Income Taxes

The Tax Cuts and Jobs Act was enacted in December 2017, which will reduce the U.S. federal corporate tax rate from 35.0% to 21.0% beginning in 2018. As a result, we revalued our net deferred income tax assets and recorded $5.4 million of additional Income tax expense in the Consolidated Statement of Operations and Comprehensive Income.

The provision for income taxes from continuing operations consists of the following (in thousands):



	YEARS ENDED DECEMBER 31,
	2017		2016		2015
Current tax expense:
Federal	$	15,060	$	16,677	$	22,265
State	3,244		3,829		4,632
Deferred tax expense (1)	12,505		2,676		1,951
Total Income tax expense	$	30,809	$	23,182	$	28,848

(1) Includes the impact of TCJA.

The provision for income taxes from continuing operations shown above varied from the statutory federal income tax rate for those periods as follows:



	YEARS ENDED DECEMBER 31,
	2017		2016		2015
Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of Federal tax effect	3.8		6.8		6.1
Non-deductible compensation and meals and entertainment	0.7		1.2		0.7
Tax credits	(2.2	)	(2.1	)	(1.0	)
Valuation allowance on foreign tax credit	2.5		—		—
Enactment of TCJA	9.1		—		—
Other	(0.8	)	0.5		(0.5	)
Effective tax rate	48.1	%	41.4	%	40.3	%

The 2017 effective tax rate was unfavorably impacted due to the revaluation of our net deferred tax assets as a result of TCJA. The 2016 effective tax rate was unfavorably impacted by certain one-time non-cash adjustments. The 2015 effective tax rate was unfavorably impacted by a change in the overall mix of income in the various state jurisdictions and the increase in particular uncertain tax positions.

Deferred tax assets and liabilities are composed of the following (in thousands):



	DECEMBER 31,
	2017			2016
Deferred tax assets:
Accounts receivable reserves	$	611		$	812
Accrued liabilities	1,953			3,400
Deferred compensation obligation	5,423			9,206
Stock-based compensation	598			2,196
Pension and post-retirement benefit plans	3,767			6,029
Goodwill and intangible assets	526			3,869
Foreign tax credit	1,632			—
Other	289			230
Deferred tax assets	14,799			25,742
Deferred tax liabilities:
Prepaid expenses	(251		)	(260		)
Fixed assets	(1,482		)	(1,593		)
Other	(17		)	(355		)
Deferred tax liabilities	(1,750		)	(2,208		)
Valuation allowance	(1,733		)	(85		)
Deferred tax assets, net	$	11,316		$	23,449

At December 31, 2017, Kforce had approximately $6.1 million of state tax net operating losses (“NOLs”) which will be carried forward to be offset against future state taxable income. The state tax NOLs expire in varying amounts through 2033.

In evaluating the realizability of Kforce’s deferred tax assets, management assesses whether it is more likely than not that some portion, or all, of the deferred tax assets, will be realized. Management considers, among other things, the ability to generate future taxable income (including reversals of deferred tax liabilities) during the periods in which the related temporary differences will become deductible. The increase in the valuation allowance during the year ended December 31, 2017 was related to the foreign tax credit, which we expect may not be realizable as a result of reduction in our foreign income.

Kforce is periodically subject to IRS audits, as well as state and other local income tax audits for various tax years. During 2017 and 2016, there were no on-going IRS examinations. Although Kforce has not experienced any material liabilities in the past due to income tax audits, Kforce can make no assurances concerning any future income tax audits.

Uncertain Income Tax Positions

The following table presents a reconciliation of the beginning and ending balance of unrecognized tax benefits for the years ended (in thousands):



	DECEMBER 31,
	2017			2016			2015
Unrecognized tax benefits, beginning	$	1,115		$	788		$	278
Additions for prior year tax positions	50			454			625
Additions for current year tax positions	29			—			—
Reductions for tax positions of prior years	—			(25		)	(8		)
Lapse of statute of limitations	(67		)	(102		)	(25		)
Settlements	—			—			(82		)
Unrecognized tax benefits, ending	$	1,127		$	1,115		$	788

As of December 31, 2017, the amount of unrecognized tax benefit that would impact the effective tax rate, if recognized, is $0.7 million. Kforce does not expect any significant changes to its uncertain tax positions in the next 12 months.

Kforce and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Kforce Global Solutions, Inc. files income tax returns in the Philippines. With a few exceptions, Kforce is no longer subject to federal, state, local, or non-U.S. income tax examinations by tax authorities for years before 2014.