Income Taxes

9 Months Ended

Sep. 30, 2025

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

Income tax provisions for the three and nine months ended September 30, 2025 and 2024 are as follows:

	Three months ended September 30,				Nine months ended September 30,
	2025		2024		2025		2024
Current:
Federal	$	387,475	$	(198,619)	$	3,746,118	$	268,691
State		85,869		(71,807)		1,014,783		28,685
Total current income tax expense		473,344		(270,426)		4,760,901		297,376
Deferred:
Federal		98,977		565,137		(605,049)		919,522
State		4,176		73,687		(71,474)		(335,434)
Total deferred tax expense		103,153		638,824		(676,523)		584,088
Income tax expense	$	576,497	$	368,398	$	4,084,378	$	881,464

The Company files federal income tax returns in the United States and Canada, and various returns in state and local jurisdictions.

The Company believes it has appropriate support for the income tax positions taken and to be taken on our tax returns and that the accruals for tax liabilities are adequate for all open years based on our assessment of various factors including past experience and interpretations of tax law applied to the facts of each matter. The Company's tax returns are open to audit under the statute of limitations for the years ending December 31, 2021 through December 31, 2024. To the extent we utilize net operating losses generated in earlier years, such earlier years may also be subject to audit.

Starting in 2023, distributions of Epsilon Energy USA Inc. earnings to Epsilon Energy Ltd. incur a 5% U.S. dividend withholding tax, provided the Company is eligible for benefits under the U.S. / Canada income treaty.

Our effective tax rate will typically differ from the statutory federal rate primarily as a result of state income taxes and the valuation allowance against the Canadian net operating loss. The effective tax rate for the nine months ended September 30, 2025 was higher than the statutory federal rate as a result of state income taxes and the valuation allowance against the Canadian net operating loss.

In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, which includes a broad range of tax reform provisions affecting businesses. The OBBBA extends or makes permanent certain tax law changes enacted as part of the 2017 Tax Cuts and Jobs Act, as well as makes other changes to the current tax code.  As a result of this enactment, our deferred tax balances as of September 30, 2025 reflect the provisions of the new law currently in effect, resulting in the deferral of a portion of current federal tax over future periods. As our income tax provision includes both current and deferred components, the overall net impact is not significant. We are continuing to monitor additional provisions of the OBBBA that become effective through 2027 for potential future impact.