Income Taxes

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

15. Income Taxes

The Company’s effective tax rate was 19.1 percent and 24.4 percent for the three and six months ended June 30, 2023, respectively, and 29.8 percent and 31.5 percent for the three and six months ended June 30, 2022, respectively. Income tax expense is based on an estimated annual effective rate, which requires the Company to make its best estimate of annual pretax income or loss. The Company’s effective tax rate for the three and six months ended June 30, 2023 was favorably impacted by a release in valuation allowance largely attributable to foreign tax credits and net operating losses in the U.K. Additionally, the Company recorded a discrete tax benefit of $2.5 million in the second quarter of 2023 thereby reversing a portion of an uncertain tax position of $7.5 million that originally adversely impacted the Company’s effective tax rate for the six months ended June 30, 2022. The Company’s effective tax rate for the three months ended June 30, 2022 was also adversely impacted by reduced tax benefits arising from stock-based compensation.

Undistributed earnings of certain foreign subsidiaries of the Company amounted to $205.0 million and $159.9 million at June 30, 2023 and December 31, 2022, respectively. The Company continues to maintain its indefinite reinvestment assertion for its investments in foreign subsidiaries except for any historical undistributed earnings and future earnings for WEX Australia. The total amount of our foreign subsidiaries’ earnings in which the Company continues to assert indefinite reinvestment approximates $169.8 million at June 30, 2023. Upon distribution of these earnings, the Company would be subject to withholding taxes payable to foreign countries, where applicable, but would generally have no further federal income tax liability. It is not practicable to estimate the unrecognized deferred tax liability associated with these undistributed earnings; however, it is not expected to be material.