InnovAge Holding Corp.INNV
InnovAge Holding Corp. Income Taxes Disclosure
Income Taxes
The Company’s effective income tax rate for the years ended June 30, 2025 and 2024 was (3.9)% and (6.4)%, respectively, which differed from the amount computed by applying the applicable U.S. federal statutory corporate income tax rate of 21% in each period as a result of the following factors:
| Year ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| in thousands | |||||||||||
| Statutory rate | $ | (7,088) | $ | (4,581) | |||||||
| IRC Section 162(m) limitation (a) | 513 | 504 | |||||||||
| Change in valuation allowance | 7,771 | 6,543 | |||||||||
| Permanent adjustments | 364 | 614 | |||||||||
| Prior year true-up and other | 420 | (349) | |||||||||
| Income from entities not subject to taxation | 1,051 | 404 | |||||||||
| State tax | (1,715) | (1,733) | |||||||||
| Provision (benefit) for income taxes | $ | 1,316 | $ | 1,402 | |||||||
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(a)Reflects the permanent addback for the IRC Section 162(m) limitation, which limits the deduction of compensation for the five highest paid officers to $1.0 million per officer.
Provision (benefit) for income taxes consisted of the following for the years ended June 30, 2025 and 2024:
| Year ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| in thousands | |||||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | 14 | 178 | |||||||||
| Total current tax expense | 14 | 178 | |||||||||
| Deferred: | |||||||||||
| Federal | 62 | 445 | |||||||||
| State | 1,240 | 779 | |||||||||
| Total deferred tax expense | 1,302 | 1,224 | |||||||||
| Total provision (benefit) for income taxes | $ | 1,316 | $ | 1,402 | |||||||
The significant components of deferred tax assets and liabilities were as follows for the years ended June 30, 2025 and 2024:
| Year ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| in thousands | |||||||||||
| Deferred tax assets: | |||||||||||
| Amortization | $ | 707 | $ | 573 | |||||||
| Federal net operating losses | 24,624 | 22,873 | |||||||||
| State net operating losses | 10,045 | 8,053 | |||||||||
| Provision for uncollectible accounts | 1,957 | 1,755 | |||||||||
| Accrued vacation | 868 | 469 | |||||||||
| Reported and estimated claims | 673 | 1,505 | |||||||||
| Stock-based compensation | 467 | 511 | |||||||||
| Accrued bonuses | 1,305 | 1,180 | |||||||||
| Interest Expense | 2,791 | 1,943 | |||||||||
| Lease liability | 7,521 | 9,260 | |||||||||
| Accrued settlement | 2,456 | — | |||||||||
| Total deferred tax assets | 53,414 | 48,122 | |||||||||
| Valuation allowance | (23,036) | (15,948) | |||||||||
| Deferred tax assets, net of valuation allowance | 30,378 | 32,174 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Goodwill | (11,788) | (9,207) | |||||||||
| Depreciation | (12,018) | (16,288) | |||||||||
| Equity investment | (7,679) | (4,696) | |||||||||
| Prepaid expenses | (530) | (705) | |||||||||
| ROU asset | (7,108) | (8,684) | |||||||||
| Other | (16) | (54) | |||||||||
| Total deferred tax liabilities | (39,139) | (39,634) | |||||||||
| Net deferred tax liability | $ | (8,761) | $ | (7,460) | |||||||
Carryforwards
The Company had state net operating loss carryforwards of $230.1 million and $185.8 million at June 30, 2025 and 2024, respectively, which will begin to expire in 2037 if not utilized. Additionally, the Company has federal net operating loss carryforwards of $117.3 million and $108.9 million as of June 30, 2025 and 2024, respectively which do not expire.
Valuation Allowance
The Company has provided $23.0 million and $15.9 million at June 30, 2025 and June 30, 2024, respectively, as a valuation allowance against its deferred tax assets for federal and state net operating losses and state IRC 163(j) interest expense limitations where there is not sufficient positive evidence to substantiate that these deferred tax assets will be realized at a more-likely-than-not level of assurance.
Other
The Company had no uncertain tax positions at June 30, 2025 and 2024.
The Company files income tax returns as a consolidated group, excluding SH1, InnovAge Sacramento, and InnovAge Orlando, in the U.S. federal jurisdiction and various states and is subject to examination by taxing authorities in all of those jurisdictions. From time to time, the Company’s tax returns are reviewed or audited by U.S. federal and various U.S. state-taxing authorities.
The Company believes that adjustments, if any, resulting from these reviews or audits would not be material, individually or in the aggregate, to the Company’s consolidated financial position, results of operations, or liquidity. The Company is subject to income tax examinations by U.S. federal and state jurisdictions for the period ended June 30, 2022 and forward. The Company is subject to income tax examinations by California, Colorado and New Mexico state jurisdictions for the period ended June 30, 2021 and forward.
One Big Beautiful Bill Act
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The net effect of OBBBA did not have a material impact on the Company’s effective tax rate for the year ended June 30, 2025. The Company continues to evaluate the impact of OBBBA on its consolidated financial statements and will update its estimates as additional guidance becomes available.
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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.