ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (In thousands of dollars, except per share amounts)
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. From time to time, the Company may be assessed interest and penalties by taxing authorities, which would be recorded as income tax expense. During the years ended December 31, 2025, 2024, and 2023, there were expenses of $75, $216, and $23 for interest and penalties related to uncertain tax positions. As of December 31, 2025, 2024, and 2023, the Company recognized liabilities of $435, $360, and $144, respectively, for interest and penalties related to its uncertain tax positions. The unrecognized tax benefits from uncertain tax positions are attributable to temporary differences. The Company does not anticipate material changes to its unrecognized tax benefits within the next year. As a result of the regulatory treatment afforded by the income tax accounting change in Pennsylvania and despite this position being a temporary difference, as of December 31, 2025, 2024, and 2023, $8,408, $7,216, and $6,918, respectively, of these tax benefits would have an impact on the Company’s effective income tax rate in the event the Company does sustain all, or a portion, of its tax position.
The following table provides the components of net deferred tax liability:
December 31,
2025
2024
Deferred tax assets: Tax attributes and credit carryforwards
$
513,724 $ 494,318
Tax effect of regulatory liabilities for post-retirement benefits
43,324 25,102 18,537
44,567 19,642 26,394
Costs expensed for book not deducted for tax, principally accrued expenses
Customers' advances for construction
Operating lease liabilities Post-retirement benefits
7,524
9,532 1,638 2,937
-
Other
20
608,231
599,028
Less valuation allowance
(178,597)
(166,249)
$
429,634 $ 432,779
Deferred tax liabilities: Utility plant, principally due to depreciation and differences in the basis of fixed assets due to variation in tax and book accounting $ Deferred taxes associated with the gross-up of revenues necessary to recover the effect of temporary differences in rates
2,020,858 $ 1,820,785
468,647 17,932
408,624 22,151
Tax effect of regulatory assets for post-retirement benefits
Operating lease right-of-use assets Deferred investment tax credit
6,883 4,432 1,002
8,486 4,601
Post-retirement benefits
-
$
2,519,754 $ 2,264,647
Net deferred tax liability
$
2,090,120 $ 1,831,868
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