iRhythm Holdings, Inc.IRTC
iRhythm Holdings, Inc. Income Taxes Disclosure
INCOME TAXES
The components of income (loss) before provision for income taxes are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | (45,602) | $ | (114,203) | $ | (122,974) | |||||||||||
| Foreign | 2,004 | 1,479 | 318 | ||||||||||||||
| Loss before income taxes | $ | (43,598) | $ | (112,724) | $ | (122,656) | |||||||||||
The provision for (benefit from) income taxes consists of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current expense: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 622 | 218 | 401 | ||||||||||||||
| Foreign | 213 | 474 | 349 | ||||||||||||||
| Total current tax expense | 835 | 692 | 750 | ||||||||||||||
| Deferred tax benefit: | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | 118 | (127) | — | ||||||||||||||
| Total deferred tax benefit | 118 | (127) | — | ||||||||||||||
| Total tax expense | $ | 953 | $ | 565 | $ | 750 | |||||||||||
As described in Note 2, Summary of Significant Accounting Policies, the Company has elected to prospectively adopt ASU 2023-09. The following table is a reconciliation of the total income tax expense computed at the U.S. federal statutory rate of 21% to the Company’s total income tax expense for the year ended December 31, 2025, in accordance with ASU 2023-09 (in thousands):
| Year Ended December 31, | ||||||||
| 2025 | ||||||||
Amount | Percentage | |||||||
| U.S. Federal Statutory Tax Rate | $ | (9,156) | 21.0% | |||||
| State Income Taxes, Net of Federal Benefit* | 492 | (1.1)% | ||||||
| Foreign Tax Effects | (91) | 0.2% | ||||||
| Nontaxable or Nondeductible Items | ||||||||
| Stock-Based Compensation | 1,545 | (3.5)% | ||||||
| Nondeductible Executive Compensation | 100 | (0.2)% | ||||||
| Other | 430 | (1.0)% | ||||||
| Tax Credits | ||||||||
| R&D Credits | (3,357) | 7.7% | ||||||
| Change in Valuation Allowance | 10,837 | (24.9)% | ||||||
| Other | 153 | (0.4)% | ||||||
| Provision for income taxes | $ | 953 | (2.2)% | |||||
*State and local taxes in Texas, Philadelphia, and Oregon made up the majority (greater than 50 percent) of the tax effect in this category
The following table is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to ASU 2023-09 (in thousands):
| Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Tax at statutory federal rate | $ | (23,672) | $ | (25,758) | ||||||||||
| State income taxes, net of federal benefit | 307 | 371 | ||||||||||||
| Stock-based compensation | 727 | (820) | ||||||||||||
| Meals and entertainment | 174 | 361 | ||||||||||||
| Section 162(m) limitation - officers compensation | 5,093 | 5,217 | ||||||||||||
| Other | 425 | 823 | ||||||||||||
| Tax credits | (2,160) | (2,160) | ||||||||||||
| Foreign rate differential | 163 | 37 | ||||||||||||
| Change in valuation allowance | 19,508 | 22,679 | ||||||||||||
| Provision for income taxes | $ | 565 | $ | 750 | ||||||||||
The components of the net deferred tax assets are as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 150,672 | $ | 133,233 | |||||||
| Tax credit carryforwards | 24,229 | 19,460 | |||||||||
| Stock-based compensation | 13,991 | 11,810 | |||||||||
Capitalized research expenditures | 11,739 | 24,280 | |||||||||
| Allowances and other | 47,162 | 38,938 | |||||||||
| Lease obligation | 20,558 | 23,011 | |||||||||
| Depreciation and amortization | 8,293 | 4,288 | |||||||||
| Total deferred tax assets | 276,644 | 255,020 | |||||||||
| Less: Valuation allowance | (254,681) | (242,623) | |||||||||
| Net deferred tax assets | 21,963 | 12,397 | |||||||||
| Deferred tax liabilities: | |||||||||||
Capitalized Internal Use Software | (11,387) | — | |||||||||
| ROU assets | (10,391) | (12,094) | |||||||||
| Total deferred tax liabilities | (21,778) | (12,094) | |||||||||
| Total deferred tax assets | $ | 185 | $ | 303 | |||||||
The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including our earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. Due to the uncertainties surrounding the realization of deferred tax assets through future taxable income, the Company has provided a full valuation allowance against its U.S. deferred tax assets, and, therefore, no benefit has been recognized for the net operating loss carryforwards and other deferred tax assets. The U.S. valuation allowance increased by $12.1 million, $24.8 million and $29.7 million for the years ended December 31, 2025, 2024, and 2023, respectively.
The valuation allowance for deferred tax assets consisted of the following activity for the years ended December 31, 2025, 2024, and 2023 (in thousands):
| Balance at Beginning of Year | Additions | Deductions | Balance at End of Year | ||||||||||||||||||||
| Year Ended December 31, 2025 | $ | 242,623 | $ | 12,058 | $ | — | $ | 254,681 | |||||||||||||||
| Year Ended December 31, 2024 | 217,779 | 24,844 | — | 242,623 | |||||||||||||||||||
| Year Ended December 31, 2023 | 188,070 | 29,709 | — | 217,779 | |||||||||||||||||||
As of December 31, 2025, the Company had approximately $604.2 million of federal and $386.4 million of state net operating loss carryforwards available to offset future taxable income which expires in varying amounts beginning in 2031 and 2026, respectively. Federal losses incurred from 2018 can be carried forward indefinitely.
As of December 31, 2025, the Company had tax credit carryforwards of approximately $20.3 million, and $14.5 million available to reduce future taxable income, if any, for both federal and California purposes, respectively. The federal tax credit carryforwards expire beginning in 2027 and the California tax credits can be carried forward indefinitely.
Federal and state tax laws impose restrictions on the utilization of net operating loss carryforwards in the event of a change in our ownership as defined by the Internal Revenue Code, Sections 382. Under Section 382 of the Code, substantial changes in our ownership and the ownership of acquired companies may limit the amount of net operating loss carryforwards that are available to offset taxable income. The annual limitation would not automatically result in the loss of net operating loss carryforwards but may limit the amount available in any given future period.
A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at beginning of year | $ | 6,799 | $ | 5,774 | $ | 4,732 | |||||||||||
| Additions for tax positions taken in current year | 1,420 | 1,080 | 1,080 | ||||||||||||||
| Increases in balance related to prior year tax positions | 186 | — | — | ||||||||||||||
| Decreases in balance related to prior year tax positions | — | (55) | (38) | ||||||||||||||
| Balance at end of year | $ | 8,405 | $ | 6,799 | $ | 5,774 | |||||||||||
The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for taxes. Management determined that no accrual for interest or penalties was required as of December 31, 2025, 2024, and 2023.
The Company files income tax returns in the U.S. and UK jurisdictions. All of the Company's tax years are open to examination by the U.S. federal and state tax authorities. The UK is open to examination for tax years starting 2017 and forward. The Company currently has no federal, state or foreign tax examinations in progress, nor has it had any federal or state examinations since inception.
The table below is a summary of income taxes paid by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 (in thousands):
| Year Ended December 31, | |||||
| 2025 | |||||
| Federal | $ | — | |||
| States | |||||
| Texas | 110 | ||||
| Oregon | 74 | ||||
| Other | 67 | ||||
| Foreign | |||||
| United Kingdom | 887 | ||||
| Other Foreign | 58 | ||||
Total income taxes paid | $ | 1,196 | |||
iRhythm Philippines, Inc. was granted an income tax holiday by the Philippine Board of Investments, providing a 0% income tax rate for three years, from 2025 through 2027. After such period, the subsidiary will be subject to a 5% Special Corporate Income Tax on gross income earned for an additional ten years, through 2037. For the year ended December 31, 2025, the tax holiday reduced income tax expense by approximately $0.5 million. The benefit of the tax holiday on net loss per share (diluted) was $0.02 for 2025.
A deferred tax liability has not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are indefinitely reinvested outside the U.S. Income taxes are generally incurred upon a repatriation of assets, a sale, or a liquidation of the subsidiary. The unrecognized deferred tax liability is not material for the periods presented.
On July 4, 2025, legislation referred to as the One Big Beautiful Bill Act ("OBBBA") was signed into law. The OBBBA makes certain provisions of the Tax Cuts and Jobs Act of 2017 permanent and makes changes to some U.S. corporate tax provisions, many of which have different effective dates. Key corporate tax provisions of the OBBBA include the restoration of 100% bonus depreciation, the introduction of new Section 174A permitting immediate expensing of domestic research and experimental expenditures, modifications to Section 163(j) interest expense limitations, and the expansion of Section 162(m) aggregation requirements. The provisions of the OBBBA did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2025. The Company continues to evaluate the impact of the OBBBA, but does not expect the OBBBA to have a material impact on its effective tax rate.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 4, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 31, 2017 | |
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.