Income Taxes

Net income before provision for income taxes consists of the following (in thousands):


	Year Ended December 31,
	2025		2024		2023
Domestic	$	280,926	$	334,485	$	315,643
Foreign	304,361		274,474		325,561
Net income before provision for income taxes	$	585,287	$	608,959	$	641,204

The provision for (benefit from) income taxes consists of the following (in thousands):


	Year Ended December 31,
	2025		2024		2023
Federal
Current	$	52,962	$	95,027	$	134,332
Deferred	14,385		1,578		(16,805)
	67,347		96,605		117,527
State
Current	13,977		13,702		28,535
Deferred	13,766		3,384		(3,157)
	27,743		17,086		25,378
Foreign
Current	74,689		56,653		51,306
Deferred	5,157		17,253		1,940
	79,846		73,906		53,246
Provision for (benefit from) income taxes	$	174,936	$	187,597	$	196,151

The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09:


	Year Ended December 31, 2025
	Amount		Percent
US federal statutory income tax rate	$	122,911	21.0	%
State income taxes, net of federal tax benefit*	25,901		4.4
Foreign tax effects
Switzerland
Statutory tax rate difference between Switzerland and U.S.	(11,536)		(2.0)
Canton tax	3,233		0.6
Swiss tax rate change - Remeasurement of deferred tax assets	15,136		2.6
Other	4,102		0.7
Mexico
Impairment Loss	7,111		1.2
Other	1,303		0.2
Other Foreign Jurisdictions	14,135		2.4
Effect of cross-border tax laws:
Subpart F	21,622		3.7
Foreign-derived intangible income	(13,611)		(2.3)
Other	825		0.2
Tax Credits
Research and development tax credits	(7,840)		(1.3)
Nontaxable or Nondeductible Items
Share-based payment awards	17,335		3.0
Other	3,219		0.5
Changes in Unrecognized Tax Benefits	(29,673)		(5.1)
Other Adjustments	763		0.1
Income Tax expense	$	174,936	29.9	%

*State and local taxes in California, New York, Minnesota and New York City made up the majority (greater than 50%) of the tax effect in this category.

The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09:


	Year Ended December 31
	2024		2023
U.S. federal statutory income tax rate	21.0	%	21.0	%
State income taxes, net of federal tax benefit	2.2		2.9
U.S. tax on foreign earnings	5.4		3.7
Impact of differences in foreign tax rates	(2.0)		1.4
Stock-based compensation	3.4		3.0


Settlement on audits	—		0.1

Change in valuation allowance	0.9		(1.3)
Other items not individually material	(0.1)		(0.2)
Effective tax rate	30.8	%	30.6	%

As of December 31, 2025 and 2024, the significant components of our deferred tax assets and liabilities are (in thousands):


	December 31,
	2025		2024
Deferred tax assets:
Net operating loss and capital loss carryforwards	$	1,683	$	2,741
Reserves and accruals	61,496		67,221
Stock-based compensation	30,975		29,255
Deferred revenue	140,486		146,509
Capitalized research & development	23,021		32,027
Amortizable tax basis in intangibles	1,283,968		1,301,338


Other	649		12,282
Deferred tax assets before valuation allowance	1,542,278		1,591,373
Valuation allowance	(11,498)		(19,390)
Total deferred tax assets	1,530,780		1,571,983

Deferred tax liabilities:
Depreciation and amortization	$	11,610	$	16,485
Acquisition-related intangibles	16,357		28,868
Other	14,426		4,511
Total deferred tax liabilities	42,393		49,864
Net deferred tax assets	$	1,488,387	$	1,522,119

As of December 31, 2025, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain interest expense carryovers, capital loss carryovers and unrealized translation losses as we are unable to forecast sufficient future profits to realize these deferred tax assets. The total valuation allowance as of December 31, 2025 was $11.5 million. During the year ended December 31, 2025, the valuation allowance decreased by $7.9 million primarily due to the change in deferred tax assets on certain interest expense and unrealized translation losses from our German subsidiaries. We may be required to adjust the valuation allowance for deferred tax assets if we determine, based on available evidence at the time of the determination, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. This assessment includes deferred tax assets associated with our Switzerland tax deductible basis created from our 2020 intra-entity transfer of intellectual property, which have a finite utilization period and depend on our ability to generate sufficient taxable income in that jurisdiction. Any changes to the valuation allowance, particularly those related to our Switzerland deferred tax assets, could have a material adverse effect on our results of operations.

As of December 31, 2025, we have foreign net operating loss carryforwards of approximately $4.7 million, attributed mainly to losses in Russia and Germany. The losses in Germany can be carried forward indefinitely. The operating loss carryforwards in Russia, if not utilized, will expire beginning 2033.

The changes in the balance of gross unrecognized tax benefits, which exclude interest and penalties, for the years ended December 31, 2025, 2024 and 2023, are as follows (in thousands):


	Year Ended December 31,
	2025		2024		2023
Gross unrecognized tax benefits at January 1,	$	145,534	$	149,172	$	141,560
Increases related to tax positions taken during the current year	8,879		12,264		8,616

Increases related to tax positions taken during a prior year	1,288		2,031		5,647
Decreases related to tax positions taken during a prior year	(4,286)		(3,924)		(533)
Decreases related to expiration of statute of limitations	(33,988)		(14,009)		(3,654)
Decreases related to settlement with tax authorities	—		—		(2,464)
Gross unrecognized tax benefits at December 31,	$	117,427	$	145,534	$	149,172

The total amount of gross unrecognized tax benefits as of December 31, 2025 was $117.4 million, of which $111.9 million would impact our effective tax rate if recognized.

We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and Switzerland. We are under IRS audit for U.S. federal tax returns from 2018 to 2020. For U.S state tax returns, we are no longer subject to tax examinations for years before 2020. With few exceptions, we are no longer subject to examination by other foreign tax authorities for years before 2017.

We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes. Interest and penalties included in tax expense for the years ended December 31, 2025, 2024 and 2023 as well as accrued as of December 31, 2025 and 2024 were not material.

Disclosed below is a summary of income taxes paid by jurisdiction pursuant to the disclosure requirement of ASU 2023-09 for the year ended December 31, 2025:


	Year Ended December 31, 2025
United States - Federal	$	72,872
United States - State and local	13,792
Israel	7,291
Other foreign jurisdictions	40,798
Total income taxes paid	$	134,753

Historical Timeline

Fiscal Year	Filed
2025	Feb 27, 2026	Showing above
2020	Feb 26, 2021

2019	Feb 28, 2020

2018	Feb 28, 2019

2017	Feb 28, 2018

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.

ALIGN TECHNOLOGY INC Income Taxes Disclosure

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About Income Taxes Disclosures

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