Evolent Health, Inc.EVH
Evolent Health, Inc. Income Taxes Disclosure
Income Taxes
Loss from Continuing Operations before Income Taxes
Our loss from continuing operations before income taxes (in thousands) was as follows:
| For the Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (539,998) | $ | (68,401) | $ | (206,344) | |||||||||||
| Foreign | 5,362 | 5,365 | 3,939 | ||||||||||||||
| Loss from continuing operations before income taxes | $ | (534,636) | $ | (63,036) | $ | (202,405) | |||||||||||
Components of Income Tax Benefit
Components of income tax benefit (in thousands) consist of the following:
| For the Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| State and local | 1,350 | 125 | 2,855 | ||||||||||||||
| Foreign | 1,506 | 1,451 | 1,034 | ||||||||||||||
| Total current tax expense | 2,856 | 1,576 | 3,889 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | (13,096) | (12,259) | (42,156) | ||||||||||||||
| State and local | (1,579) | (6,521) | (12,822) | ||||||||||||||
| Foreign | (305) | (49) | 510 | ||||||||||||||
| Total deferred tax benefit | (14,980) | (18,829) | (54,468) | ||||||||||||||
| Change in valuation allowance | 11,998 | 15,840 | (38,786) | ||||||||||||||
| Total tax benefit | $ | (126) | $ | (1,413) | $ | (89,365) | |||||||||||
Reconciliation of the Effective Tax Rate
A reconciliation of the U.S. statutory tax rate to our effective tax rate is presented below (amounts in thousands):
| For the Year Ended December 31, 2025 | |||||||||||
| Amount | Percent | ||||||||||
| U.S. federal statutory tax rate | $ | (112,274) | 21.0 | % | |||||||
State and local income tax, net of federal income tax effect (1) | (1,614) | 0.3 | % | ||||||||
| Foreign tax effects | 13 | 0.0 | % | ||||||||
| Effect of cross border tax laws | 46 | 0.0 | % | ||||||||
| Tax credits | (645) | 0.1 | % | ||||||||
| Changes in valuation allowances | 13,118 | (2.5) | % | ||||||||
| Changes in unrecognized tax benefits | 175 | 0.0 | % | ||||||||
| Other | (135) | 0.0 | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Goodwill | 92,986 | (17.4) | % | ||||||||
| Stock-based compensation | 6,715 | (1.3) | % | ||||||||
| Other | 1,489 | (0.2) | % | ||||||||
| Effective tax rate | $ | (126) | 0.0 | % | |||||||
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(1)Material states include Illinois, Pennsylvania and Maryland.
| For the Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| U.S. statutory tax rate | 21.0 | % | 21.0 | % | |||||||
| U.S. state income taxes, net of U.S. federal tax benefit | 3.6 | % | 3.0 | % | |||||||
| Foreign earnings at other than U.S. rates | (0.3) | % | (0.3) | % | |||||||
| Change in valuation allowance | (25.1) | % | 19.2 | % | |||||||
| Contingent consideration adjustments | (2.9) | % | (1.2) | % | |||||||
| Non-deductible excess compensation | (8.1) | % | (6.8) | % | |||||||
| Excess tax benefits on stock-based compensation | 4.8 | % | 7.1 | % | |||||||
| Change in uncertain tax positions | 0.3 | % | (0.5) | % | |||||||
| Nondeductible transaction costs | (0.1) | % | (0.2) | % | |||||||
| Change in state rate | 6.1 | % | 2.2 | % | |||||||
| Return to provision and other deferred adjustments | 1.7 | % | (0.1) | % | |||||||
| Tax receivable agreement | 0.3 | % | (0.9) | % | |||||||
Research and development tax credit - federal | 1.2 | % | 1.7 | % | |||||||
| Other, net | (0.3) | % | — | % | |||||||
| Effective tax rate | 2.2 | % | 44.2 | % | |||||||
Income Taxes Paid
Income taxes paid, net of refunds received during the year ended December 31, 2025, consisted of the following (in thousands):
| For the Year Ended December 31, 2025 | |||||
| U.S. federal | $ | — | |||
| U.S. state and local | |||||
| Georgia | (109) | ||||
| Indiana | (85) | ||||
| Kentucky | 76 | ||||
| North Carolina | 78 | ||||
| Pennsylvania | 959 | ||||
| Texas | 89 | ||||
| Other | (46) | ||||
| Foreign | |||||
| India | 1,638 | ||||
| Total | $ | 2,600 | |||
Income taxes paid, net of refunds received during the years ended December 31, 2024 and 2023 were $1.4 million and $4.9 million, respectively.
Deferred Taxes
Deferred tax balances reflect the impact of temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at the tax rates expected to be in effect when the temporary differences are expected to be recovered or settled.
Significant components of the Company’s deferred tax assets and liabilities (in thousands) were as follows:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Start-up and organizational costs | $ | 17 | $ | 38 | |||||||
| Goodwill | — | 7,786 | |||||||||
| Operating lease liabilities | 4,142 | 12,036 | |||||||||
| Accrued expenses | 7,502 | 5,682 | |||||||||
| Stock based compensation | 3,868 | 4,640 | |||||||||
| Net operating loss carryforwards | 138,795 | 125,248 | |||||||||
| Debt | 15,270 | — | |||||||||
| Federal and state research tax credits | 5,485 | 5,014 | |||||||||
| Fixed assets | 377 | 363 | |||||||||
| Interest deduction limitation | 37,532 | 23,851 | |||||||||
| Outside basis differences | — | 982 | |||||||||
| Other | 8,385 | 7,890 | |||||||||
| Subtotal | 221,373 | 193,530 | |||||||||
| Valuation allowance | (74,878) | (47,844) | |||||||||
| Total deferred tax assets | 146,495 | 145,686 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Internally developed software costs | 15,387 | 2,384 | |||||||||
| Intangible assets | 128,306 | 146,234 | |||||||||
| Right-of-use assets - Operating | 477 | 670 | |||||||||
| Goodwill | 89 | — | |||||||||
| Contract fulfillment costs | 3,384 | 3,345 | |||||||||
| Outside basis differences | 284 | — | |||||||||
| Other | 4,042 | 2,453 | |||||||||
| Total deferred tax liabilities | 151,969 | 155,086 | |||||||||
Net deferred tax liabilities (1) | $ | (5,474) | $ | (9,400) | |||||||
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(1)Amount is net of $2.0 million and $1.5 million of deferred tax assets included in prepaid expenses and other noncurrent assets on the consolidated balance sheets as of December 31, 2025 and 2024, respectively.
Valuation Allowance
Changes in our valuation allowance (in thousands) were as follows:
| For the Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Balance at beginning-of-year | $ | 47,844 | $ | 32,004 | |||||||
| Credited to costs and expenses | 11,998 | 15,840 | |||||||||
Charged to other accounts (1) | 15,036 | — | |||||||||
| Balance at end-of-year | $ | 74,878 | $ | 47,844 | |||||||
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(1)Amounts charged to other accounts includes $15.0 million charged to shareholders’ equity for the year ended December 31, 2025.
For the year ended December 31, 2025, the effective tax rate was 0.0% and the corresponding tax benefit recorded was $0.1 million. The Company and its U.S. subsidiaries continue to record a valuation allowance against its net deferred tax assets, with the exception of indefinite lived components. The income tax benefit recorded during the year ended December 31, 2025, primarily relates to the tax effect of net losses, offset by the increase in valuation allowance, nondeductible goodwill and state and foreign taxes.
For the year ended December 31, 2024, the effective tax rate was 2.2% and the corresponding tax benefit recorded was $1.4 million. The Company and its U.S. subsidiaries continue to record a valuation allowance against its net deferred tax assets, with the exception of indefinite lived components. The income tax benefit recorded during the year ended December 31, 2024, primarily related to the tax effect of net losses, offset by the increase in valuation allowance and state and foreign taxes.
For the year ended December 31, 2023, the effective tax rate was 44.2% and the corresponding tax benefit recorded was $89.4 million. The Company and its U.S. subsidiaries continue to record a valuation allowance against its net deferred tax assets, with the exception of indefinite lived components. The income tax benefit recorded during the year ended December 31, 2023, primarily related to the deferred tax liabilities established as part of the NIA acquisition accounting, partially offset by state and foreign taxes.
As of December 31, 2025, the Company had $155.9 million of federal and $254.3 million of state NOL carryforwards available to offset future taxable income that begin to expire in 2034 and 2026, respectively, and $354.5 million of federal and $335.0 million of state NOLs with an indefinite carryforward period, subject to a utilization limit of 80% of taxable income in any given year. We have established a valuation allowance against those NOLs that cannot be offset with future deferred tax liabilities. Furthermore, Internal Revenue Code Section 382 imposes limitations on the utilization of NOLs in the event of certain changes in ownership of the Company, which may have occurred or could occur in the future. This could result in an annual limit on the Company’s ability to utilize NOLs and could cause federal and state income taxes to be due sooner than if no such limitations applied.
As of December 31, 2025, the Company had $7.1 million and $0.3 million of research and development credits for federal and state income tax purposes, respectively, which expire beginning in 2037 and 2028, respectively.
Unrealized Tax Benefits
Changes in our unrecognized tax benefits (in thousands) were as follows:
| For the Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at beginning-of-year | $ | 2,547 | $ | 2,600 | $ | 1,624 | |||||||||||
| Gross increases - tax positions in prior period | — | — | 7 | ||||||||||||||
| Gross decreases - tax positions in prior period | (64) | (30) | — | ||||||||||||||
| Gross increases - tax positions in current period | 239 | 232 | 969 | ||||||||||||||
| Lapse of statute of limitations | — | (255) | — | ||||||||||||||
| Balance at end-of-year | $ | 2,722 | $ | 2,547 | $ | 2,600 | |||||||||||
We are subject to taxation in various jurisdictions in the United States, India and the Philippines. Tax years 2011 and all subsequent periods remain subject to examination by the federal and state taxing jurisdictions due to the utilization and availability of NOL carryforwards. Included in the balance of unrecognized tax benefits as of December 31, 2025, are $2.7 million of tax benefits that, if recognized, would affect the overall effective tax rate. The Company recognized no interest and penalties related to uncertain tax
positions in income tax expense for all years presented. The Company has accrued interest and penalties related to uncertain tax positions of $0.3 million as of both December 31, 2025 and December 31, 2024, respectively. The Company and its subsidiaries are not currently subject to any material income tax audits in any federal, state or local jurisdiction for any tax year. The Company’s foreign subsidiary is currently under an income tax examination of the financial year ended 2022 India income tax return.
On July 4, 2025, new U.S. tax legislation H.R.1, referred to as the One Big Beautiful Bill Act ("OBBBA"), was signed into law. OBBBA contains several changes to corporate taxation including modifications to capitalization of research and development expenses, limitations on deductions for interest expense, and accelerated fixed asset depreciation. During the third quarter of 2025, the Company completed its assessment of OBBBA and elected to accelerate the amortization of its previously capitalized and unamortized U.S. research and development costs over a one-year period as permitted under the new legislation. The financial impact of the enactment is included in the Company’s operating results for the year ended December 31, 2025.
Tax Receivables Agreement
Pursuant to the Offering Reorganization, Class B Exchanges increased our tax basis in our share of Evolent Health LLC’s tangible and intangible assets. These increases in tax basis increase our depreciation and amortization deductions and create other tax benefits and, therefore, may reduce the amount of tax that we would otherwise be required to pay in the future. In addition, certain NOLs of Evolent Health Holdings (and of an affiliate of TPG) are available to us as a result of the Offering Reorganization.
In connection with the Offering Reorganization, we entered into the TRA with the holders of Class B common units. The agreement requires us to pay to such holders 85% of the cash savings, if any, in U.S. federal, state and local, and foreign income tax (as applicable) we realize as a result of any deductions attributable to the increase in tax basis following the Class B Exchanges or deductions attributable to imputed interest or future increases in tax basis following payments made under the TRA. Additionally, pursuant to the same agreement we will pay the former stockholders of Evolent Health Holdings 85% of the amount of the cash savings, if any, in U.S. federal, state and local, and foreign income tax that we realize as a result of the utilization of the NOLs of Evolent Health Holdings (and the affiliate of TPG) attributable to periods prior to the Offering Reorganization, approximately $79.4 million, as well as deductions attributable to imputed interest on any payments made under the agreement. The Company has recorded the full TRA liability of $108.9 million as of December 31, 2025.
We will benefit from the remaining 15% of any realized cash savings. The TRA was effective upon the completion of the Offering Reorganization and will remain in effect until all such tax benefits have been used or expired, or until the agreement is terminated. See Note 10 for additional discussion of the implications of the TRA.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 3, 2017 | |
| 2015 | Feb 29, 2016 | |
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.