Block, Inc.XYZ
Block, Inc. Income Taxes Disclosure
INCOME TAXES
The domestic and foreign components of income (loss) before income taxes were as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 1,509,181 | $ | 1,332,836 | $ | (30,304) | |||||||||||
| Foreign | 180,730 | 24,318 | 1,161 | ||||||||||||||
| Income (loss) before income taxes | $ | 1,689,911 | $ | 1,357,154 | $ | (29,143) | |||||||||||
The components of the provision for income taxes were as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (26,436) | $ | 46,390 | $ | 12,003 | |||||||||||
| State | 24,468 | 38,489 | 14,351 | ||||||||||||||
| Foreign | 52,631 | 71,590 | 51,506 | ||||||||||||||
| Total current provision for income taxes | 50,663 | 156,469 | 77,860 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 339,239 | (1,481,491) | (58,532) | ||||||||||||||
| State | 49,517 | (189,913) | (25,072) | ||||||||||||||
| Foreign | (53,718) | 5,592 | (2,275) | ||||||||||||||
| Total deferred tax provision for (benefit from) income taxes | 335,038 | (1,665,812) | (85,879) | ||||||||||||||
| Total provision for (benefit from) income taxes | $ | 385,701 | $ | (1,509,343) | $ | (8,019) | |||||||||||
The effective income tax rate for the year ended December 31, 2025 differs from the statutory federal income tax rate as follows (in thousands, except percentages):
| Year Ended December 31, 2025 | |||||||||||
| Tax at federal statutory rate | $ | 357,813 | 21.2 | % | |||||||
State and local taxes, net of federal benefit (i) | 72,230 | 4.3 | |||||||||
| Foreign tax effects | |||||||||||
| Ireland | |||||||||||
| Change in valuation allowance | (55,904) | (3.3) | |||||||||
| Other | 4,958 | 0.3 | |||||||||
| Other foreign jurisdictions | 27,402 | 1.6 | |||||||||
| Effect of cross border tax laws | |||||||||||
Subpart F inclusion | 21,872 | 1.3 | |||||||||
Other | 3,819 | 0.2 | |||||||||
| Tax credits | |||||||||||
| Research and development credits | (55,885) | (3.3) | |||||||||
| Changes in valuation allowance | (2,160) | (0.1) | |||||||||
| Non-taxable or non-deductible items | |||||||||||
| Share-based compensation | 13,371 | 0.8 | |||||||||
| Other | 18,975 | 1.1 | |||||||||
Changes in unrecognized tax benefits | (13,605) | (0.8) | |||||||||
| Other | (7,185) | (0.5) | |||||||||
| Total | $ | 385,701 | 22.8 | % | |||||||
(i) A multitude of states contribute to the majority (greater than 50%) of the tax effect in this category, however there is no single jurisdiction that is individually material to the state tax expense.
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:
| December 31, 2024 | December 31, 2023 | ||||||||||
| Tax at federal statutory rate | 21.0 | % | 21.0 | % | |||||||
| State taxes, net of federal benefit | 3.9 | 45.9 | |||||||||
| Foreign rate differential | 1.4 | (175.6) | |||||||||
| Other non-deductible expenses | 2.7 | (21.7) | |||||||||
| Credits | (4.8) | 292.9 | |||||||||
| Other items | 0.1 | (2.2) | |||||||||
| Change in valuation allowance | 0.4 | 11.2 | |||||||||
| Share-based compensation | (2.7) | (16.1) | |||||||||
| Change in uncertain tax positions | 1.3 | (27.4) | |||||||||
| Income (loss) inclusions of U.S. foreign subsidiaries | 0.9 | (216.5) | |||||||||
| Non-deductible executive compensation | 0.2 | (9.2) | |||||||||
| Non-deductible acquisition-related costs | — | (15.0) | |||||||||
| Foreign exchange gain | 0.1 | 174.1 | |||||||||
| Impairment loss | 2.1 | (60.8) | |||||||||
| Return to provision adjustments | 0.3 | 26.9 | |||||||||
| U.S. valuation allowance release | (96.3) | — | |||||||||
| Internal restructuring | (44.4) | — | |||||||||
| Non-deductible penalties | 2.6 | — | |||||||||
| Total | (111.2) | % | 27.5 | % | |||||||
The following is a summary of income taxes paid for the year ended December 31, 2025 (in thousands):
| Year Ended December 31, 2025 | |||||
| Federal | $ | 35,000 | |||
| State and local | |||||
| California | 19,465 | ||||
| Other state and local | 31,869 | ||||
| Foreign | |||||
| United Kingdom | 33,665 | ||||
| Other foreign | 9,391 | ||||
| Total income taxes, net of amounts refunded | $ | 129,390 | |||
The tax effects of temporary differences and related deferred tax assets and liabilities were as follows (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Capitalized costs & research and development capitalization | $ | 300,263 | $ | 886,474 | |||||||
| Accrued expenses | 229,327 | 122,470 | |||||||||
| Net operating loss carryforwards | 548,336 | 388,199 | |||||||||
| Tax credit carryforwards | 530,468 | 485,266 | |||||||||
| Intangible and other assets | 291,363 | 375,316 | |||||||||
| Other | 213,070 | 250,371 | |||||||||
| Total deferred tax assets | 2,112,827 | 2,508,096 | |||||||||
| Valuation allowance | (557,063) | (646,223) | |||||||||
| Total deferred tax assets, net of valuation allowance | 1,555,764 | 1,861,873 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Unrealized gain on investments | (80,433) | (36,582) | |||||||||
| Operating lease right-of-use asset | (52,419) | (52,849) | |||||||||
| Cryptocurrency investment | (121,309) | (133,883) | |||||||||
| Total deferred tax liabilities | (254,161) | (223,314) | |||||||||
Net deferred tax assets | $ | 1,301,603 | $ | 1,638,559 | |||||||
| Reported on the consolidated balance sheets as (after valuation allowance and jurisdictional netting): | |||||||||||
| Deferred tax assets | $ | 1,302,776 | $ | 1,800,994 | |||||||
| Deferred tax liabilities | (1,173) | (162,435) | |||||||||
| Net deferred tax assets | $ | 1,301,603 | $ | 1,638,559 | |||||||
Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain. The Company's deferred tax assets and liabilities are primarily related to U.S. operations. In 2025, the Company's U.S. consolidated group generated a current tax benefit resulting from, among other factors, the One Big Beautiful Bill Act (H.R. 1), which no longer requires the capitalization of certain research and development expenses under Internal Revenue Code ("IRC") Section 174. The Company's U.S. consolidated group has significant deferred tax assets in the form of net operating loss carryovers, tax credit carryovers, capitalized costs resulting from the IRC Section 174 capitalization requirement, and other tax deductible temporary differences.
The Company has maintained a valuation allowance on certain federal deferred tax assets in the form of loss carryovers that have federal limits or restrictions on utilization, foreign tax credit carryovers, and capital losses which do not have sufficient evidence of future income of the appropriate character to recognize. Further, the Company has maintained a full valuation allowance against its California deferred tax assets, which consist primarily of tax loss carryovers and tax credit carryovers. The Company does not have sufficient evidence of future income to realize the California deferred tax assets on a more likely than not basis.
The Company also has a history of tax losses in certain foreign jurisdictions, which it believes are not more likely than not to be realized as of December 31, 2025. Accordingly, the Company retained a full valuation allowance on its deferred tax assets in these jurisdictions. The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income. The valuation allowance decreased by approximately $89.2 million and $1.4 billion during the years ended December 31, 2025 and 2024, respectively. The year ended December 31, 2024 included one-time benefits from income taxes of $1.9 billion related to both the release of the Company's valuation allowance associated with certain federal and state deferred tax assets as well as the recognition of deferred tax assets as part of internal legal entity restructuring efforts.
As of December 31, 2025, the Company had $1.4 billion of federal, $3.9 billion of state, and $755.7 million of foreign net operating loss carryforwards. The remaining federal net operating loss carryforwards have no expiration date. The state operating losses will begin to expire in 2030 and the foreign net operating loss carryforwards will begin to expire in 2026. As of December 31, 2025, the Company had $478.4 million of federal, $300.5 million of state, and $33.4 million of foreign research credit carryforwards. The remaining federal research credit carryforwards will begin to expire in 2038. The state and foreign credit carryforwards have no expiration date.
Utilization of the net operating loss carryforwards and credits may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before they are able to be utilized. The Company does not expect any previous ownership changes, as defined under Section 382 and 383 of the Internal Revenue Code, to result in an ultimate limitation that will materially reduce the total amount of net operating loss carryforwards and credits that can be utilized.
As of December 31, 2025, the Company had unrecognized tax benefits of $626.8 million, of which $69.1 million would impact the annual effective tax rate if recognized and the remainder of which would result in a corresponding adjustment to the valuation allowance.
The change in the balance of unrecognized tax benefit was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefit, beginning of the period | $ | 633,589 | $ | 465,103 | $ | 506,512 | |||||||||||
| Gross increases (decreases) related to prior period tax positions | (24,004) | 34,050 | (7,348) | ||||||||||||||
| Gross increases (decreases) related to current period tax positions | 27,221 | 139,217 | (30,063) | ||||||||||||||
| Reductions related to lapse of statute of limitations | (10,051) | (4,781) | (3,998) | ||||||||||||||
| Unrecognized tax benefit, end of the period | $ | 626,755 | $ | 633,589 | $ | 465,103 | |||||||||||
The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. The Company had total accrued interest and penalties of $22.0 million, $23.8 million, and $22.1 million related to uncertain tax positions for the years ended December 31, 2025, 2024, and 2023, respectively.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company is currently under examination in California for tax years 2013, 2014, and 2016 and in Texas for tax years 2015 to 2019 and Illinois for tax years 2022 and 2023. The Company’s various tax years starting with 2009 to 2024 remain open in various taxing jurisdictions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Feb 27, 2017 | |
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.