AKAMAI TECHNOLOGIES INCAKAM
AKAMAI TECHNOLOGIES INC Income Taxes Disclosure
Income Taxes
The components of income before provision for income taxes were as follows for the years ended December 31, 2025, 2024 and 2023 (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. | $ | 26,232 | $ | 54,465 | $ | 20,146 | |||||||||||
| Foreign | 576,173 | 532,548 | 632,381 | ||||||||||||||
| Income before provision for income taxes | $ | 602,405 | $ | 587,013 | $ | 652,527 | |||||||||||
The provision for income taxes consisted of the following for the years ended December 31, 2025, 2024 and 2023 (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
Current tax provision (benefit): | |||||||||||||||||
| Federal | $ | 13,625 | $ | 23,870 | $ | 23,406 | |||||||||||
| State | (3,637) | 6,998 | 6,731 | ||||||||||||||
| Foreign | 113,733 | 121,495 | 99,223 | ||||||||||||||
Deferred tax provision (benefit): | |||||||||||||||||
| Federal | 9,791 | (43,695) | (18,213) | ||||||||||||||
| State | 9,048 | (17,313) | (3,759) | ||||||||||||||
| Foreign | 7,814 | (9,260) | (1,015) | ||||||||||||||
| Total | $ | 150,374 | $ | 82,095 | $ | 106,373 | |||||||||||
In July 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted into law. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others to be implemented through 2027. The OBBBA did not have a material impact on the Company's consolidated financial statements for the year ended December 31, 2025.
The Company’s effective tax rate differed from the U.S. federal statutory tax rate as follows for the years ended December 31, 2025, 2024 and 2023 (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Income before provision for income taxes | $ | 602,405 | $ | 587,013 | $ | 652,527 | |||||||||||||||||||||||||||||
| U.S. federal statutory tax rate | 126,505 | 21.0 | % | 123,273 | 21.0 | % | 137,031 | 21.0 | % | ||||||||||||||||||||||||||
U.S. tax effects | |||||||||||||||||||||||||||||||||||
State and local income taxes, net of federal effect (1) | 8,027 | 1.3 | (14,231) | (2.4) | (731) | (0.1) | |||||||||||||||||||||||||||||
| Federal | |||||||||||||||||||||||||||||||||||
| Effect of cross-border tax laws | |||||||||||||||||||||||||||||||||||
Foreign-derived intangible income | (5,168) | (0.9) | (9,655) | (1.6) | (7,547) | (1.2) | |||||||||||||||||||||||||||||
| Other | (32) | — | 3,730 | 0.6 | (1,530) | (0.2) | |||||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| Research and development credit | (17,084) | (2.8) | (27,194) | (4.6) | (18,296) | (2.8) | |||||||||||||||||||||||||||||
| Other credits | (732) | (0.1) | 345 | — | (922) | (0.1) | |||||||||||||||||||||||||||||
| Non-taxable or non-deductible items | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | 13,589 | 2.2 | (16,723) | (2.8) | 6,214 | 0.9 | |||||||||||||||||||||||||||||
| Officers' compensation | 8,588 | 1.4 | 6,401 | 1.1 | 6,647 | 1.0 | |||||||||||||||||||||||||||||
| Transfer pricing | 14,974 | 2.5 | 11,417 | 1.9 | 6,722 | 1.0 | |||||||||||||||||||||||||||||
| Other | (744) | (0.1) | 1,137 | 0.2 | 419 | 0.1 | |||||||||||||||||||||||||||||
| Other adjustments | |||||||||||||||||||||||||||||||||||
| Intercompany sale of intellectual property | — | — | (20,640) | (3.5) | 5,740 | 0.9 | |||||||||||||||||||||||||||||
| Other | (284) | — | 4,388 | 0.7 | 6,008 | 0.9 | |||||||||||||||||||||||||||||
| Foreign tax effects | |||||||||||||||||||||||||||||||||||
| Israel | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | 3,354 | 0.5 | 8,268 | 1.4 | 5,803 | 0.9 | |||||||||||||||||||||||||||||
| Intercompany sale of intellectual property | — | — | 14,174 | 2.4 | — | — | |||||||||||||||||||||||||||||
| Other | (216) | — | 8,530 | 1.5 | (473) | (0.1) | |||||||||||||||||||||||||||||
| Switzerland | |||||||||||||||||||||||||||||||||||
| State and local income taxes | 19,148 | 3.2 | 2,710 | 0.5 | 9,495 | 1.5 | |||||||||||||||||||||||||||||
Statutory tax rate difference between Switzerland and U.S. | (57,418) | (9.5) | (44,276) | (7.5) | (62,660) | (9.6) | |||||||||||||||||||||||||||||
| Intercompany sale of intellectual property | — | — | (14,093) | (2.4) | (3,993) | (0.6) | |||||||||||||||||||||||||||||
| Withholding tax | 6,276 | 1.0 | 11,480 | 2.0 | 681 | 0.1 | |||||||||||||||||||||||||||||
| Other | 4,704 | 0.8 | 1,409 | 0.2 | 2,277 | 0.3 | |||||||||||||||||||||||||||||
| Other foreign jurisdictions | 13,617 | 2.3 | 21,388 | 3.6 | 14,718 | 2.3 | |||||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | 13,270 | 2.2 | 10,257 | 1.7 | 770 | 0.1 | |||||||||||||||||||||||||||||
| Total | $ | 150,374 | 25.0 | % | $ | 82,095 | 14.0 | % | $ | 106,373 | 16.3 | % | |||||||||||||||||||||||
(1) The majority of the tax effects within this category represent taxes in New Jersey and Massachusetts for the year ended December 31, 2025; Massachusetts and California for the year ended December 31, 2024; and California, New Jersey, Massachusetts and New York City for the year ended December 31, 2023.
The components of the net deferred tax assets and liabilities and the related valuation allowance as of December 31, 2025 and 2024 were as follows (in thousands):
| 2025 | 2024 | ||||||||||
| Deferred revenue | 20,154 | 20,598 | |||||||||
Acquired intangible assets | 4,955 | 23,731 | |||||||||
| Operating lease liabilities | 196,643 | 108,429 | |||||||||
| Stock-based compensation | 55,249 | 48,486 | |||||||||
| NOLs | 31,401 | 21,769 | |||||||||
Capitalized interest expense | 26,933 | 8,045 | |||||||||
| Tax credit carryforwards | 109,687 | 101,508 | |||||||||
| Capitalized research and development costs | 246,457 | 188,470 | |||||||||
| Convertible senior notes interest | 193,401 | 82,881 | |||||||||
| Depreciation and amortization | 9,107 | 43,601 | |||||||||
| Other | 28,748 | 33,830 | |||||||||
| Deferred tax assets | 922,735 | 681,348 | |||||||||
| Operating lease right-of-use assets | (184,876) | (96,683) | |||||||||
| Deferred commissions | (31,328) | (25,477) | |||||||||
| Capitalized internal-use software development costs | (70,348) | (50,390) | |||||||||
| Deferred tax liabilities | (286,552) | (172,550) | |||||||||
| Valuation allowance | (44,496) | (41,615) | |||||||||
| Net deferred tax assets | $ | 591,687 | $ | 467,183 | |||||||
A summary of activity in the valuation allowance on deferred tax assets for the years ended December 31, 2025, 2024 and 2023 is as follows (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning balance | $ | 41,615 | $ | 45,704 | $ | 41,250 | |||||||||||
| Charges to income tax expense | 3,330 | 3,469 | 4,814 | ||||||||||||||
| Release of valuation allowance | (449) | (7,558) | (360) | ||||||||||||||
| Ending balance | $ | 44,496 | $ | 41,615 | $ | 45,704 | |||||||||||
Valuation allowances will be recognized on deferred tax assets if it is more-likely-than-not that some or all of the deferred tax assets will not be utilized. In measuring deferred tax assets, the Company considers all available evidence, both positive and negative, to determine whether a valuation allowance is needed. As of December 31, 2025, the Company recorded a $44.5 million valuation allowance against deferred tax assets related to state tax credits, foreign tax deductions and foreign NOLs in which it is more-likely-than-not that such attributes will expire prior to utilization.
The Company's NOL and tax credit carryforwards in U.S. federal, state and foreign jurisdictions as of December 31, 2025 were as follows (in thousands, except years):
| 2025 | Expirations at Various Dates Through: | ||||||||||
| NOL carryforwards: | |||||||||||
| Federal | $ | 62,500 | 2035 | ||||||||
| State | $ | 65,200 | 2046 | ||||||||
| Foreign | $ | 61,600 | 2039 | ||||||||
| Federal and state research and development tax credit and other credit carryforwards | $ | 143,300 | 2045 | ||||||||
A portion of the Company's U.S. federal, state and foreign NOL carryforwards relate to acquisitions completed between 2012 and 2025.
As of December 31, 2025, no provision for U.S. federal, state and foreign income taxes or withholding taxes has been provided for any undistributed foreign earnings or any additional basis differences inherent in the Company's international subsidiaries, as these amounts continue to be indefinitely reinvested. Determination of the amount of the unrecognized deferred tax liability on outside basis differences is not practicable because of the complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios and the variation due to multiple potential assumptions relating to the timing of any future repatriation.
The changes in the Company’s unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023 were as follows (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at beginning of year | $ | 79,921 | $ | 68,658 | $ | 67,958 | |||||||||||
| Gross increases – tax positions of prior periods | 7,322 | 11,150 | 2,074 | ||||||||||||||
| Gross increases – current period tax positions | 2,801 | 4,223 | 4,091 | ||||||||||||||
| Gross decreases – tax positions of prior periods | (3,839) | (1,445) | (3,685) | ||||||||||||||
| Gross decreases – lapse of applicable statute of limitations | (593) | (2,665) | (1,780) | ||||||||||||||
| Balance at end of year | $ | 85,612 | $ | 79,921 | $ | 68,658 | |||||||||||
As of December 31, 2025 and 2024, the Company had total accrued interest and penalties for unrecognized tax benefits of $25.8 million and $16.3 million, respectively. Interest and penalties related to unrecognized tax benefits are recorded in the provision for income taxes and were $8.5 million, $7.5 million and $2.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025, the amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate is $57.7 million.
Certain U.S. federal, state and foreign income tax returns from 2015 through 2024 are currently under audit. The Company has reserved for those positions that are not more-likely-than-not to be sustained.
Cash paid for income taxes, net of refunds, for the years ended December 31, 2025, 2024 and 2023 were as follows (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 8,379 | $ | 8,502 | $ | 14,989 | |||||||||||
| State | (324) | 4,465 | 2,348 | ||||||||||||||
| Foreign | |||||||||||||||||
| Brazil | * | 8,742 | 8,342 | ||||||||||||||
| India | 10,342 | 17,531 | 11,909 | ||||||||||||||
| Israel | 32,557 | 14,162 | 10,278 | ||||||||||||||
| Switzerland | 40,267 | 45,623 | 60,176 | ||||||||||||||
| United Kingdom | 9,870 | 8,240 | * | ||||||||||||||
Other foreign jurisdictions | 42,455 | 29,057 | 26,436 | ||||||||||||||
| Total foreign | 135,491 | 123,355 | 117,141 | ||||||||||||||
Cash paid for income taxes, net of refunds | $ | 143,546 | $ | 136,322 | $ | 134,478 | |||||||||||
* Jurisdiction below the threshold for the period presented
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.