Sezzle Inc.SEZL
Sezzle Inc. Income Taxes Disclosure
Income Taxes
The components of income before taxes for the years ended December 31, 2025 and 2024 were as follows:
(in thousands) | 2025 | 2024 | ||||||
| United States | $ | 162,263 | $ | 64,783 | ||||
| International | 628 | 2,534 | ||||||
| Total | $ | 162,891 | $ | 67,317 | ||||
The components of income tax expense (benefit) for the years ended December 31, 2025 and 2024 were as follows:
(in thousands) | 2025 | 2024 | ||||||
| Current tax expense | ||||||||
| Federal | $ | 19,877 | $ | 2,869 | ||||
| Foreign | 295 | 832 | ||||||
| State | 6,299 | 1,999 | ||||||
Total current tax expense | 26,471 | 5,700 | ||||||
| Deferred tax expense | ||||||||
| Federal | 3,830 | (13,418) | ||||||
| Foreign | (19) | (20) | ||||||
| State | (521) | (3,467) | ||||||
Total deferred tax expense | 3,290 | (16,905) | ||||||
Income tax expense (benefit) | $ | 29,761 | $ | (11,205) | ||||
The components of the net deferred tax assets and liabilities as of December 31, 2025 and 2024 were as follows:
(in thousands) | 2025 | 2024 | ||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | 816 | $ | 7,928 | ||||
Allowance for credit losses | 10,130 | 7,691 | ||||||
| Equity based compensation | 767 | 865 | ||||||
| Research and experimental expenditures | 479 | 735 | ||||||
| Lease liability | 217 | 246 | ||||||
Credit carryforwards | 433 | 61 | ||||||
| Accruals | 1,697 | 1,668 | ||||||
| Nondeductible interest | — | 2,070 | ||||||
| Other | 6 | 7 | ||||||
Total deferred tax assets | 14,545 | 21,271 | ||||||
| Valuation allowance | — | (3,742) | ||||||
| Deferred tax liabilities: | ||||||||
| Depreciation and amortization | (599) | (395) | ||||||
| Right-of-use asset | (181) | (229) | ||||||
Prepaids | (150) | — | ||||||
Total deferred tax liabilities | (930) | (624) | ||||||
Net deferred tax asset | $ | 13,615 | $ | 16,905 | ||||
The Company has elected to prospectively adopt the guidance in ASU No, 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures. The reconciliation of the federal statutory income tax rate to the Company's provision for income taxes for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09 is as follows:
| 2025 | ||||||||
(in thousands, except percentages) | Amount | Rate | ||||||
| U.S. federal statutory income tax rate | $ | 34,207 | 21.0 | % | ||||
State and local income taxes (net of federal effect)1 | 4,459 | 2.7 | % | |||||
Tax credits | ||||||||
Research credits | (2,314) | (1.4) | % | |||||
Tax effects of equity based compensation | (5,653) | (3.5) | % | |||||
| Nontaxable and nondeductible items | (1,020) | (0.6) | % | |||||
Other reconciling items | 82 | 0.1 | % | |||||
| Effective income tax rate | $ | 29,761 | 18.3 | % | ||||
1. State taxes from California, Illinois, New Jersey, New York, Pennsylvania and Georgia made up the majority (greater than 50%) of the tax effect in this category.
The reconciliation of the federal statutory income tax rate to the Company’s provision for income taxes for the year ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 is as follows:
| 2024 | |||||
| Computed "expected" tax benefit | 21.0 | % | |||
| State income tax benefit, net of federal tax effect | 3.5 | ||||
| Nondeductible equity based compensation | (1.8) | ||||
| Other permanent differences | 1.2 | ||||
| Change in valuation allowance | (41.9) | ||||
| Foreign rate differentials and other | 1.4 | ||||
Income tax benefit | (16.6) | % | |||
As of December 31, 2025, we had state tax effected net operating loss and credit carryforwards of approximately $0.8 million and $0.4 million, respectively. The state net operating losses will begin to expire in 2033. The state credit carryforwards will begin to expire in 2036.
Management assesses the available positive and negative evidence to estimate where sufficient future taxable income will be generated to permit use of existing deferred tax assets. During the year ended December 31, 2024, we identified significant pieces of positive evidence, including our three-year cumulative taxable income, which is objective and verifiable, and consideration of our expected future taxable income. Based on our assessment, we concluded as of December 31, 2024 that it was more likely than not that our U.S. federal, state, and foreign deferred tax assets are realizable, and as a result do not hold a valuation allowance against U.S. federal, state, and foreign deferred tax assets. We maintain this position as of December 31, 2025.
As of December 31, 2025, we maintained a valuation allowance of $0 recorded against foreign deferred tax assets. The change in valuation allowance was ($3.7) million and ($28.7) million for the years ended December 31, 2025 and 2024, respectively.
We file income tax returns in U.S. federal and state jurisdictions, Canada, and certain countries in Europe. We do not believe a material uncertain tax position exists as of December 31, 2025. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense (benefit). As of December 31, 2025, we had no accrued interest and penalties. We are subject to exam for tax periods after 2021 with limited exceptions.
We have determined that our foreign earnings are expected to be indefinitely reinvested in the foreseeable future, and therefore, no deferred tax liability has been recognized on these earnings. The amount of the unrecognized tax liability is not significant.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Mar 30, 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.