Affirm Holdings, Inc.AFRM
Affirm Holdings, Inc. Income Taxes Disclosure
Income Taxes
The U.S. and foreign components of income (loss) before income taxes for the years ended June 30, 2025, 2024, and 2023 are as follows (in thousands):
| June 30, 2025 | June 30, 2024 | June 30, 2023 | ||||||||||||||||||
| U.S. | $ | 42,949 | $ | (518,093) | $ | (974,074) | ||||||||||||||
| Foreign | 18,515 | 2,566 | (15,171) | |||||||||||||||||
| Total income (loss) before income taxes | $ | 61,464 | $ | (515,527) | $ | (989,245) | ||||||||||||||
Income tax expense (benefit) for the years ended June 30, 2025, 2024, and 2023 is summarized as follows (in thousands):
| June 30, 2025 | June 30, 2024 | June 30, 2023 | ||||||||||||||||||
| Current | ||||||||||||||||||||
| Federal | $ | 1,565 | $ | — | $ | — | ||||||||||||||
| State | 176 | 1,442 | 759 | |||||||||||||||||
| Foreign | 425 | 392 | 408 | |||||||||||||||||
| Total current expense | $ | 2,166 | $ | 1,834 | $ | 1,167 | ||||||||||||||
| Deferred | ||||||||||||||||||||
| Federal | $ | 139 | $ | 139 | $ | 137 | ||||||||||||||
| State | (212) | 333 | 249 | |||||||||||||||||
| Foreign | 7,186 | (76) | (5,453) | |||||||||||||||||
| Total deferred expense | 7,113 | 396 | (5,067) | |||||||||||||||||
| Income tax (benefit) expense | $ | 9,279 | $ | 2,230 | $ | (3,900) | ||||||||||||||
The income tax expense for the year ended June 30, 2025 was primarily attributable to U.S. federal and various foreign income taxes, while the income tax expense for the year ended June 30, 2024 was primarily attributable to various U.S state and foreign income taxes and the tax amortization of certain intangibles. The income tax benefit for the year ended June 30, 2023 was primarily attributable to deferred taxes recognized by certain foreign subsidiaries and partially offset by various U.S. state and other foreign income taxes.
The following is a reconciliation of the U.S. statutory federal income tax rate to our effective tax rate for the years ended June 30, 2025, 2024, and 2023:
| June 30, 2025 | June 30, 2024 | June 30, 2023 | ||||||||||||||||||
| U.S. statutory federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
| State and local income taxes, net of federal tax benefit | 6.8 | % | 8.9 | % | 7.7 | % | ||||||||||||||
| Foreign rate differential | 1.7 | % | (0.1) | % | 0.1 | % | ||||||||||||||
| California state tax law change | 26.3 | % | — | % | — | % | ||||||||||||||
| Stock-based compensation | (228.9) | % | (5.1) | % | (14.9) | % | ||||||||||||||
| Non-deductible compensation expense | 70.0 | % | (5.6) | % | (2.2) | % | ||||||||||||||
| Tax benefit related to tax credits, net | (67.5) | % | 4.3 | % | 0.9 | % | ||||||||||||||
| Impact of change in fair value of contingent consideration | — | % | — | % | 0.2 | % | ||||||||||||||
| Change in unrecognized tax benefits | 27.0 | % | (1.7) | % | (0.4) | % | ||||||||||||||
| Change in tax status of a foreign subsidiary | 14.6 | % | — | % | — | % | ||||||||||||||
| Other | 0.8 | % | — | % | (0.1) | % | ||||||||||||||
| Change in valuation allowance | 143.0 | % | (22.1) | % | (11.9) | % | ||||||||||||||
| Effective income tax rate | 14.8 | % | (0.4) | % | 0.4 | % | ||||||||||||||
Significant components of deferred tax assets and liabilities are as follows (in thousands):
| June 30, 2025 | June 30, 2024 | |||||||||||||
| Net operating loss carryforwards | $ | 1,034,551 | $ | 1,071,737 | ||||||||||
| Allowance for credit losses | 116,570 | 97,400 | ||||||||||||
| Stock-based compensation | 16,789 | 23,182 | ||||||||||||
| Stock warrants | 142,143 | 100,369 | ||||||||||||
| Operating lease liabilities | 8,386 | 11,457 | ||||||||||||
| Capitalized R&E including internally developed software | 62,325 | 6,977 | ||||||||||||
| Tax credit carryforwards | 108,026 | 88,190 | ||||||||||||
| Other | 11,685 | 22,216 | ||||||||||||
| Total deferred tax assets | $ | 1,500,475 | $ | 1,421,528 | ||||||||||
| Right-of-use lease assets | (5,021) | (6,330) | ||||||||||||
| Other | (3,686) | (3,921) | ||||||||||||
| Total deferred tax liabilities | $ | (8,707) | $ | (10,251) | ||||||||||
| Valuation allowance | (1,479,926) | (1,392,205) | ||||||||||||
| Deferred tax assets (liabilities), net of valuation allowance | $ | 11,842 | $ | 19,072 | ||||||||||
We continue to recognize a full valuation allowance against our U.S. federal and state and certain foreign net deferred tax assets. The valuation allowance increased by $87.7 million during the year ended June 30, 2025. We will release the domestic valuation allowance when there is sufficient positive evidence to support a conclusion that it is more likely than not the deferred tax assets will be realized.
As of June 30, 2025, we had pretax U.S. federal net operating loss ("NOL") carryforwards of approximately $3.2 billion, state NOL carryforwards of $4.9 billion, Canadian NOL carryforwards of $24.0 million, and U.K. NOL carryforwards of $27.6 million. If not utilized, certain U.S. federal and state NOL carryforwards will begin to expire in 2029, whereas others have an unlimited carryforward period, and foreign NOL carryforwards will begin to expire in 2041, with others that have an unlimited carryforward period as well. Additionally, as of June 30, 2025, we also had U.S. federal and state research and development tax credit carryforwards of $129.6 million and $64.0 million, respectively. The U.S. federal research and development tax credit carryforwards will begin to expire in 2041 while the state research and development tax credits may be carried forward indefinitely. As of June 30, 2025, the Company also had other state tax credit carryforwards of $2.1 million, which will begin to expire in 2026 if not utilized.
Of the above NOL carryforwards, approximately $25.5 million pretax U.S. federal NOL carryforwards and $34.8 million state NOL carryforwards are from domestic acquisitions, which may be subject to an annual utilization limitation under Internal Revenue Code Section 382.
The future utilization of all domestic NOL and tax credit carryforwards may be subject to an annual limitation, pursuant to Internal Revenue Code Sections 382 and 383 and similar state provisions, due to ownership changes that may have occurred previously or that could occur in the future. Any limitation may result in the expiration of all or a portion of the NOL carryforwards before utilization.
The Company accounts for uncertainties in income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). The following table provides a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (in thousands):
| June 30, 2025 | June 30, 2024 | June 30, 2023 | ||||||||||||||||||
| Beginning balance | $ | 61,514 | $ | 51,850 | $ | 47,867 | ||||||||||||||
| Gross increase for tax positions related to the current year | 18,543 | 8,931 | 5,828 | |||||||||||||||||
| Gross increase for tax positions related to prior years | — | 733 | — | |||||||||||||||||
| Gross decrease for tax positions related to prior years | (809) | — | (1,845) | |||||||||||||||||
| Ending balance | $ | 79,248 | $ | 61,514 | $ | 51,850 | ||||||||||||||
As of June 30, 2025, the Company had no unrecognized tax benefits related to uncertain tax positions that, if recognized, would impact the effective tax rate. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months.
Interest and penalties on unrecognized tax benefits are recorded as a component of tax expense. During the years ended June 30, 2025, 2024, and 2023, we did not recognize accrued interest and penalties related to unrecognized tax benefits.
We file U.S. federal and state income tax returns as well as various foreign income tax returns with varying statutes of limitation. With respect to the Company’s major tax filings, all tax years remain open to examination due to the carryover of unused net operating losses.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 28, 2025 | Showing above |
| 2024 | Aug 28, 2024 | |
| 2023 | Aug 25, 2023 | |
| 2022 | Aug 29, 2022 | |
| 2021 | Sep 17, 2021 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.