Penumbra IncPEN
Penumbra Inc Income Taxes Disclosure
15. Income Taxes
The Company’s income tax (benefit) expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in both the United States and foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax (benefit) expense.
The Company is incorporated in the United States and operates in various countries with different tax laws and rates. A portion of the Company’s income (loss) before taxes and the provision for (benefit from) income taxes are generated from international operations.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“OBBBA”) into law, which extends and modifies various domestic and international business tax framework originally enacted under the Tax Cuts and Jobs Act (“TCJA”). The legislation includes multiple effective dates, with certain provisions taking effect in 2025 and others through 2027. The Company evaluated the OBBBA and included its impact within the consolidated financial statements. The Company will continue to evaluate the full impact of these legislative changes as additional supplemental guidance becomes available.
Income before income taxes for the years ended December 31, 2025, 2024 and 2023 is summarized as follows (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| United States | $ | 190,936 | $ | 20,165 | $ | 72,936 | ||||||||||||||
| Foreign | 14,189 | 704 | 6,714 | |||||||||||||||||
| Total income before income taxes | $ | 205,125 | $ | 20,869 | $ | 79,650 | ||||||||||||||
Income tax (benefit) or provision in 2025, 2024 and 2023 is comprised of federal, state, and foreign taxes.
The components of the (benefit from) provision for income taxes are summarized as follows (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | (156) | $ | 13,452 | $ | 5,897 | ||||||||||||||
| State | 3,454 | 7,115 | 3,033 | |||||||||||||||||
| Foreign | 3,140 | 2,624 | 4,890 | |||||||||||||||||
| Total current | $ | 6,438 | $ | 23,191 | $ | 13,820 | ||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | 18,743 | (10,699) | (19,221) | |||||||||||||||||
| State | 2,036 | (5,231) | (4,648) | |||||||||||||||||
| Foreign | 221 | (404) | (1,255) | |||||||||||||||||
| Total deferred | $ | 21,000 | $ | (16,334) | $ | (25,124) | ||||||||||||||
| Provision for (benefit from) income taxes | $ | 27,438 | $ | 6,857 | $ | (11,304) | ||||||||||||||
The following table presents a reconciliation of the Company’s provision for (benefit from) income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to pretax income after the adoption of ASU 2023-09:
| Year Ended December 31, | ||||||||||||||
| 2025 | ||||||||||||||
| (in thousands) | Percentage | |||||||||||||
| Income tax at federal statutory rate | $ | 43,076 | 21.0 | % | ||||||||||
State and local income taxes, net of federal benefit (1) | 4,219 | 2.1 | ||||||||||||
| Foreign tax effects | 935 | 0.5 | ||||||||||||
| Tax credits | ||||||||||||||
| Research and development tax credits | (2,797) | (1.4) | ||||||||||||
| Nontaxable or nondeductible items: | ||||||||||||||
| Excess tax benefits related to share-based compensation | (23,154) | (11.3) | ||||||||||||
| Meals expenses | 2,549 | 1.2 | ||||||||||||
| Other | 2,083 | 1.0 | ||||||||||||
| Changes in unrecognized tax benefits | 726 | 0.4 | ||||||||||||
| Other | (199) | (0.1) | ||||||||||||
| Effective tax rate | $ | 27,438 | 13.4 | % | ||||||||||
(1) The state and local jurisdictions that contribute to the majority (greater than 50%) for this tax effect include Florida, Texas, Pennsylvania, New York state, Tennessee, Michigan, Illinois, Oregon, Georgia, California and Virginia.
The following table presents a reconciliation of the Company’s provision for (benefit from) income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to pretax income prior to the adoption of ASU 2023-09:
| Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Income tax at federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State income taxes, net of federal benefit | 2.0 | 3.0 | ||||||||||||
| Rate differential on foreign operations | 8.0 | 0.2 | ||||||||||||
| Foreign taxes | (1.0) | 1.5 | ||||||||||||
| Prepaid tax ASC 810-10 | 0.1 | 0.2 | ||||||||||||
| Meals expenses | 9.6 | 1.9 | ||||||||||||
| Stock-based compensation | 2.3 | (8.5) | ||||||||||||
| Permanent differences | 0.6 | 1.0 | ||||||||||||
| Foreign Derived Intangible Income | — | (1.3) | ||||||||||||
| In-Process Research & Development | — | 4.8 | ||||||||||||
| Change in valuation allowance | — | (32.0) | ||||||||||||
| Research and Development tax credits | (12.1) | (5.9) | ||||||||||||
| Other | 2.4 | (0.1) | ||||||||||||
| Effective tax rate | 32.9 | % | (14.2) | % | ||||||||||
Deferred income tax assets and liabilities consist of the following (in thousands):
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating loss carryforwards | $ | 3,039 | $ | 3,089 | ||||||||||
| Tax credits | 28,871 | 26,560 | ||||||||||||
| Accruals and reserves | 10,755 | 17,778 | ||||||||||||
| Capitalized research expenses | 43,067 | 57,323 | ||||||||||||
| Stock-based compensation | 11,358 | 9,447 | ||||||||||||
| UNICAP adjustments | 13,537 | 12,749 | ||||||||||||
| ASC 842 lease liabilities | 53,080 | 54,260 | ||||||||||||
| Foreign withholding tax | 378 | 378 | ||||||||||||
| Other | 939 | 1,657 | ||||||||||||
| Gross deferred tax assets | 165,024 | 183,241 | ||||||||||||
| Valuation allowance | (28,800) | (26,563) | ||||||||||||
| Total deferred tax assets | 136,224 | 156,678 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Depreciation and amortization | (8,757) | (6,446) | ||||||||||||
| ASC 842 lease ROU assets | (48,252) | (49,994) | ||||||||||||
| Other | (541) | (508) | ||||||||||||
| Total deferred tax liabilities | (57,550) | (56,948) | ||||||||||||
| Net deferred tax assets | $ | 78,674 | $ | 99,730 | ||||||||||
As of December 31, 2025, the Company had $43.9 million of state net operating loss (“NOL”) carryforwards available to offset future taxable income. The state NOL carryforwards have different carryover periods and will begin to expire as early as 2037. As of December 31, 2025, the Company had federal research and development tax credits of $3.3 million which are carried forward for 20 years and will expire beginning in 2044. The Company had California state research and development tax credits of $35.4 million that may be carried forward indefinitely.
The Company measured its current DTA balances against estimate of future income based on objectively verifiable operating results from recent history, and concluded that sufficient future taxable income will be generated to realize the
benefits of its federal DTAs. The Company continues to maintain a valuation allowance against its California tax credit DTAs until new evidence becomes available to justify realization of the asset.
The Company recorded a valuation allowance on deferred tax assets of $28.8 million and $26.6 million as of December 31, 2025 and 2024, respectively, primarily related to California tax credits. The $2.2 million increase in the valuation allowance in 2025 is primarily due to additional California tax credits generated in 2025. The valuation allowance would result in a reduction to the income tax provision in the consolidated statements of income if it is ultimately not necessary.
As of December 31, 2025, the Company does not maintain a valuation allowance against any of its foreign DTAs, because sufficient future taxable income will be generated by foreign subsidiaries to utilize the benefit of their DTAs in full at the required more-likely-than-not level of certainty.
The Company maintains that all foreign earnings, with the exception of a portion of the earnings of its German subsidiary, are permanently reinvested outside the U.S. and therefore deferred taxes attributable to such earnings are not provided for in the Company’s financial statements as of December 31, 2025.
IRC Sections 382 and 383 limit the use of NOL and business credits if there is a change in ownership. In 2023, the Company determined there has been no ownership changes from 2013 to 2023. The Company does not anticipate being subject to any limitations on the utilization of its tax attributes.
A reconciliation of the change in the gross unrecognized tax benefits from January 1, 2023 to December 31, 2025, is as follows (in thousands):
| December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Beginning Balance | $ | 13,290 | $ | 12,561 | $ | 11,237 | ||||||||||||||
| Gross increase for tax positions of current year | 1,000 | 1,066 | 1,702 | |||||||||||||||||
| Gross increase for tax positions of prior years | 79 | 1 | 15 | |||||||||||||||||
| Gross decrease for tax positions of prior years | (452) | (177) | (366) | |||||||||||||||||
| Settlement with taxing authority | — | — | — | |||||||||||||||||
| Lapse of statute of limitations | (169) | (161) | (27) | |||||||||||||||||
| Ending Balance | $ | 13,748 | $ | 13,290 | $ | 12,561 | ||||||||||||||
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025, 2024 and 2023, the Company had accrued interest and penalties attributable to uncertain tax positions of $0.4 million, $0.1 million, and $0.2 million, respectively. Included in the $13.7 million balance of unrecognized tax benefits as of December 31, 2025 is $7.2 million of tax benefit that, if recognized, would affect the effective tax rate.
The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations. Due to NOL and tax credit carryovers, the tax years ending December 31, 2004 through December 31, 2025 remain subject to examination by federal and state tax authorities. In Germany, tax years ending December 31, 2022 through December 31, 2025 remain subject to examination by tax authorities.
The cash paid for income taxes, net of refunds received by the Company were as follows (in thousands):
The cash paid for income taxes, net of refunds received during the years ended December 31, 2024 and 2023 was $20.7 million and $6.6 million, respectively.| Year Ended December 31, | ||||||||
| 2025 | ||||||||
| Federal | $ | 8,600 | ||||||
| State and local | 3,638 | |||||||
| Foreign: | ||||||||
| Germany | 1,330 | |||||||
| All other foreign | 1,782 | |||||||
| Total income taxes paid, net of refunds received | $ | 15,350 | ||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2016 | Feb 28, 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.