HEALTHEQUITY, INC.HQY
HEALTHEQUITY, INC. Income Taxes Disclosure
Income taxes
The income tax provision consisted of the following:
| Year ended January 31, | |||||||||||||||||
| (in thousands) | 2026 | 2025 | 2024 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 18,693 | $ | 25,949 | $ | 29,376 | |||||||||||
| State | 3,776 | 6,211 | 3,947 | ||||||||||||||
| Total current tax provision | $ | 22,469 | $ | 32,160 | $ | 33,323 | |||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | 36,679 | $ | (11,886) | $ | (11,004) | |||||||||||
| State | 3,083 | (943) | (2,991) | ||||||||||||||
| Total deferred tax provision (benefit) | $ | 39,762 | $ | (12,829) | $ | (13,995) | |||||||||||
| Total income tax provision | $ | 62,231 | $ | 19,331 | $ | 19,328 | |||||||||||
Total income tax provision differed from the amounts computed by applying the U.S. federal statutory tax rate to income before income taxes as a result of the following (pursuant to ASU 2023-09 disclosure requirements):
| Year ended January 31, | |||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | 2026 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| Federal statutory tax rate | $ | 58,261 | 21.0 | % | $ | 24,367 | 21.0 | % | $ | 15,759 | 21.0 | % | |||||||||||||||||||||||
| State and local income taxes, net of federal income tax effect (1) | 5,367 | 1.9 | % | 4,365 | 3.8 | % | 441 | 0.6 | % | ||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| Research and development tax credits | (2,413) | (1.0) | % | (4,625) | (4.0) | % | (3,019) | (4.0) | % | ||||||||||||||||||||||||||
| Other | (123) | 0.0 | % | (230) | (0.2) | % | (112) | (0.1) | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
| Share-based payment awards | (5,080) | (1.8) | % | (12,529) | (10.8) | % | 258 | 0.3 | % | ||||||||||||||||||||||||||
| Excessive employee remuneration | 5,120 | 1.9 | % | 6,782 | 5.8 | % | 2,939 | 3.9 | % | ||||||||||||||||||||||||||
| Other | 1,014 | 0.4 | % | 1,240 | 1.1 | % | 587 | 0.8 | % | ||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | 76 | 0.0 | % | (39) | 0.0 | % | (47) | (0.1) | % | ||||||||||||||||||||||||||
| Other adjustments | |||||||||||||||||||||||||||||||||||
| IRS examination settlement | — | 0.0 | % | — | 0.0 | % | 2,461 | 3.3 | % | ||||||||||||||||||||||||||
| Other | 9 | 0.0 | % | — | 0.0 | % | 61 | 0.1 | % | ||||||||||||||||||||||||||
| Effective tax rate | $ | 62,231 | 22.4 | % | $ | 19,331 | 16.7 | % | $ | 19,328 | 25.8 | % | |||||||||||||||||||||||
(1)The following states and local jurisdictions contribute the majority (more than 50%) of the tax effect to this category. For the tax year ended January 31, 2026: California, Pennsylvania, Texas, Utah, and Iowa. For the tax year ended January 31, 2025: California, Texas, New Jersey, Pennsylvania, Iowa, and Illinois. For the tax year ended January 31, 2024: California, Texas, and Utah.
The Company’s effective tax rate for the fiscal years ended January 31, 2026, 2025, and 2024 was 22.4%, 16.7%, and 25.8%, respectively. The difference between the effective tax rate and the U.S. federal statutory tax rate each period is impacted by a number of factors, including the relative mix of earnings among state jurisdictions, credits, excess tax benefits or shortfalls on stock-based compensation expense, changes in unrecognized tax benefits and valuation allowance, and other items. The increase in the effective tax rate for the fiscal year ended January 31, 2026 compared to the fiscal year ended January 31, 2025 was primarily due to an increase in pre-tax book income, a reduction in tax benefit from stock-based compensation expense, and a decrease in research and development tax credits net of unrecognized tax benefits, partially offset by tax benefit from deferred tax rate adjustments due to state apportionment changes and a decrease in excessive employee remuneration. The decrease in the effective tax rate for the fiscal year ended January 31, 2025 compared to the fiscal year ended January 31, 2024 was primarily due to an increase in tax benefit from stock-based compensation expense and a decrease in expense from unrecognized tax benefits, partially offset by an increase in pre-tax book income, an increase in nondeductible executive compensation, and increased expense from deferred tax rate adjustments due to state apportionment changes.
Net income tax payments by jurisdiction consisted of the following (pursuant to ASU 2023-09 disclosure requirements):
| Year ended January 31, | |||||||||||||||||
| (in thousands) | 2026 | 2025 | 2024 | ||||||||||||||
| Federal | $ | 5,000 | $ | 20,000 | $ | 30,500 | |||||||||||
| California | 787 | * | * | ||||||||||||||
| Pennsylvania | 441 | * | * | ||||||||||||||
| Other | 1,814 | 6,069 | 4,852 | ||||||||||||||
| State and local | 3,042 | 6,069 | 4,852 | ||||||||||||||
| Total net income tax payments | $ | 8,042 | $ | 26,069 | $ | 35,352 | |||||||||||
*Jurisdiction was below the 5% of total (net) income tax payments threshold for the period
Deferred tax assets and liabilities consisted of the following:
| (in thousands) | January 31, 2026 | January 31, 2025 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforward | $ | 732 | $ | 1,120 | |||||||
| Stock compensation | 8,266 | 11,937 | |||||||||
| Research and development credits | 3,618 | 4,160 | |||||||||
| Lease liabilities | 10,894 | 13,245 | |||||||||
| Capitalized research and development | 18,771 | 53,238 | |||||||||
| Fixed assets | 813 | 1,083 | |||||||||
| Accruals and reserves | 5,174 | 5,099 | |||||||||
| Other, net | 4,499 | 6,632 | |||||||||
| Total gross deferred tax assets | $ | 52,767 | $ | 96,514 | |||||||
| Less valuation allowance | (1,057) | (1,066) | |||||||||
| Deferred tax assets, net of valuation allowance | 51,710 | 95,448 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | (73,260) | (84,120) | |||||||||
| Incremental contract costs | (14,904) | (15,282) | |||||||||
| Right-of-use assets | (8,931) | (10,926) | |||||||||
| Goodwill | (45,680) | (38,205) | |||||||||
| Other, net | (2,645) | (2,749) | |||||||||
| Total gross deferred tax liabilities | (145,420) | (151,282) | |||||||||
| Net deferred tax liabilities | $ | (93,710) | $ | (55,834) | |||||||
Management considered whether it is more likely than not that some portion or all of the deferred tax assets would be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities in making this assessment and determined that based on the weight of all available evidence, it is more likely than not (i.e., a likelihood of more than 50%) that the Company will be able to realize all of its federal deferred tax assets and the majority of its state deferred tax assets. The Company recorded a valuation allowance of $1.1 million as of both January 31, 2026 and 2025, related to certain state deferred tax assets.
As of January 31, 2026, the Company had recorded state net operating loss carryforwards of $11.2 million, which begin to expire at various intervals beginning with the tax year ending January 31, 2036. As of January 31, 2026, the Company also had state research and development tax credit carryforwards of $12.5 million, which begin to expire at various intervals beginning with the tax year ending January 31, 2027.
As of January 31, 2026 and 2025, the gross unrecognized tax benefit was $27.4 million and $24.1 million, respectively. If recognized, $24.1 million and $20.9 million of the total unrecognized tax benefits would affect the
Company's effective tax rate as of January 31, 2026 and 2025, respectively. Total gross unrecognized tax benefits increased by $3.3 million in the period from January 31, 2025 to January 31, 2026.
A tabular reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
| (in thousands) | January 31, 2026 | January 31, 2025 | |||||||||
| Gross unrecognized tax benefits at beginning of year | $ | 24,140 | $ | 19,213 | |||||||
| Gross amounts of increases and decreases: | |||||||||||
| Increases as a result of tax positions taken during a prior period | — | 1,004 | |||||||||
| Decreases as a result of tax positions taken during a prior period | (96) | — | |||||||||
| Increases as a result of tax positions taken during the current period | 4,012 | 5,076 | |||||||||
| Decreases as a result of settlement | (150) | — | |||||||||
| Decreases resulting from the lapse of the applicable statute of limitations | (501) | (1,153) | |||||||||
| Gross unrecognized tax benefits at end of year | $ | 27,405 | $ | 24,140 | |||||||
Certain unrecognized tax benefits are required to be netted against their related deferred tax assets as a result of ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The resulting unrecognized tax benefit recorded within the Company's consolidated balance sheet excludes the following amounts that have been netted against the related deferred tax assets accordingly:
| (in thousands) | January 31, 2026 | January 31, 2025 | |||||||||
| Total gross unrecognized tax benefits | $ | 27,405 | $ | 24,140 | |||||||
| Amounts netted against related deferred tax assets | (8,002) | (8,363) | |||||||||
| Unrecognized tax benefits recorded on the consolidated balance sheet | $ | 19,403 | $ | 15,777 | |||||||
The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of other income, net in the consolidated statements of operations. During the fiscal years ended January 31, 2026, 2025, and 2024, the Company recorded penalties and interest of $0.7 million, $0.6 million, and $0.1 million, respectively, related to unrecognized tax benefits. As of January 31, 2026 and 2025, the Company recorded accrued interest and penalties of $2.7 million and $2.0 million, respectively.
The Company files income tax returns with U.S. federal and state taxing jurisdictions and is currently under examination by the state of California. Such tax examinations may lead to ordinary course adjustments or proposed adjustments to the Company's taxes, net operating losses, and/or tax credit carryforwards. The Company concluded examinations by the states of Texas and New York during the fiscal year ended January 31, 2026, and all necessary adjustments were immaterial. As a result of the Company's net operating loss carryforwards and tax credit carryforwards, the Company remains subject to examination by one or more jurisdictions for tax years after 2006.
In July 2025, the “One Big Beautiful Bill Act” was signed into law. The most significant provision for the Company is the immediate expensing of domestic research and experimental expenditures. Other changes include bonus depreciation allowance on qualified business asset purchases and modifications to the business interest expense limitation calculation. Each of these changes may result in accelerated tax deductions during the current and future tax years. Tax payments for the fiscal year ended January 31, 2026 were significantly reduced, and tax payments for the year ending January 31, 2027 are expected to be significantly reduced, as a result of the accelerated tax deductions. However, the Company's total income tax expense and effective tax rate are not expected to materially change as a result of the new legislation.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Mar 17, 2026 | Showing above |
| 2025 | Mar 18, 2025 | |
| 2024 | Mar 22, 2024 | |
| 2023 | Mar 30, 2023 | |
| 2022 | Mar 31, 2022 | |
| 2021 | Mar 31, 2021 | |
| 2020 | Mar 31, 2020 | |
| 2019 | Mar 28, 2019 | |
| 2018 | Mar 28, 2018 | |
| 2017 | Mar 30, 2017 | |
| 2016 | Mar 31, 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.