Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

6. Income Taxes

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

	YEARS ENDED DECEMBER 31,
	2022		2021		2020
Current tax expense:
Federal	$	17,535	$	15,617	$	17,278
State	6,400		5,765		4,119
Deferred tax expense	3,076		2,708		(2,224)
Total Income tax expense	$	27,011	$	24,090	$	19,173

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

	YEARS ENDED DECEMBER 31,
	2022		2021		2020
Federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of Federal tax effect	5.4		5.0		5.3
Non-deductible compensation and meals and entertainment	2.5		2.2		1.4
Tax credits	(1.2)		(2.2)		(1.5)
Tax benefit from restricted stock vesting	(1.0)		(2.6)		(1.5)
Other	(0.3)		0.9		0.8
Effective tax rate	26.4	%	24.3	%	25.5	%

The 2022 effective tax rate was unfavorably impacted by a lower Work Opportunity Tax Credit (“WOTC”) and a lower tax benefit from the vesting of restricted stock in 2022, as compared with 2021. The 2021 effective rate was favorably impacted by a higher WOTC and a greater tax benefit from the vesting of restricted stock in 2021, as compared with 2020. These were offset by greater non-deductible compensation to certain executive officers pursuant to IRS Code Section 162(m).

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

	DECEMBER 31,
	2022		2021
Deferred tax assets:
Accounts receivable reserves	$	901	$	604
Accrued liabilities	2,855		2,367
Deferred compensation obligation	6,521		5,702
Stock-based compensation	902		715
Operating lease liabilities	5,411		4,704
Pension and post-retirement benefit plans	—		2,929
Deferred payroll taxes	—		4,965
Other	8		11
Deferred tax assets	16,598		21,997
Deferred tax liabilities:
Prepaid expenses	(359)		(604)
Fixed assets	(4,694)		(4,185)
Goodwill	(2,408)		(2,413)
ROU assets for operating leases	(4,397)		(3,965)
Partnership basis difference	46		(2,966)
Other	—		(207)
Deferred tax liabilities	(11,812)		(14,340)
Valuation allowance	—		—
Total Deferred tax assets, net	$	4,786	$	7,657

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.

Kforce is periodically subject to IRS audits, as well as state and other local income tax audits for various tax years. 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.

Kforce and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. 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 2019.