HEALTHSTREAM INC Income Taxes Disclosure

9. INCOME TAXES

 

Components of income before income taxes are as follows (in thousands):

 

		Year Ended December 31,
		2025				2024				2023
United States		$	23,618			$	25,201			$	18,472
Foreign			(400	)			(398	)			39
Income before income tax provision		$	23,218			$	24,803			$	18,511

 

The provision for income taxes is comprised of the following (in thousands):

 

		Year Ended December 31,
		2025				2024				2023
Current federal		$	(794	)		$	4,712			$	4,066
Current state			536				1,184				942
Current foreign			17				14				15
Deferred federal			4,622				(827	)			(1,493	)
Deferred state			617				(223	)			(214	)
Deferred foreign			(122	)			(64	)			(18	)
Provision for income taxes		$	4,876			$	4,796			$	3,298

 

As noted above, we adopted ASU 2023-09 on a prospective basis effective January 1, 2025. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended December 31, 2025:

 

		Year Ended December 31, 2025
		Amount				Percent
U.S. federal statutory tax rate		$	4,876				21.00	%
State and local income taxes, net of federal income tax effect (a)			1,054				4.54	%
Foreign tax effects
Other foreign jurisdictions(b)			(20	)			-0.09	%
Tax credits
Research and development tax credits			(790	)			-3.40	%
Other adjustments			(244	)			-1.05	%
Effective tax rate		$	4,876				21.00	%

 

^(a) State taxes in California, Minnesota, Oregon, Pennsylvania, Tennessee, and Texas made up the majority (greater than 50%) of the tax effect in this category

^(b) Includes Australia, Canada, and New Zealand

 

The following table presents a pre-ASU 2023-09 adoption reconciliation of income taxes at the statutory federal income tax rate to the provision for income taxes included in the accompanying Consolidated Statements of Income is as follows (in thousands) for the years ended December 31, 2024 and 2023:

 

		2024				2023
Federal tax provision at the statutory rate		$	5,187			$	3,887
State income tax provision, net of federal benefit			710				528
Tax credits			(1,284	)			(1,197	)
Change in valuation allowance			52				3
Adjustments for prior year taxes			(36	)			(19	)
Changes in uncertain tax positions			160				167
Other			7				(71	)
Provision for income taxes		$	4,796			$	3,298

 

Management periodically assesses the realizability of its deferred tax assets, and to the extent that a recovery is not likely, a valuation allowance is established to reduce the deferred tax asset to the amount estimated to be recoverable. At December 31, 2025, the Company has a valuation allowance of $2.0 million recorded against deferred tax assets for state net operating losses and certain foreign deferred tax assets.

 

As of December 31, 2025, the Company had federal, state, and foreign net operating loss carryforwards of $14.4 million, $9.9 million, and $8.0 million, respectively. Certain losses have an indefinite carryforward period, while other loss carryforwards will expire in years 2032 through 2045. A portion of the net operating loss carryforwards are subject to annual limitations under Internal Revenue Code Section 382. The annual limitations could result in the expiration of net operating loss and tax credit carryforwards before they are fully utilized. The Company is subject to income taxation at the federal, foreign, and various state levels. The Company is no longer subject to U.S. federal tax examinations for tax years before 2022, and with few exceptions, the Company is not subject to examination by foreign or state tax authorities for tax years which ended before 2022. Loss carryforwards and credit carryforwards generated or utilized in years earlier than 2022 are also subject to examination and adjustment.

 

A reconciliation of the beginning and ending liability for gross unrecognized tax benefits are as follows (in thousands):

 

		December 31,
		2025				2024
Balance at beginning of year		$	1,140			$	1,160
Additions for tax positions in current year			227				319
Reductions for tax positions of prior years			(216	)			(173	)
Reductions for payments for tax positions of prior years			—				(166	)
Balance at end of year		$	1,151			$	1,140

 

Unrecognized tax benefits included tax positions of $1.2 million and $1.1 million for the years ended December 31, 2025 and 2024, respectively, that if recognized would impact the Company’s effective tax rate. 

 

Significant components of deferred tax assets and deferred tax liabilities are as follows (in thousands):

 

		December 31,
		2025				2024
Deferred tax assets:
Allowance for credit losses		$	368			$	316
Accrued liabilities			736				681
Capitalized software development			—				2,916
Lease liability			4,447				5,097
Tax credits			520				557
Stock-based compensation			1,239				1,267
Deferred revenue			1,404				451
Net operating loss carryforwards			5,548				2,595
Total deferred tax assets			14,262				13,880
Less: Valuation allowance			(1,992	)			(1,900	)
Deferred tax assets, net of valuation allowance			12,270				11,980
Deferred tax liabilities:
Deductible goodwill			8,642				7,796
Nondeductible intangible assets			1,538				1,741
Right of use assets			3,863				4,410
Prepaid assets			12,506				11,156
Capitalized software development			2,478				—
Property and equipment			1,458				1,425
Basis difference on investments			31				48
Total deferred tax liabilities			30,516				26,576
Net deferred tax liabilities		$	18,246			$	14,596

 

We adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and have included the following table as a result of our adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025:

 

Federal		$	960
State
Pennsylvania			94
Texas			95
Other States			605
Foreign			18
Income taxes, net of amounts refunded		$	1,772