American Well Corp Income Taxes Disclosure

16. Income Taxes

Beginning in 2025 annual reporting, we adopted ASU 2023-09 prospectively. See Note 2 — Summary of Significant Accounting Policies – Recently Adopted Accounting Pronouncements for additional details on the adoption of ASU 2023-09. A reconciliation of the U.S federal statutory income tax rate to our effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

The Company’s effective income tax rate for the year ended December 31, 2025, is (0.5)%, compared to the U.S. federal statutory income tax rate of 21%. The effective tax rate differs from the U.S. statutory rate due to the following – State and local income tax expense, presented net of federal benefit, primarily relates to operations in Texas and Pennsylvania, with remaining state activity included in other jurisdictions. Foreign tax effect primarily relates to operations in Israel, Ireland and the United Kingdom, including the impact of stock-based compensation, transfer-pricing adjustments, and unrealized foreign exchange gains and losses. The decrease in the effective tax rate for the period in the U.S. was primarily driven by changes in valuation allowance, partially offset by non-deductible stock-based compensation, deferred compensation and research and development cost capitalization accelerated amortization.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred in the U.S. since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net domestic deferred tax assets as of December 31, 2025, 2024 and 2023. Management reevaluates the positive and negative evidence at each reporting period.

As of December 31, 2025, the Company has federal net operating loss carryforwards of approximately $1,186,959, which begin to expire in 2026. The Company’s federal net operating losses generated for the years ended after December 31, 2017, which amounted to a total of $958,419, can be carried forward indefinitely. The Company has tax effected state net operating losses of approximately $52,908, which began to expire in 2024. In addition, the Company has federal and state research and development tax credit carryforwards of $12,853 and $3,081, which begin to expire in 2027 and 2035, respectively.

Utilization of the Company’s net operating loss ("NOL") carryforwards and research and development ("R&D") credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 ("Section 382") as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. Since its formation, the Company has raised capital through the issuance of capital stock on several occasions. These financings, combined with the purchasing shareholders’ subsequent disposition of those shares, could result in a change of control as defined by Section 382. The Company conducted an analysis under Section 382 to determine if historical changes in ownership through December 31, 2021 would limit or otherwise restrict its ability to utilize its NOL and R&D credit carryforwards. As a result of this analysis, it was determined that $1,680 federal and $6,391 state net operating loss carryforwards generated through December 31, 2021 will expire unused. The Company also conducted an updated analysis under Section 382 to determine if historical changes in ownership through December 31, 2024 would limit or otherwise restrict its ability to utilize its NOL and R&D credit carryforwards. No changes were identified other than those noted in the prior Section 382 study completed as of December 31, 2021. Changes in ownership occurring after December 31, 2024, could affect the limitation in future years, and any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization.

The Company does not have unrecognized tax benefits related to uncertain tax positions. The Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception. The tax years 2006 through 2025 remain open to examination by major taxing jurisdictions to which the Company is subject, which is primarily in the United States (U.S.), as carryforward attributes generated in prior years may still be adjusted upon examination by the Internal Revenue Service (IRS) or state tax authorities if they have or will be used in a future period. The Company files income tax returns in the U.S. federal and various state jurisdictions. There are currently no federal or state audits in progress by the IRS or any other jurisdiction other than Israel for any tax years. Israel has open audits for the years ending December 31, 2021 through December 31, 2023.