Priority Technology Holdings, Inc.

11. Income Taxes

Components of income before income taxes were as follows:

Components of consolidated income tax expense were as follows:

The Company's consolidated effective income tax rate was (20.3)% for the year ended December 31, 2025, compared to a consolidated effective income tax rate of 35.6% for the year ended 2024. For the year ended December 31, 2023, the Company's consolidated effective income tax benefit rate was 118.3%. The effective rate for December 31, 2025 differed from the statutory rate of 21% primarily due toa decrease in the valuation allowance against certain business interest carryover deferred tax assets. The effective rate for December 31, 2024 differed from the statutory federal rate of 21% primarily due toan increase in the valuation allowance against certain business interest carryover deferred tax assets. The effective rate for December 31, 2023, differed from the statutory federal rate of 21% primarily due to anincrease in the valuation allowance against certain business interest carryover deferred tax assets.

The following is a reconciliation of the difference between the effective income tax rate and the federal statutory tax rate:

(1) The states that contributed to the majority (greater than 50%) of the tax effect in this category were California, Maryland, and Pennsylvania.

As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the following is a reconciliation of the difference between the effective income tax rate and the federal statutory tax rate:

The following is a summary of income taxes paid by jurisdiction (net of refunds) pursuant to disclosure requirements of ASU 2023-09 for year ended December 31, 2025:

Deferred income taxes reflect the expected future tax consequences of temporary differences between the financial statement carrying amount of the Company's assets and liabilities, tax credits and their respective tax bases, and loss carry forwards. The significant components of consolidated deferred income taxes were as follows:

In accordance with the provisions of ASC 740, Income Taxes, the Company provides a valuation allowance against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The assessment considers all available positive and negative evidence and is measured quarterly. On July 4, 2025, the U.S. government enacted legislation known as the One Big Beautiful Bill Act ("OBBBA") into law. The OBBBA, among other provisions, extends or reinstates certain provisions of the 2017 Tax Cuts and Jobs Act ("TCJA"), including but not limited to, 100% bonus depreciation on eligible property, immediate expensing of domestic research and development costs, and the restoration of an EBITDA based interest expense limitation calculation. As a result of the OBBBA interest expense limitation provision changes, the Company has released its valuation allowance against its interest limitation deferred tax assets. As of December 31, 2025, the Company had a consolidated valuation allowance of approximately $5.1 million against certain transaction costs and net deferred tax assets acquired as part of the Payslate acquisition that the Company believes are not more than likely to be realized. As of December 31, 2024, the Company had a consolidated valuation allowance of approximately $21.6 M against certain transaction costs and interest deduction limitation carryforwards that the Company believes are not more than likely to be realized. As of December 31, 2025 and December 31, 2024, the Company had interest deduction limitation carryforwards of $76.8 million and $87.6 million, respectively.

The Company recognizes the tax effects of uncertain tax positions only if such positions are more likely than not to be sustained based solely upon its technical merits at the reporting date. The Company refers to the difference between the tax benefit recognized in its financial statements and the tax benefit claimed in the income tax return as an "unrecognized tax benefit."A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

As of December 31, 2025 and 2024, the balance of unrecognized tax benefits that, if recognized, affect our effective tax rate was immaterial. The Company continually evaluates the uncertain tax benefit associated with its uncertain tax positions.

The Company is subject to U.S. federal income tax and income tax in multiple state jurisdictions. Tax periods for December 31, 2022 and all years thereafter remain open to examination by the federal and state taxing jurisdictions and tax periods for December 31, 2021 and all years thereafter remain open for certain state taxing jurisdictions to which the Company is subject.

As of December 31, 2025 and December 31, 2024, the Company had federal NOL carryforwards of approximately $34.4 million and $0.0 million, respectively, with no expiration date. In addition, as of December 31, 2025 and December 31, 2024 the Company had state NOL carryforwards of approximately $53.2 million and $19.9 million, respectively, with expiration dates ranging from 2031 to 2045. Also, as of December 31, 2025 and December 31, 2024, the Company had Canadian NOL carryforwards of approximately $15.6 million and $0.0 million, respectively, with expiration dates ranging from 2037 to 2045.