Maximus, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income taxes

Income taxes

12 Months Ended

Sep. 30, 2019

The components of income before income taxes and the corresponding provision for income taxes are as follows (in thousands):


	Year ended September 30,
	2019		2018		2017
Income before income taxes:
United States	$	280,092	$	248,360	$	257,910
Foreign	37,228		50,849		56,325
Income before income taxes	$	317,320	$	299,209	$	314,235


	Year ended September 30,
	2019		2018		2017
Current provision:
Federal	$	37,123	$	42,318	$	70,476
State and local	14,480		13,459		15,594
Foreign	12,561		15,895		11,221
Total current provision	64,164		71,672		97,291
Deferred tax expense (benefit):
Federal	12,627		4,106		5,490
State and local	3,013		2,902		643
Foreign	(2,979)		(287)		(1,371)
Total deferred tax expense (benefit)	12,661		6,721		4,762
Provision for income taxes	$	76,825	$	78,393	$	102,053

The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. Among other things, the Act reduced the U.S. Federal tax rate from 35% to 21% from January 1, 2018.

In the first quarter of fiscal year 2019, we completed our assessment of the effects of the Act. We recognized tax benefit of $0.5 million related to our calculation of the transition tax liability, referred to as the "toll tax." In the year ending September 30, 2018, we recorded a toll tax charge of $9.4 million and a benefit of $10.5 million from reductions in our deferred tax liabilities.

Our federal statutory income tax rate prior to December 31, 2018 was 35%; for subsequent periods it was 21%. The provision for income taxes differs from that which would have resulted from the use of this rate is as follows (in thousands):


	Year ended September 30,
	2019		2018		2017
Federal income tax provision at statutory rate of 21%, 24.5% and 35%, respectively	$	66,637	$	73,396	$	109,982
State income taxes, net of federal benefit	14,825		12,348		10,554
Foreign taxation	1,210		(1,531)		(6,940)
Permanent items	2,682		1,176		970
Tax credits	(3,730)		(2,438)		(4,851)
Toll tax	(481)		9,425		—
Deferred tax liability - tax rate change	—		(10,514)		—
Vesting of equity compensation	(4,783)		(2,849)		(6,569)
Other	465		(620)		(1,093)
Provision for income taxes	$	76,825	$	78,393	$	102,053

The significant items comprising our deferred tax assets and liabilities as of September 30, 2019 and 2018 are as follows (in thousands):


	As of September 30,
	2019		2018
Net deferred tax assets/(liabilities)
Costs deductible in future periods	$	19,133	$	20,254
Deferred revenue	6,098		5,197
Stock compensation	3,617		3,469
Net operating loss carryforwards	798		302
Amortization of goodwill and intangible assets	(26,338)		(27,054)
Capitalized software	(8,635)		(6,016)
Accounts receivable - unbilled	(35,566)		(7,854)
Property and equipment	515		(2,011)
Prepaid expenses	(3,645)		(2,927)
Other	(2,351)		(2,903)
	$	(46,374)	$	(19,543)

Our deferred tax assets and liabilities are held in various national and international jurisdictions which do not allow right of offset. Accordingly, our presentation of deferred taxes on our consolidated balance sheets is split between jurisdictions which show a net deferred tax asset and a net deferred tax liability. Our net deferred tax position is summarized below (in thousands):


	As of September 30,
	2019		2018
Balance of tax jurisdictions with net deferred tax assets	$	186	$	6,834
Balance of tax jurisdictions with net deferred tax liabilities	(46,560)		(26,377)
Net deferred tax liabilities	$	(46,374)	$	(19,543)

We consider our foreign earnings in excess of the earnings subject to the one-time transition tax to be indefinitely reinvested outside of the United States in accordance with the relevant accounting guidance for income taxes. Accordingly, no U.S. deferred taxes have been recorded with respect to such earnings. As of September 30, 2019, our foreign subsidiaries held approximately $20.3 million of cash and cash equivalents in either U.S. Dollars or local currencies.

Cash paid for income taxes during the years ended September 30, 2019, 2018, and 2017 was $69.2 million, $65.3 million and $87.8 million, respectively.

The provision for income taxes includes all provision to return adjustments included in the year recognized in the financial statements.

We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. The total amount of unrecognized tax benefits that, if recognized, would affect our annual effective income tax rate was $3.6 million and $1.3 million at September 30, 2019 and 2018, respectively.

We report interest and penalties as a component of income tax expense. In the fiscal years ending September 30, 2019, 2018 and 2017, we recognized interest expense relating to unrecognized tax benefits of less than $0.1 million in each year. The net liability balance at September 30, 2019 and 2018 includes approximately $0.8 million of interest and penalties.

We recognize and present uncertain tax positions on a gross basis (i.e., without regard to likely offsets for deferred tax assets, deductions and/or credits that would result from payment of uncertain tax amounts). The reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows (in thousands):


	Year ended September 30,
	2019		2018		2017
Balance at beginning of year	$	721	$	633	$	448

Increases for tax positions taken in current year	2,280		88		185

Balance at end of year	$	3,001	$	721	$	633

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to federal income tax examinations for years before 2013 and to state and local income tax examinations by tax authorities for years before 2014. In international jurisdictions, similar rules apply to filed income tax returns, although the tax examination limitations and requirements may vary. We are no longer subject to audit by tax authorities for foreign jurisdictions for years prior to 2015.