The Company is subject to taxation in the United States, Canada and Massachusetts. The provision for income taxes for the years ended December 31, 2017 and 2016 are summarized below:

A reconciliation of income taxes computed by applying the statutory U.S. income tax rate to the Company’s loss before income taxes to the income provision is as follows:

Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The change in the valuation allowance is approximately $6,000,000 in 2017.

As of December 31, 2017, the Company had net operating loss carryforwards for federal income tax purposes of approximately $46,000,000 which expire beginning in the year 2019. As of December 31, 2017, the Company had net operating loss carryforwards for state income tax purposes of approximately $12,000,000 which expire beginning in the year 2030.

As of December 31, 2017, the Company also had Canada net operating loss carryforwards of $229,000 which expire beginning in the year 2034.

Utilization of the net operating losses may be subject to substantial annual limitation due to federal and state ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the net operating losses ad credits before their utilization. The Company has not performed an analysis to determine the limitation of the net operating loss carryforwards.

For income tax purposes, emergeIT has non-capital losses which can be applied to reduce future years’ taxable income totaling approximately $229,000. These losses expire between 2030 and 2037. The Company also has a Scientific Research and Experimental Development Expenditure pool balance of approximately $59,000 which may be used to reduce future year’s taxable income. The expenditure pool can be carried forward indefinitely.

A valuation allowance of 100% has been established in respect of the net deferred income tax assets due to the uncertainty of the Company’s utilization of such deferred tax assets for US Federal and State.

At December 31, 2017, both Paid, Inc. and ShipTime have no unrecognized tax benefits as a result of tax positions taken in the current or prior years, and accordingly there are neither unrecognized tax that will change benefits or would affect the effective tax rate, nor there are any situations where it is reasonably possible that the unrecognized tax benefit significantly within twelve months of the reporting date. As of December 31, 2017, the Company has no unrecognized tax exposure.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $0 accrued for interest and penalties on each of the Company’s consolidated balance sheets at December 31, 2017 and 2016.

The income tax provision at December 31, 2017 reflects a full accounting of tax filings under ASC Subtopic 740-10. Paid, Inc. is subject to U.S. federal and Massachusetts state tax. With limited exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2012. Generally, the tax years remain open for examination by the federal authority under three-year statute of limitation; however, states generally keep their statute open for four years. In addition, the Company's tax years from inception are subject to examination by the United States and Massachusetts authorities due to the carry forward of unutilized net operating losses. ShipTime is subject to taxation in Canada and Ontario. As of December 31, 2017, the Company’s tax years for 2012 through 2017 are subject to examination by tax authorities. The Company recognizes interest and penalties, as estimated or incurred, as general and administrative expense.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“the Act”). The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction is effective January 1, 2018. As a result of the rate reduction, the Company has reduced the deferred tax asset balance as of December 31, 2017 by $6,300,000. Due to the Company’s full valuation allowance position, the Company has also reduced valuation allowance by the same amount.

Due to uncertainties which currently exist in the interpretation of the provisions of the Tax Cuts and Jobs Act of 2017 regarding Internal Revenue Code section 162(m), the Company has not evaluated the potential impacts of IRC Section 162(m) as amended by the Tax Cuts and Jobs Acts of 2017 on its consolidated financial statements.

On December 22, 2017 Staff Accountant Bulletin No. 118 (“SAB 118”) was issue to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that there is no deferred tax benefit of expense with respect to the remeasurement of certain deferred tax assets and liabilities due to the full valuation allowance against the net deferred tax assets. Additional analysis of the law and the impact to the Company will be performed and any impact will be recorded in the respective quarter in 2018.