MSC Income Fund Annual report [Section 13 and 15(d), not S-K Item 405]

Annual report [Section 13 and 15(d), not S-K Item 405]

DIVIDENDS, DISTRIBUTIONS AND TAXABLE INCOME

DIVIDENDS, DISTRIBUTIONS AND TAXABLE INCOME

12 Months Ended

Dec. 31, 2025

DIVIDENDS, DISTRIBUTIONS AND TAXABLE INCOME

MSC Income currently pays regular quarterly dividends to its stockholders and periodically pays supplemental dividends to its stockholders. Future dividends, if any, will be determined by its Board of Directors on a quarterly basis.

A summary of dividends accrued during the years ended December 31, 2025, 2024 and 2023 is as follows:


	Year Ended December 31,
		2025		2024		2023

		(in thousands, except per share amounts)
Regular quarterly dividends per share		$	1.40	$	1.45	$	1.40
Supplemental dividends per share		0.04		—		—
Total dividends per share		$	1.44	$	1.45	$	1.40

Total regular quarterly dividends		$	65,750	$	58,212	$	56,057
Total supplemental dividends		1,878		—		—
Total dividends		$	67,628	$	58,212	$	56,057

For tax purposes, the 2025 dividends, which included the effects of dividends on an accrual basis, totaled $67.6 million, or $1.440 per share, and were comprised of (i) ordinary income totaling $1.167 per share, (ii) long-term capital gain totaling $0.020 per share and (iii) qualified dividend income totaling $0.253 per share. As of December 31, 2025, MSC Income estimates that it has generated undistributed taxable income of $15.0 million, or $0.32 per share, that will be carried forward toward distributions to be paid in 2026.

MSIF has elected to be treated for U.S. federal income tax purposes as a RIC. MSIF’s taxable income includes the taxable income generated by MSIF and certain of its subsidiaries, including the Structured Subsidiaries, which are treated as disregarded entities for tax purposes. As a RIC, MSIF generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that MSIF distributes to its stockholders. MSIF must generally distribute at least 90% of its “investment company taxable income” (which is generally its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and 90% of its tax-exempt income to maintain its RIC status (pass-through tax treatment for amounts distributed). As part of maintaining RIC status, undistributed taxable income (subject to a 4% non-deductible U.S. federal excise tax) pertaining to a given fiscal year may be distributed up to twelve months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (i) filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the fifteenth day of the ninth month following the close of the year in which such taxable income was generated.

The determination of the tax attributes for MSC Income’s distributions is made annually, based upon its taxable income for the full year and distributions paid for the full year. Therefore, a determination made on an interim basis may not be representative of the actual tax attributes of distributions for a full year. Ordinary dividend distributions from a RIC do not qualify for the 20% maximum tax rate (plus a 3.8% Medicare surtax, if applicable) on dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will generally include both ordinary income and qualified dividends, but may also include either one or both of capital gains and return of capital.

The tax character of distributions paid for the years ended December 31, 2025, 2024 and 2023 was as follows:


	Year Ended December 31,
	2025		2024		2023

	(in thousands)
Ordinary income	$	54,887	$	37,924	$	47,756
Qualified dividends	11,795		6,173		8,301
Distributions of long-term capital gains	946		14,114		—
Distributions on tax basis	$	67,628	$	58,211	$	56,057

As of December 31, 2025, 2024 and 2023, the components of distributable earnings on a tax basis, or “Undistributed ordinary income,” differ from the amount of “Total overdistributed earnings” reflected in the Consolidated Balance Sheets by the temporary book or tax differences shown below:


	Year Ended December 31,
	2025		2024		2023

	(in thousands)
Undistributed ordinary income (1)	$	14,984	$	20,348	$	14,745
Net unrealized appreciation, net of tax	60,223		25,223		42,341
Cumulative book/tax differences on realized gain/loss, including capital loss carryforward	(55,499)		(38,572)		(43,438)
Accumulated net impact of Taxable Subsidiaries (2)	(55,768)		(67,544)		(75,468)
Other temporary differences (3)	(7,335)		(4,172)		(2,089)
Components of Total overdistributed earnings	$	(43,395)	$	(64,717)	$	(63,909)

_____________________________

(1)Undistributed ordinary income is comprised of the following:


	Year Ended December 31,
	2025		2024		2023

	(in thousands)
Taxable income earned prior to period end and carried forward for distribution next period	$	31,756	$	34,835	$	28,764
Dividend payable as of period end and paid in the following period	(16,772)		(14,487)		(14,019)
Undistributed ordinary income	$	14,984	$	20,348	$	14,745

(2)Accumulated net impact of earnings, intercompany dividends and book/tax differences of the Taxable Subsidiaries.

(3)Book income and tax income differences, including dividends, debt origination, structuring fees and changes in estimates.

A reconciliation of “Net increase in net assets resulting from operations” to taxable income and to total distributions declared to common stockholders for the years ended December 31, 2025, 2024 and 2023 is as follows:


	Year Ended December 31,
	2025		2024		2023

	(estimated, in thousands)
Net increase in net assets resulting from operations	$	88,728	$	56,553	$	66,209
Net unrealized (appreciation) depreciation	(36,428)		15,439		(46,319)
Income tax provision	3,720		1,106		3,769
Pre-tax book income not consolidated for tax purposes	(24,972)		(9,622)		4,241
Book income and tax income differences, including debt origination, structuring fees, dividends, realized gains and changes in estimates	31,216		339		22,228
Estimated taxable income (1)	62,264		63,815		50,128
Taxable income earned in prior year and carried forward for distribution in current year	20,348		14,745		20,674
Taxable income earned prior to period end and carried forward for distribution next period	(31,756)		(34,835)		(28,764)
Dividend payable as of period end and paid in the following period	16,772		14,487		14,019
Total distributions accrued or paid to common stockholders	$	67,628	$	58,212	$	56,057

_____________________________

(1)MSIF’s taxable income for each period is an estimate and will not be finally determined until MSIF files its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the following period, may be different than this estimate.

The Taxable Subsidiaries primarily hold certain equity investments for MSC Income. The Taxable Subsidiaries permit MSC Income to hold equity investments in portfolio companies which are “pass-through” entities for tax purposes and to continue to comply with the “source-of-income” requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with MSIF for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in MSC Income’s consolidated financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated with MSIF for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their ownership of certain portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or loss, due to temporary book and tax timing differences and permanent differences. The Taxable Subsidiaries are each taxed at corporate income tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the Taxable Subsidiaries are reflected in MSC Income’s consolidated financial statements.

The income tax provision for MSC Income is generally composed of (i) deferred tax expense (benefit), which is primarily the result of the net activity relating to the portfolio investments held in the Taxable Subsidiaries, including changes in loss carryforwards, changes in net unrealized appreciation or depreciation and other temporary book-tax differences, and (ii) current tax expense, which is primarily the result of current U.S. federal income and state taxes relating to net currently taxable activity relating to the portfolio investments held in the Taxable Subsidiaries and excise taxes on MSC Income’s estimated undistributed taxable income. The income tax expense, or benefit, and the related tax assets and liabilities generated by the Taxable Subsidiaries, if any, are reflected in MSC Income’s Consolidated Statements of Operations. MSC Income’s provision for income taxes was comprised of the following for the years ended December 31, 2025, 2024 and 2023:


	Year Ended December 31,
		2025		2024		2023

		(in thousands)
Net investment income taxes
Current tax expense (benefit):
Federal		$	(1,426)	$	4,458	$	1
State and other		(429)		595		340
Excise		510		851		519
Total current tax expense (benefit)		(1,345)		5,904		860

Deferred tax expense (benefit):
Federal		4,829		(2,401)		1,219
State and other		286		(62)		102
Total deferred tax expense (benefit)		5,115		(2,463)		1,321

Total net investment income tax provision		$	3,770	$	3,441	$	2,181

Investment valuation related taxes
Current tax expense (benefit):
Federal		$	(526)	$	(915)	$	12


Total current tax expense (benefit)		(526)		(915)		12

Deferred tax expense (benefit):
Federal		(9)		(667)		2,231
State and other		485		(753)		(655)
Total deferred tax expense (benefit)		476		(1,420)		1,576

Total investment valuation related income tax provision (benefit)		$	(50)	$	(2,335)	$	1,588

Total income tax provision		$	3,720	$	1,106	$	3,769

MSIF operates in a manner to maintain its RIC status and to eliminate corporate-level U.S. federal income tax (other than the 4% excise tax) by distributing sufficient investment company taxable income and long-term capital gains. As a result, MSIF will have an effective tax rate equal to 0% before the excise tax and income taxes incurred by the Taxable Subsidiaries. As such, a reconciliation of the differences between MSC Income’s reported income tax expense and its tax expense at the federal statutory rate of 21% is not meaningful.

MSC Income’s income taxes paid (net of refunds received) was comprised of the following for the years ended December 31, 2025, 2024 and 2023:


	Year Ended December 31,
	2025		2024		2023

	(in thousands)
Taxes Paid:
Federal and excise	$	5,818	$	538	$	1,030
State	191		171		973
Total taxes paid	$	6,009	$	709	$	2,003

No individual jurisdiction accounted for a significant amount of the state income taxes paid for the years ended December 31, 2025, 2024 and 2023.

As of December 31, 2025, the cost of investments for U.S. federal income tax purposes was $1,315.4 million, with such investments having an estimated net unrealized appreciation of $20.0 million, composed of gross unrealized appreciation of $167.9 million and gross unrealized depreciation of $147.9 million. As of December 31, 2024, the cost of investments for U.S. federal income tax purposes was $1,185.0 million, with such investments having an estimated net unrealized appreciation of $55.3 million, composed of gross unrealized appreciation of $182.9 million and gross unrealized depreciation of $127.6 million.

The significant components of net deferred tax assets and liabilities as of December 31, 2025 and 2024 were as follows:


	Year Ended December 31,
	2025		2024

	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	316	$	32
Interest expense carryforwards	5,351		4,514
General business and foreign tax credit carryforwards	9		9
Capital loss carryforwards	890		5,499
Other	17		—
Total deferred tax assets	6,584		10,054
Deferred tax liabilities:
Net basis differences in portfolio investments	3,631		4,324
Net unrealized appreciation of portfolio investments	(15,181)		(13,753)
Total deferred tax liabilities	(11,550)		(9,429)

Total deferred tax assets (liabilities), net	$	(4,966)	$	625

The net deferred tax liability as of December 31, 2025 was $5.0 million and the net deferred tax asset as of December 31, 2024 was $0.6 million, with the change primarily related to changes in net unrealized appreciation or depreciation, changes in loss carryforwards and other temporary book-tax differences relating to portfolio investments held by the Taxable Subsidiaries. Management believes that the realization of the deferred tax assets is more likely than not based on expectations as to future taxable income and scheduled reversals of temporary differences. Accordingly, MSC Income did not record a valuation allowance related to its deferred tax assets as of December 31, 2025 and 2024. As of December 31, 2025, for U.S. federal income tax purposes, the Taxable Subsidiaries had a net operating loss carryforward, which is not subject to expiration and will carryforward indefinitely until utilized. The Taxable Subsidiaries have net capital loss carryforwards from prior years which, if unused, will expire in tax year 2029. Additionally, the Taxable Subsidiaries have interest expense limitation carryforwards which have an indefinite carryforward period. In addition, as of December 31, 2025, for U.S. federal income tax purposes, MSIF had net capital loss carryforwards totaling $1.9 million available to offset future capital gains at the RIC level in any taxable year, to the extent available and permitted by U.S. federal income tax law, which are not subject to expiration as long as MSIF maintains its RIC status.