Bandwidth Inc.BAND
Bandwidth Inc. Income Taxes Disclosure
14. Income Taxes
The following table presents domestic and foreign components of loss before income taxes for the tax years ended December 31, 2025, 2024 and 2023:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| United States | $ | (3,486) | $ | 7,670 | $ | 759 | |||||||||||
| International | (13,105) | (16,623) | (20,062) | ||||||||||||||
| Loss before income taxes | $ | (16,591) | $ | (8,953) | $ | (19,303) | |||||||||||
Benefit for income taxes from operations consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 39 | $ | (342) | $ | (653) | |||||||||||
| State | (388) | (1,581) | (1,309) | ||||||||||||||
| Foreign | (1,070) | (1,053) | (2,219) | ||||||||||||||
| Total | (1,419) | (2,976) | (4,181) | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (23) | 29 | (75) | ||||||||||||||
| Foreign | 5,121 | 5,376 | 7,216 | ||||||||||||||
| Total | 5,098 | 5,405 | 7,141 | ||||||||||||||
| Income tax benefit | $ | 3,679 | $ | 2,429 | $ | 2,960 | |||||||||||
The table below provides the updated requirements of ASU 2023-09 for 2025, as previously referred to in Note 1, “Description of Business and Summary of Significant Accounting Policies—Recently Adopted Accounting Standards,” to the consolidated financial statements. The effective income tax rate for the year ended December 31, 2025 differs from the statutory federal income tax rate as follows:
| Year Ended December 31, 2025 | |||||||||||
| Amount | Percent | ||||||||||
| (In thousands) | |||||||||||
| United States statutory tax rate | $ | 3,484 | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect (1) | (307) | (1.8) | |||||||||
| Foreign tax effects: | |||||||||||
| Belgium: | |||||||||||
| Effect of rates different than statutory | 297 | 1.8 | |||||||||
| Innovation income deduction | 702 | 4.2 | |||||||||
| Other | (28) | (0.2) | |||||||||
| Ireland: | |||||||||||
| Other | (40) | (0.2) | |||||||||
| United Kingdom: | |||||||||||
| Effect of rates different than statutory | 323 | 1.9 | |||||||||
| Other | (69) | (0.4) | |||||||||
| Other foreign jurisdictions | 115 | 0.7 | |||||||||
| Tax credits: | |||||||||||
| Federal research credits | 4,247 | 25.6 | |||||||||
| Other | 150 | 0.9 | |||||||||
| Changes in valuation allowances | (1,901) | (11.5) | |||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Meals and entertainment | (195) | (1.2) | |||||||||
| Stock-based compensation | (1,700) | (10.2) | |||||||||
| Non-deductible executive compensation | (824) | (5.0) | |||||||||
| Income from branch | (288) | (1.7) | |||||||||
| Other | (125) | (0.8) | |||||||||
| Changes in unrecognized tax benefits | (284) | (1.7) | |||||||||
| Other adjustments: | |||||||||||
| Other | 122 | 0.8 | |||||||||
| Effective tax rate | $ | 3,679 | 22.2 | % | |||||||
________________________
(1) State taxes in Washington, D.C. and Virginia made up greater than 50% of the tax effect in this category.
For the year ended December 31, 2025, the Company recognized an income tax benefit of $3.7 million on pre-tax book loss of $16.6 million, resulting in an effective income tax rate of 22.2%. As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal tax rate | 21.0 | % | 21.0 | % | |||||||
| State tax rate - statutory blended rate | 4.2 | 4.3 | |||||||||
| Other effective state tax adjustments | (8.5) | (5.2) | |||||||||
| Non-deductible expenses | (4.6) | (4.1) | |||||||||
| Non-deductible executive compensation | (12.4) | — | |||||||||
| Research tax benefits | 49.4 | 24.4 | |||||||||
| Stock-based compensation | 1.2 | (18.0) | |||||||||
| Change in valuation allowance | (22.8) | (11.7) | |||||||||
| Deferred tax rate change | 0.1 | 0.6 | |||||||||
| Intangibles and deferred adjustments | (7.3) | — | |||||||||
| Foreign rate differential | 5.4 | 2.8 | |||||||||
| Other | 1.4 | 1.2 | |||||||||
| Total | 27.1 | % | 15.3 | % | |||||||
For the year ended December 31, 2024, the Company recognized an income tax benefit of $2.4 million on pre-tax book loss of $9.0 million, resulting in an effective income tax rate of 27.1%. For the year ended December 31, 2023, the Company recognized an income tax benefit of $3.0 million on pre-tax book income of $19.3 million, resulting in an effective income tax rate of 15.3%.
The following table presents the significant components of the Company’s net deferred tax liability:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Allowance for doubtful accounts | $ | 146 | $ | 276 | |||||||
| Accrued liabilities | 3,497 | 3,256 | |||||||||
| Operating lease liabilities | 56,758 | 56,788 | |||||||||
| Deferred revenue | 1,828 | 1,913 | |||||||||
| Stock-based compensation | 2,322 | 2,826 | |||||||||
| Capitalized research and development expenses | 32,193 | 44,716 | |||||||||
| Tax credits | 19,807 | 15,694 | |||||||||
| Net operating losses | 20,632 | 12,761 | |||||||||
| Other deferred tax assets | 1,641 | 1,859 | |||||||||
| Gross deferred tax assets | 138,824 | 140,089 | |||||||||
| Less: valuation allowance | (71,324) | (70,008) | |||||||||
| Total deferred tax assets | 67,500 | 70,081 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property, plant and equipment | 18,781 | 22,436 | |||||||||
| Goodwill | 1,699 | 1,554 | |||||||||
| Intangibles | 33,058 | 34,305 | |||||||||
| Operating lease assets | 38,441 | 39,090 | |||||||||
| Total deferred tax liabilities | 91,979 | 97,385 | |||||||||
| Net deferred tax liability | $ | 24,479 | $ | 27,304 | |||||||
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA did not change the statutory U.S. federal tax rate. Accordingly, the OBBBA did not require the Company to remeasure its deferred tax assets and liabilities solely because of a rate change. However, the various changes in tax law did impact the Company’s current and deferred tax calculations. The decreased deferred tax asset for capitalized research and development expenses and the increased deferred tax asset for net operating losses is primarily due to this new legislation.
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered its historic performance, the nature of its deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. Based on an analysis of these factors, the Company determined that in 2025, a valuation allowance against U.S. deferred tax assets was required. The valuation allowance increased by $1.3 million during the year ended December 31, 2025.
As of December 31, 2025, the Company had approximately $44.1 million in U.S. federal net operating loss carryforwards, and $19.8 million in U.S. federal tax credits. All U.S. federal net operating loss carryforwards were generated after the enactment of the Tax Cuts and Jobs Act (the “Act”) and as such do not expire, but can only be utilized to offset up to 80% of taxable income in any given year. The U.S. federal tax credits begin to expire in 2039. Additionally, as of December 31, 2025 the Company had approximately $25.8 million in UK loss carryforwards. Under current UK tax law, these losses can be carried forward indefinitely.
As of December 31, 2025, the Company had approximately $76.8 million in state net operating loss carryforwards. If not utilized, some state net operating loss carryforwards will expire at various dates beginning in 2030.
At December 31, 2025, the amount of unremitted earnings generated by the Company’s foreign subsidiaries is not significant. The Company does not assert indefinite reinvestment on a portion of its unremitted earnings of certain foreign subsidiaries as of December 31, 2025. On the earnings that are not indefinitely reinvested, the Company did not recognize deferred income taxes related to those unremitted foreign earnings, due to the tax favorable manner in which it would be repatriated. For the subsidiaries that the Company asserts permanent reinvestment, if repatriation were to occur, the Company would be required to accrue U.S. taxes, if any, and remit applicable withholding taxes as appropriate. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Unrecognized tax benefits—January 1, | $ | 7,438 | $ | 6,170 | |||||||
| Gross increases—tax positions in prior period | 284 | 91 | |||||||||
| Gross increases—tax positions in current period | 1,056 | 1,177 | |||||||||
| Unrecognized tax benefits—December 31, | $ | 8,778 | $ | 7,438 | |||||||
If the $8.8 million of unrecognized tax benefit is recognized, it would not impact the effective tax rate due to the valuation allowance on the Company’s net U.S. deferred tax assets.
For the years ended December 31, 2025, 2024 and 2023, the Company recognized $0.0 million, $0.1 million and $0.3 million, respectively, in interest and penalties related to income taxes within income tax benefit in the accompanying consolidated statements of operations.
The Company files U.S. federal income tax returns as well as income tax returns in many U.S. states and foreign jurisdictions. As of December 31, 2025, the tax years 2022 through 2024 remain open to examination by the major jurisdictions in which the Company is subject to tax. The Company is currently under audit by the Internal Revenue Service for the year ended December 31, 2023.
A summary of income taxes paid (refunded) by jurisdiction is as follows:
| As of December 31, | |||||
| 2025 | |||||
| (In thousands) | |||||
| US Federal | $ | (280) | |||
| State: | |||||
| California | 674 | ||||
| Washington, D.C. | 206 | ||||
| Delaware | 95 | ||||
| New Jersey | 94 | ||||
| Pennsylvania | (157) | ||||
| Other State | (36) | ||||
| Foreign: | |||||
| Belgium | (821) | ||||
| Ireland | 94 | ||||
| Other Foreign | 76 | ||||
| Net Refund | $ | (55) | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 15, 2019 | |
| 2017 | Feb 26, 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.