Nkarta, Inc. Income Taxes Disclosure

12. Income Taxes

Due to the Company’s net losses for the years ended December 31, 2025 and 2024, and since the Company has a full valuation allowance against deferred tax assets, there was no tax provision or benefit for income taxes recorded in the years presented.

As further described in Note 2, we have elected to prospectively adopt the guidance in ASU 2023-09. The following table is a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the year ended December 31, 2025 in accordance with ASU 2023-09 (in thousands, except percent):

Public Law No. 119–21 was enacted on July 4, 2025, as H.R. 1 during the 119th Congress and formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” ("2025 Reconciliation Act"). The 2025 Reconciliation Act includes several significant tax 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 certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company evaluated the impact of the 2025 Reconciliation Act and determined that it did not have a material impact on the Company’s financial statements for the year ended December 31, 2025.

The Company has a net operating loss and has provided a valuation allowance against net deferred tax assets due to uncertainties regarding the Company’s ability to realize these assets. The valuation allowance increased by $23.9 million and $25.3 million as of December 31, 2025 and 2024, respectively.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. Due to the Company’s history of losses, and lack of other positive evidence, the Company has determined that it is more likely than not that its net deferred tax assets will not be realized, and therefore, the net deferred tax assets are substantially offset by a valuation allowance as of December 31, 2025 and 2024. The deferred tax assets were primarily comprised of federal and state tax net operating losses, capitalized research and development expenditures, and tax credit carryforwards.

As of December 31, 2025, the Company had net operating loss ("NOL") carryforwards of approximately $298.1 million and $65.1 million, available to reduce future taxable income, if any, for federal and California state income tax purposes, respectively. Of the $298.1 million federal NOL carryforwards, $3.2 million will begin expiring in 2035, if not utilized, while $294.9 million can be carried forward indefinitely. The state NOL carryforwards will begin expiring in 2036, if not utilized.

The Company also had federal and state research and development credit carry forwards of approximately $25.1 million and $11.8 million, respectively, as of December 31, 2025. The federal credits will begin expiring in 2035 if not utilized. The California credits have no expiration date.

Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state provisions. The future utilization of the Company’s NOL and tax credit carryforwards to offset future taxable income may be subject to a substantial annual limitation as a result of changes in ownership by stockholders that hold 5% or more of the Company’s common stock. An assessment of such ownership changes under Section 382 was not completed through December 31, 2025. To the extent that an assessment is completed in the future, the Company’s ability to utilize tax attributes could be restricted on a year-by-year basis and certain attributes could expire before they are utilized. The Company will examine the impact of any potential ownership changes in the future.

The balance of gross unrecognized tax benefits as of December 31, 2025 and 2024 was approximately $5.5 million and $4.7 million, respectively, of which none would affect the Company’s effective tax rate if recognized due to the Company's full valuation allowance position. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. No interest or penalties were recorded for the years ended December 31, 2025 and 2024.

As of December 31, 2025, the federal and state returns for the years ended 2015 through the current period remain subject to examination by taxing authorities due to the tax attribute carryforwards. The Company is currently under examination by the Internal Revenue Service ("IRS") for the Company's 2023 United States ("U.S.") income tax return. The Company is not currently under examination by any state income or franchise tax agency.

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law, providing numerous tax provisions and other stimulus measures. Among these was the Employee Retention Credit ("ERC"), a refundable tax credit against certain employment taxes for qualifying businesses that retained employees on their payroll during the COVID-19 pandemic.

In the third quarter of 2025, the Company received approval and payment from the IRS for ERC claims submitted. The Company received $1.7 million, including interest, in payments related to calendar years 2020 and 2021. This amount, due to the uncertainty of eventual receipt following claims made, was not recognized until receipt. For the twelve months ended December 31, 2025, $1.5 million was recognized within other income and $0.2 million was recognized in interest income in the statement of operations.