Expensify, Inc.EXFY
Expensify, Inc. Income Taxes Disclosure
INCOME TAXES
The components of the Company's loss before income taxes consisted of the following (in thousands):
| Year ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Domestic | $ | (17,784) | $ | (3,399) | |||||||
| Foreign | 1,491 | 1,007 | |||||||||
Total loss before income taxes | $ | (16,293) | $ | (2,392) | |||||||
The components of the Company’s provision for income taxes are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Current: | |||||||||||
| Federal | $ | (2,573) | $ | (4,849) | |||||||
| State | (615) | (688) | |||||||||
| Foreign | (1,903) | (2,168) | |||||||||
| Total current | (5,091) | (7,705) | |||||||||
| Deferred: | |||||||||||
| Foreign | (5) | 42 | |||||||||
| Total deferred | (5) | 42 | |||||||||
Total provision for income taxes | $ | (5,096) | $ | (7,663) | |||||||
The Company adopted ASU 2023-09, Improvements to Income Tax Disclosures, on a prospective basis beginning with the year ended December 31, 2025. The following table presents required disclosures pursuant to ASU 2023-09 and reconciles the U.S. statutory federal income tax amount and rate to the Company's effective income tax amount and rate for the year ended December 31, 2025 (in thousands, except for percentages):
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| Statutory tax | $ | (3,422) | 21.0 | % | |||||||
State and local income tax, net of federal income tax effect(1) | 573 | (3.5) | |||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Stock-based compensation | 3,786 | (23.2) | |||||||||
| 162(m) limitation | 259 | (1.6) | |||||||||
| Other nondeductible items | (22) | 0.2 | |||||||||
| Change in valuation allowance | 3,546 | (21.8) | |||||||||
| Tax credits: | |||||||||||
| Research and development credit | (969) | 5.9 | |||||||||
| Foreign tax credit | (702) | 4.3 | |||||||||
| Effects of cross-border tax laws: | |||||||||||
| GILTI | 689 | (4.2) | |||||||||
| Other | (23) | 0.2 | |||||||||
| Foreign tax effects: | |||||||||||
| United Kingdom | |||||||||||
| Nondeductible stock-based compensation | 666 | (4.1) | |||||||||
| Other | 146 | (0.9) | |||||||||
| Australia | |||||||||||
| Nondeductible stock-based compensation | 347 | (2.1) | |||||||||
| Statutory income tax rate differential | 174 | (1.1) | |||||||||
| Canada | |||||||||||
| Nondeductible stock-based compensation | 224 | (1.4) | |||||||||
| Other | 76 | (0.5) | |||||||||
| Netherlands | (37) | 0.2 | |||||||||
| Changes in unrecognized tax benefits | (215) | 1.3 | |||||||||
| Effective income tax | $ | 5,096 | (31.3) | % | |||||||
(1) The states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include New York, Massachusetts, Colorado, New York City, and District of Columbia.
The following table presents the required disclosures prior to the Company's adoption of ASU 2023-09 and reconciles the U.S. statutory federal income tax rate to the Company's effective income tax rate as follows:
| Year Ended December 31, | |||||
| 2024 | |||||
| Statutory rate | 21.0 | % | |||
| State tax | (22.9) | ||||
| Research and development credit | 48.5 | ||||
| GILTI | (33.4) | ||||
| Foreign tax credit | 33.2 | ||||
| Rate differentials for controlled foreign corporations and charitable organizations | (14.3) | ||||
| Permanent items and others | 1.6 | ||||
| Stock-based compensation | (235.6) | ||||
| Change in valuation allowance | (55.4) | ||||
| 162(m) limitation | (63.1) | ||||
| Effective income tax rate | (320.4) | % | |||
Upon adoption of ASU 2023-09, cash paid for income taxes, net of refunds received, were as follows (in thousands):
| Year Ended December 31, | |||||
| 2025 | |||||
| Federal taxes | $ | 3,203 | |||
| State and local taxes | 515 | ||||
| Foreign taxes: | |||||
| United Kingdom | 911 | ||||
| Australia | 589 | ||||
| Canada | 380 | ||||
| Netherlands | 93 | ||||
| Total cash paid for income taxes, net of refunds | $ | 5,691 | |||
The amount of cash paid for income taxes during the year ended December 31, 2024 was $5.1 million.
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Capitalized research and development | $ | 13,468 | $ | 10,295 | |||||||
| Stock-based compensation | 1,950 | 2,436 | |||||||||
| Lease liabilities | 1,409 | 1,611 | |||||||||
| Accruals, reserves and other | 815 | 529 | |||||||||
| Estimated putative class action liability | 685 | — | |||||||||
| Property and equipment | 534 | 770 | |||||||||
| Tax credit carryforwards | 479 | 134 | |||||||||
| Net operating loss carryforwards | 107 | 107 | |||||||||
| Total deferred tax assets | 19,447 | 15,882 | |||||||||
| Less: valuation allowance | (14,219) | (9,872) | |||||||||
| Deferred tax assets, net of valuation allowance | 5,228 | 6,010 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Capitalized software development costs | (3,337) | (3,969) | |||||||||
| Lease right-of-use assets | (1,161) | (1,356) | |||||||||
| Capitalized commissions | (236) | (186) | |||||||||
| Total deferred tax liabilities | (4,734) | (5,511) | |||||||||
| Deferred tax assets, net | $ | 494 | $ | 499 | |||||||
H.R.1, enacted on July 4, 2025, introduced provisions that modified the Internal Revenue Code (“IRC”), including the immediate expensing of domestic research and development expenditures for tax purposes. As previously required under the TCJA, the Company capitalized and amortized research and experimental (“R&D”) expenditures under IRC Section 174 for tax years beginning after December 31, 2021. With the enactment of H.R.1 in 2025, the Company began deducting domestic Section 174 costs in the year they were incurred. The Company will continue to capitalize and amortize R&D costs over 15 years for R&D performed outside of the U.S. During the years ended December 31, 2025 and 2024, the Company capitalized R&D costs of $25.0 million and $17.7 million, respectively. The deferred tax assets related to unamortized Section 174 costs are offset by a valuation allowance as of December 31, 2025 and 2024.
Under the provisions of ASC 740, Income Taxes, the Company assessed its ability to realize the benefits of its deferred tax assets by evaluating all available positive and negative evidence, objective and subjective in nature, including cumulative results of operations in recent years, sources of recent pre-tax income, projected reversals of existing taxable temporary differences, and estimates of future taxable income. As of December 31, 2025, the Company concluded it is more likely than not that the Company will not have the ability to realize the benefits of its domestic deferred tax assets in excess of existing taxable temporary differences and therefore recorded a valuation allowance on the remaining domestic deferred tax assets.
As of December 31, 2025 and 2024, the Company had $1.5 million available net operating loss carryforwards for state tax purposes, which expire in 2046. As of December 31, 2025 and 2024, the
Company had state research and development tax credit carryforwards of $1.2 million and $0.8 million, respectively. The state tax credits do not expire and will carry forward indefinitely until utilized.
The Company follows the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. As of December 31, 2025 and 2024, the Company recorded an uncertain tax position liability of $1.6 million and $1.5 million, respectively, within Other liabilities on the Consolidated Balance Sheets.
Approximately $1.6 million and $1.5 million of the unrecognized tax benefits for the years ended December 31, 2025 and 2024, respectively, if recognized, would affect the effective tax rate. A reconciliation of the amount of unrecognized tax benefits is as follows (in thousands):
| Year ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Balance as of January 1 | $ | 1,942 | $ | 2,050 | |||||||
| Additions based on tax positions related to current year | 283 | 300 | |||||||||
| Additions based on tax positions related to prior year | 128 | 242 | |||||||||
| Reductions based on tax positions related to prior year | (8) | (72) | |||||||||
Expiration of the statute of limitations | (445) | (578) | |||||||||
| Balance as of December 31 | $ | 1,900 | $ | 1,942 | |||||||
The Company recognizes penalties and interest expense related to income taxes as a component of tax expense. There are immaterial amounts of interest and penalties recorded in the Consolidated Statements of Operations for each of the years ended December 31, 2025 and 2024, and $0.3 million and an immaterial amount on the Consolidated Balance Sheets as of December 31, 2025 and 2024, respectively. The Company anticipates that it is reasonably possible its unrecognized benefits will decrease by $0.4 million, exclusive of interest and penalties, within 2026 mainly due to the expiration of the statute of limitations.
The Company's federal and state returns for the tax years ended from December 2018 to December 2025 remain open to examination.
An examination of the Company's 2021 federal tax return by the Internal Revenue Service (“IRS”) commenced in Q4 2024. The IRS concluded this examination as of June 30, 2025. There were no adjustments proposed by the IRS as a result of the examination.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 8, 2023 | |
| 2021 | Mar 31, 2022 | |
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.