Root, Inc.ROOT
Root, Inc. Income Taxes Disclosure
INCOME TAXES
The following table displays income tax expense for the years ended December 31, 2025, 2024 and 2023:
For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 0.5 | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total current | 0.5 | — | — | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total deferred | — | — | — | ||||||||||||||
Total income tax expense | $ | 0.5 | $ | — | $ | — | |||||||||||
ASU No. 2023-09 became effective for the annual reporting period beginning January 1, 2025. Further details are discussed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”
The income tax expense differed from the amounts computed by applying the statutory United States federal income tax rate of 21% in 2025 to pretax income, and is presented in accordance with the guidance in ASU 2023-09, as a result of the following:
| 2025 | |||||||||||
| (dollars in millions) | |||||||||||
Income (loss) before income taxes | |||||||||||
Domestic | $ | (59.5) | |||||||||
Foreign | 100.3 | ||||||||||
| Income before income taxes | $ | 40.8 | |||||||||
| Statutory United States federal income tax expense | $ | 8.6 | 21.0 | % | |||||||
State and local income tax expense, net of federal income tax effect(1) | 0.4 | 1.0 | |||||||||
| Foreign tax effects - Cayman Islands | |||||||||||
| Foreign rate differential | (21.2) | (52.0) | |||||||||
| Effect of cross-border tax laws | |||||||||||
| United States tax on foreign insurance income | 21.2 | 52.0 | |||||||||
| Valuation allowance on deferred tax assets | (12.6) | (30.9) | |||||||||
| Nontaxable and nondeductible items | |||||||||||
| Share-based compensation | (11.8) | (28.9) | |||||||||
| Nondeductible warrant expense | 9.3 | 22.8 | |||||||||
| Nondeductible compensation | 5.8 | 14.2 | |||||||||
| Other nondeductible expenses | 0.2 | 0.5 | |||||||||
| Other adjustments | 0.6 | 1.5 | |||||||||
| Income tax expense | $ | 0.5 | 1.2 | % | |||||||
______________
(1) Florida makes up the majority of the state and local income tax expense, net of federal income tax effect category.
The income tax expense differed from the amounts computed by applying the statutory United States federal income tax rate of 21% in 2024 and 2023 to pretax income, and is presented in accordance with the guidance that applied prior to the adoption of ASU 2023-09, as a result of the following:
| 2024 | 2023 | ||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Income (loss) before income taxes | $ | 30.9 | $ | (147.4) | |||||||||||||||||||
Statutory United States federal income tax expense (benefit) | 6.5 | 21.0 | % | (30.9) | 21.0 | % | |||||||||||||||||
| Valuation allowance on deferred tax assets | (10.5) | (34.0) | 34.9 | (23.7) | |||||||||||||||||||
| Share-based compensation | (6.0) | (19.4) | 5.5 | (3.7) | |||||||||||||||||||
| Nondeductible compensation | 2.9 | 9.4 | 1.2 | (0.8) | |||||||||||||||||||
| Return to provision permanent adjustments | — | — | — | — | |||||||||||||||||||
| State net operating loss | 7.9 | 25.6 | (10.5) | 7.1 | |||||||||||||||||||
| Other | (0.8) | (2.6) | (0.2) | 0.1 | |||||||||||||||||||
Income tax expense | $ | — | — | % | $ | — | — | % | |||||||||||||||
The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2025 and 2024:
| 2025 | 2024 | ||||||||||
| (dollars in millions) | |||||||||||
| Deferred tax assets: | |||||||||||
| Unpaid losses and loss adjustment expenses | $ | 4.2 | $ | 3.3 | |||||||
| Unearned premium reserves | 16.4 | 14.2 | |||||||||
| Disallowed interest carryforward | 10.4 | 20.8 | |||||||||
| Deferred compensation | 5.2 | 8.2 | |||||||||
| Stock and warrant compensation | 12.6 | 12.0 | |||||||||
| Other | 6.0 | 5.1 | |||||||||
| State net operating loss carryforward | 28.0 | 20.0 | |||||||||
Federal net operating loss carryforward | 269.8 | 271.6 | |||||||||
| Gross deferred assets | 352.6 | 355.2 | |||||||||
| Less valuation allowance | (339.8) | (345.9) | |||||||||
| Total deferred tax assets, less valuation allowance | 12.8 | 9.3 | |||||||||
| Deferred tax liabilities: | |||||||||||
Research and experimental expenditures | — | 0.2 | |||||||||
| Fixed assets | 0.3 | 0.4 | |||||||||
Deferred policy acquisition costs | 9.9 | 6.7 | |||||||||
Intangible assets | 0.7 | 0.6 | |||||||||
Investments | 0.9 | 0.9 | |||||||||
| Other | 1.0 | 0.5 | |||||||||
| Deferred tax liabilities | 12.8 | 9.3 | |||||||||
| Net deferred tax asset | $ | — | $ | — | |||||||
The above amounts were calculated in accordance with ASC 740, Income Taxes. The application of ASC 740 requires a company to evaluate the recoverability of deferred tax assets and to establish a valuation allowance if necessary to reduce the carrying value of the deferred tax asset to an amount which is more likely than not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance we include many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) the timing of expected reversal; (4) taxable income in prior carry back years as well as projected taxable earnings exclusive of reversing temporary differences and carry forwards; (5) the length of time that carryovers can be used; (6) unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that we would employ to avoid a tax benefit expiring unused. Although lack of realization is not assured, we believe it is more likely than not that the deferred tax assets will not be realized. As such, a valuation allowance of $339.8 million has been established. The valuation allowance decreased by $6.1 million primarily due to our net operating income for the year ended December 31, 2025.
The following table sets forth carryforwards related to NOLs and tax credits as of December 31, 2025:
| Carryforward with Expiration | Carryforward Indefinitely | Total | Years of Expiration | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Federal | $ | 629.6 | $ | 655.1 | $ | 1,284.7 | 2038-2046 | ||||||||||||||||
| State and local (gross, apportioned) | 232.1 | 255.2 | 487.3 | 2026-2045 | |||||||||||||||||||
| Research and development credits | 0.9 | — | 0.9 | 2036-2038 | |||||||||||||||||||
| Total | $ | 862.6 | $ | 910.3 | $ | 1,772.9 | |||||||||||||||||
We file a consolidated federal income tax return and certain state income tax returns. Tax years 2022 and forward are still open to United States federal examinations. The federal statute of limitations is generally three years. With some exceptions, the statute of limitations for state income and franchise tax returns remains open for tax years 2021 and forward. There are currently no tax years under examination.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Mar 4, 2021 | |
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.