Schrodinger, Inc.SDGR
Schrodinger, Inc. Income Taxes Disclosure
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740) — Improvements to Income Tax Disclosure. In 2025, the Company adopted the standard on a prospective basis. Accordingly, the income tax disclosure for the year ended December 31, 2025, is presented in the revised format prescribed by the ASU, while the comparative periods for the years ending December 31, 2024 and 2023 continue to be presented under the previous disclosure requirements.
Income tax expense is comprised of the following:
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 188 | $ | (202) | $ | 727 | |||||||||||
| State | 128 | 352 | 509 | ||||||||||||||
| Foreign | 1,237 | 1,515 | 963 | ||||||||||||||
| Current income tax expense | 1,553 | 1,665 | 2,199 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | (614) | (253) | — | ||||||||||||||
| Deferred income tax benefit | (614) | (253) | — | ||||||||||||||
| Total income tax expense (benefit) | |||||||||||||||||
| Federal | $ | 188 | $ | (202) | $ | 727 | |||||||||||
| State | 128 | 352 | 509 | ||||||||||||||
| Foreign | 623 | 1,262 | 963 | ||||||||||||||
| Income tax expense | $ | 939 | $ | 1,412 | $ | 2,199 | |||||||||||
Components of (loss) income before income taxes by tax jurisdiction were as follows:
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | (105,522) | $ | (190,298) | $ | 39,076 | |||||||||||
| Foreign | 3,196 | 4,587 | 3,843 | ||||||||||||||
| (Loss) income before income taxes | $ | (102,326) | $ | (185,711) | $ | 42,919 | |||||||||||
Reconciliation of income tax expense at the applicable statutory income tax rates to the effective income tax rate is as follows:
Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| Income taxes (benefit) at statutory federal rate | $ | (21,489) | 21.0 | % | |||||||
State and local taxes, net of federal income tax effect(1) | (47) | — | |||||||||
| Foreign tax effects | |||||||||||
| Other | (391) | 0.4 | |||||||||
| Effect of cross-border tax laws | |||||||||||
| Other | 151 | (0.1) | |||||||||
| Tax credits | |||||||||||
| General Business Credits | (12,744) | 12.4 | |||||||||
| Changes in valuation allowance | 30,813 | (30.1) | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Equity compensation | 2,356 | (2.3) | |||||||||
| Section 162(m) officer's compensation | 1,272 | (1.2) | |||||||||
| Other | 543 | (0.5) | |||||||||
| Changes in unrecognized tax benefits | 4,992 | (4.9) | |||||||||
| Other | |||||||||||
| Transfer Pricing | (3,457) | 3.3 | |||||||||
| Other, net | (1,060) | 1.1 | |||||||||
| Effective income tax rate | $ | 939 | (0.9) | % | |||||||
(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include California and Massachusetts for 2025.
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| State taxes, net of federal benefits | 3.6 | 5.8 | |||||||||
| Section 162(m) limitation | — | 1.2 | |||||||||
| Stock compensation | (1.8) | 1.7 | |||||||||
| Return-to-provision adjustments | (1.5) | (3.3) | |||||||||
| General Business Credits | 4.8 | (14.1) | |||||||||
| Changes in unrecognized tax benefits | (0.5) | 1.4 | |||||||||
| Change in valuation allowance | (22.2) | (4.4) | |||||||||
| Other | (4.2) | (4.2) | |||||||||
| Effective income tax rate | (0.8) | % | 5.1 | % | |||||||
Income tax expense for the years ended December 31, 2025 and 2024 represents the Company's income tax obligations in certain states and taxes in foreign jurisdictions in which it conducts business. Income tax expense for the year ended December 31, 2023 represents the Company's federal and certain state income tax obligations and taxes in foreign jurisdictions in which it conducts business. As of December 31, 2025, the Company has a full valuation allowance on U.S. federal and state deferred tax assets.
The total change in valuation allowance for the year ended December 31, 2025 was $34,701, which was primarily due to temporary differences for capitalized research and development expenses and share based compensation, partially offset by adjustments to equity method investments and the generation of NOL and tax credit carryforwards.
The amounts of cash income taxes paid by (refunded to) the Company are as follows:
Year ended December 31, | |||||
| 2025 | |||||
| Federal | $ | 186 | |||
| State and local | |||||
| NYS | (757) | ||||
| MA | (313) | ||||
| Other | (173) | ||||
| Foreign | |||||
| India | 617 | ||||
| Germany - Federal | 168 | ||||
| Germany - Manheim | 138 | ||||
| Germany - Other | 37 | ||||
| Other | 91 | ||||
| Total cash taxes paid for income taxes (net of refunds received) | $ | (6) | |||
Total cash paid for income taxes was $1,080 and $2,828 during the years ended December 31, 2024 and 2023, respectively, as previously reported.
Tax effects of temporary differences that give rise to significant portions of deferred income tax assets and deferred income tax liabilities were as follows:
As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Deferred income tax assets: | |||||||||||||||||
| Net operating loss carryforwards | $ | 48,267 | $ | 51,542 | $ | 44,116 | |||||||||||
| Capitalized research and development | 69,890 | 62,215 | 13,224 | ||||||||||||||
| Accrued expenses | 35,264 | 37,544 | 71,676 | ||||||||||||||
| Deferred revenue | 34,474 | 5,462 | 5,296 | ||||||||||||||
| Lease liabilities | 26,122 | 27,551 | 32,491 | ||||||||||||||
| Credits | 42,410 | 29,884 | 21,903 | ||||||||||||||
| Gross deferred tax assets | 256,427 | 214,198 | 188,706 | ||||||||||||||
| Less valuation allowance | (211,927) | (177,226) | (136,031) | ||||||||||||||
| Net deferred tax assets | 44,500 | 36,972 | 52,675 | ||||||||||||||
| Deferred income tax liabilities: | |||||||||||||||||
| Unrealized gain on equity investments | (16,193) | (7,284) | (18,553) | ||||||||||||||
| Prepaid expenses | (172) | (652) | (1,554) | ||||||||||||||
| Depreciation and amortization | (27,272) | (29,036) | (32,568) | ||||||||||||||
| Net deferred income tax assets | $ | 863 | $ | — | $ | — | |||||||||||
As of December 31, 2025, the Company had federal and state net operating loss ("NOL") carryforwards of $208,523 and $119,340, respectively. The state NOL carryforwards will expire between 2025 and 2055, if not used by the Company to reduce income taxes payable in future periods. Utilization of post-2017 federal NOL carryforwards is limited to 80% of taxable income generated in a given year and carry forward indefinitely. As of December 31, 2025, the Company had federal orphan drug credits and federal research and development tax credit carryforwards of $44,037 and various state tax credit carryforwards of $4,673. The federal and state carryforwards, with the exception of $2,777 indefinite state credits will expire between 2033 and 2045, if not utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, the utilization of NOLs and other tax attributes may be substantially limited due to cumulative changes in ownership greater than 50% that may have occurred or could occur during applicable testing periods. The Company has performed an analysis through December 31, 2025 and determined no such ownership change has occurred in the periods presented.
The Company has not recognized a deferred tax liability for the undistributed earnings of its foreign operations as the Company considers these earnings to be indefinitely reinvested. The determination of a hypothetical unrecognized deferred tax liability as of December 31, 2025 is not practicable because of the complexity and variety of assumptions necessary to compute the tax.
The Company classifies interest and penalties related to unrecognized tax benefits within income tax expense in the consolidated statement of operations. Following is a reconciliation of total gross unrecognized tax benefits:
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance, January 1 | $ | 3,648 | $ | 2,742 | $ | 2,142 | |||||||||||
| Additions for tax positions taken in prior years | 3,941 | 258 | 89 | ||||||||||||||
| Reductions for tax positions taken in prior years | — | — | (4) | ||||||||||||||
| Additions for tax positions related to the current year | 1,098 | 648 | 515 | ||||||||||||||
Balance, December 31 | $ | 8,687 | $ | 3,648 | $ | 2,742 | |||||||||||
The Company and its subsidiaries file U.S. federal income tax returns and various state, local and foreign income tax returns. As of December 31, 2025, the Company’s statutes of limitations are open for all federal and state tax returns filed after the years ended December 31, 2022 and 2021, respectively. NOL and credit carryforwards for all years are subject to examination and adjustments for the three years following the year in which the carryforwards are utilized. The Company is not currently under Internal Revenue Service or state examination.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law enacting significant changes to U.S. tax and related laws. Some of the provisions of the new tax law affecting corporations include but are not limited to expensing of domestic research expenses, increasing the limit of the business interest expense deduction to thirty percent of EBITDA, and permitting one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The impact of the tax law changes from the OBBBA is included in the Company's financial statements for the fiscal year ended December 31, 2025. There has been no material change to the Company's effective income tax rate or its net deferred federal income tax assets as a result of the OBBBA as the Company maintains a full valuation allowance for all U.S. deferred tax assets.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 24, 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.