the near term if estimates of the Company’s ultimate liability are revised. All tax years prior to 2018 are closed.