Paymentus Holdings, Inc. Income Taxes Disclosure
12. Income Taxes
The components of income before income taxes were as follows (in thousands):
|
Year Ended December 31, |
|
|||||||
|
2025 |
|
2024 |
|
2023 |
|
|||
United States |
$ |
80,857 |
|
$ |
49,116 |
|
$ |
21,225 |
|
Foreign |
|
4,418 |
|
|
4,828 |
|
|
3,899 |
|
Total |
$ |
85,275 |
|
$ |
53,944 |
|
$ |
25,124 |
|
The income taxes paid were as follows (in thousands):
|
Year Ended December 31, |
|
|
|
2025 |
|
|
Federal |
$ |
11,310 |
|
State & Local |
|
3,014 |
|
Foreign |
|
626 |
|
Income tax paid |
$ |
14,950 |
|
The provision for income taxes consisted of the following (in thousands):
|
Year Ended December 31, |
|
|||||||
|
2025 |
|
2024 |
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|||
Federal |
$ |
15,352 |
|
$ |
7,843 |
|
$ |
577 |
|
State & Local |
|
3,149 |
|
|
2,140 |
|
|
750 |
|
Foreign |
|
(213 |
) |
|
1,140 |
|
|
1,061 |
|
Total |
|
18,288 |
|
|
11,123 |
|
|
2,388 |
|
Deferred: |
|
|
|
|
|
|
|||
Federal |
|
279 |
|
|
(865 |
) |
|
328 |
|
State & Local |
|
(303 |
) |
|
(467 |
) |
|
60 |
|
Foreign |
|
74 |
|
|
(16 |
) |
|
26 |
|
Total |
|
50 |
|
|
(1,348 |
) |
|
414 |
|
Total Tax: |
|
|
|
|
|
|
|||
Federal |
|
15,631 |
|
|
6,978 |
|
|
905 |
|
State & Local |
|
2,846 |
|
|
1,673 |
|
|
810 |
|
Foreign |
|
(139 |
) |
|
1,124 |
|
|
1,087 |
|
Provision for income taxes |
$ |
18,338 |
|
$ |
9,775 |
|
$ |
2,802 |
|
The effective income tax rate differs from the federal statutory income tax rate applied to the income before provision for income taxes due to the following:
|
Year Ended December 31, |
|
||||
|
2024 |
|
2023 |
|
||
Federal statutory rate |
|
21.0 |
% |
|
21.0 |
% |
State taxes |
|
4.4 |
% |
|
6.0 |
% |
Non-deductible executive compensation |
|
2.8 |
% |
|
2.5 |
% |
Other permanent differences |
|
0.2 |
% |
|
0.4 |
% |
Excess tax benefit on stock-based compensation |
|
(6.1 |
)% |
|
— |
% |
Difference in prior year tax filings from provision |
|
(0.2 |
)% |
|
1.1 |
% |
Foreign tax rate differences |
|
0.1 |
% |
|
0.3 |
% |
Valuation Allowance |
|
(4.0 |
)% |
|
(21.3 |
)% |
R&D Credits |
|
(0.9 |
)% |
|
(0.4 |
)% |
Other |
|
0.8 |
% |
|
1.6 |
% |
|
|
18.1 |
% |
|
11.2 |
% |
|
Year Ended December 31, |
|
||||
|
2025 |
|
||||
Income before income taxes |
$ |
85,275 |
|
|
|
|
U.S. Federal statutory income tax rate |
|
17,908 |
|
|
21.0 |
% |
Domestic Federal |
|
|
|
|
||
Research & Development Credits |
|
(2,666 |
) |
|
(3.1 |
)% |
Non-taxable and non-deductible items |
|
|
|
|
||
Non-deductible executive compensation |
|
2,120 |
|
|
2.5 |
% |
Excess tax benefits on share-based payments |
|
(2,469 |
) |
|
(2.9 |
)% |
Other |
|
181 |
|
|
0.2 |
% |
Cross-border tax laws |
|
1,048 |
|
|
1.2 |
% |
Changes in valuation allowances |
|
(255 |
) |
|
(0.3 |
)% |
Other |
|
24 |
|
|
0.1 |
% |
Domestic state & local income taxes, net of federal effect (1) |
|
2,846 |
|
|
3.3 |
% |
Foreign tax effects |
|
|
|
|
||
Canada |
|
|
|
|
||
SR&ED credits |
|
(2,539 |
) |
|
(3.0 |
)% |
Other |
|
605 |
|
|
0.7 |
% |
Other foreign jurisdiction |
|
61 |
|
|
0.1 |
% |
Worldwide changes in unrecognized tax benefits |
|
1,474 |
|
|
1.7 |
% |
Effective income tax rate |
$ |
18,338 |
|
|
21.5 |
% |
(1) In 2025 state and local income taxes in Illinois, New York, and Texas comprise the majority of the state and local income taxes, net of federal effect category.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 2025 and 2024 were as follows (in thousands):
|
December 31, |
|
December 31, |
|
||
|
2025 |
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
||
Stock-based compensation and other payroll related accruals |
$ |
4,863 |
|
$ |
4,298 |
|
Federal and state net operating losses |
|
674 |
|
|
410 |
|
Foreign tax credit |
|
29 |
|
|
284 |
|
Operating lease liabilities |
|
2,601 |
|
|
3,054 |
|
Fixed assets |
|
208 |
|
|
161 |
|
Intangible assets |
|
3,941 |
|
|
2,975 |
|
Other |
|
3,765 |
|
|
1,996 |
|
Total deferred tax assets |
|
16,081 |
|
|
13,178 |
|
Valuation allowance |
|
(29 |
) |
|
(284 |
) |
Net deferred tax assets |
$ |
16,052 |
|
$ |
12,894 |
|
Deferred tax liabilities: |
|
|
|
|
||
Goodwill |
|
(9,362 |
) |
|
(7,365 |
) |
Capitalized research and development costs and capitalized internal-use software developments costs |
|
(3,000 |
) |
|
(2,231 |
) |
Operating lease right-of-use assets |
|
(2,434 |
) |
|
(2,850 |
) |
Foregone foreign tax credit |
|
(49 |
) |
|
(81 |
) |
Other |
|
(893 |
) |
|
— |
|
Total deferred tax liabilities |
|
(15,738 |
) |
|
(12,527 |
) |
Net deferred tax assets |
$ |
314 |
|
$ |
367 |
|
The Company had a valuation allowance of an immaterial amount and $0.3 million as of December 31, 2025 and 2024, respectively. The Company retains a valuation allowance against certain foreign tax credits that are not more likely than not to be utilized.
As of December 31, 2025, the Company had an immaterial amount of federal and $7.5 million of state net operating loss carryforwards available to offset future taxable income. State net operating losses, if not utilized, will begin to expire in 2032.
As of December 31, 2025, the Company’s total amount for unrecognized tax benefits relating to tax positions that do not meet the more-likely-than not threshold is $1.6 million. Of this balance, $0.8 million would impact the Company’s effective tax rate if recognized.
|
Year Ended December 31, |
|
||||
|
2025 |
|
2024 |
|
||
Gross unrecognized tax benefits - beginning of year |
|
93 |
|
|
— |
|
Increases related to current year tax positions |
|
510 |
|
|
93 |
|
Increases related to prior year tax positions |
|
964 |
|
|
— |
|
Gross unrecognized tax benefits - end of year |
|
1,567 |
|
|
93 |
|
Interest and penalties related to income tax matters are classified as a component of income tax expense and were immaterial for the years ended December 31, 2025, 2024 and 2023. Although it is possible that certain unrecognized tax benefits may increase or decrease within the next 12 months, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months. As of December 31, 2025, the Company is subject to ongoing examinations in various jurisdictions, but is not aware of any potential tax liabilities associated with the ongoing audits.
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and in various international jurisdictions. The Company’s tax filings remain subject to audits by applicable tax authorities for a certain length of time following the tax year to which those filings relate. Tax years 2021 and forward generally remain open for examination for federal and state tax purposes. Tax years 2020 and forward generally remain open for examination for foreign tax purposes.
The Company has not recorded foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of foreign operations, since such earnings are considered permanently reinvested.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Mar 11, 2025 | |
| 2023 | Mar 5, 2024 | |
| 2022 | Mar 3, 2023 | |
| 2021 | Mar 3, 2022 | |
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.