StepStone Group Inc.STEP
StepStone Group Inc. Income Taxes Disclosure
Income Taxes
The Company’s income (loss) before income tax consisted of the following:
| Year Ended March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Domestic income (loss) before income tax | $ | (960,921) | $ | (278,526) | $ | 127,311 | |||||||||||
| Foreign income before income tax | 69,752 | 56,491 | 68,085 | ||||||||||||||
| Total income (loss) before income tax | $ | (891,169) | $ | (222,035) | $ | 195,396 | |||||||||||
The following table presents the components of the Company’s provision for income taxes:
| Year Ended March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 24,169 | $ | 11,869 | $ | 7,395 | |||||||||||
| State and local | 6,037 | 2,944 | 1,650 | ||||||||||||||
| Foreign | 17,147 | 11,303 | 9,349 | ||||||||||||||
| Total current income tax expense | 47,353 | 26,116 | 18,394 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (166,741) | (69,805) | 8,815 | ||||||||||||||
| State and local | (24,037) | (5,234) | 295 | ||||||||||||||
| Foreign | (4,468) | (285) | 72 | ||||||||||||||
| Total deferred income tax expense (benefit) | (195,246) | (75,324) | 9,182 | ||||||||||||||
| Total income tax expense (benefit) | $ | (147,893) | $ | (49,208) | $ | 27,576 | |||||||||||
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the year ended March 31, 2026, subsequent to the adoption of ASU 2023-09, is as follows:
| Year Ended March 31, 2026 | |||||||||||
| Amount | Percentage | ||||||||||
| U.S. federal statutory income tax rate | $ | (187,146) | 21.0 | % | |||||||
State and local taxes, net of federal tax benefit(1) | (13,563) | 1.5 | |||||||||
| Foreign tax effects | |||||||||||
| Other | 11,964 | (1.4) | |||||||||
| Effects of cross-border tax laws | 2,032 | (0.2) | |||||||||
| Changes in valuation allowances | 1,608 | (0.2) | |||||||||
| Non-taxable or non-deductible items | (5,851) | 0.7 | |||||||||
| Other | |||||||||||
| Income passed through to limited partners | 43,568 | (4.9) | |||||||||
| Other | (505) | 0.1 | |||||||||
| Effective income tax rate | $ | (147,893) | 16.6 | % | |||||||
_______________________________
(1)State taxes in California and New York City comprised the majority (greater than 50%) of the tax effect in this category.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate for the years ended March 31, 2025 and 2024, respectively, prior to the adoption of ASU 2023-09, and as previously disclosed in prior years, is as follows:
| Year Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Federal tax at statutory rate | 21.0 | % | 21.0 | % | |||||||
| State and local income tax | 0.6 | 1.1 | |||||||||
| Amounts allocated to non-controlling interests | 0.6 | (11.8) | |||||||||
| Foreign taxes | (5.0) | 4.8 | |||||||||
| Valuation allowance | (0.8) | (0.3) | |||||||||
| Stock-based compensation | 1.7 | (0.5) | |||||||||
| Return to provision adjustment | 1.2 | (0.3) | |||||||||
| Other | 2.9 | 0.1 | |||||||||
| Effective tax rate | 22.2 | % | 14.1 | % | |||||||
Upon adoption of ASU 2023-09, cash paid for income taxes, net of refunds, during the year ended March 31, 2026 is as follows:
| Year Ended March 31, 2026 | |||||
| U.S. federal | $ | 26,218 | |||
| U.S. state and local | |||||
| New York City | 2,350 | ||||
| Other | 1,584 | ||||
| Foreign | |||||
| Australia | 2,993 | ||||
| Switzerland | 3,892 | ||||
| Other countries | 5,286 | ||||
| Total cash paid for income taxes, net of refunds | $ | 42,323 | |||
The Company’s effective tax rate is dependent on many factors, including the estimated amount of income subject to tax. Consequently, the effective tax rate can vary from period to period. The Company’s overall effective tax rate in fiscal 2026 is less than the statutory rate. This is primarily due to a portion of net loss allocated to non-controlling interests and the related tax benefit being borne by the holders of non-controlling interests. The Company’s overall effective tax rate in fiscal 2025 differs from the statutory rate primarily because of the impact of nondeductible items. The Company’s overall effective tax rate in fiscal 2024 is less than the statutory rate primarily because a portion of income is allocated to non-controlling interests, as the tax liability on such income is borne by the holders of such non-controlling interests.
The Company continues to monitor and evaluate legislative developments related to the proposed Global Anti-Base Erosion (“GloBE”) Model Rules established under the Organization for Economic Co-operation and Development’s Pillar Two framework. Several countries where the Company operates have adopted GloBE into legislation, and additional countries are anticipated to adopt these rules in the future. To date, these legislative changes have not had a material impact on the Company’s effective tax rate.
The following table presents the components of the Company’s deferred income tax assets and liabilities:
| As of March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Deferred tax assets: | |||||||||||
| Investment in the Partnership | $ | 635,804 | $ | 403,166 | |||||||
| Other | 10,820 | 3,655 | |||||||||
| Total deferred tax assets before valuation allowance | 646,624 | 406,821 | |||||||||
| Valuation allowance | (31,836) | (23,935) | |||||||||
| Total net deferred tax assets | 614,788 | 382,886 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Total deferred tax liabilities | 517 | 420 | |||||||||
| Net deferred tax assets | $ | 614,271 | $ | 382,466 | |||||||
As of March 31, 2026, the Company had U.S. federal tax credit carryforwards of $3.8 million. The federal tax credit carryforwards will expire at various dates beginning in 2032.
In accordance with the Transaction Agreements outlined in note 14, the Company recorded a reallocation adjustment among SSG stockholders' equity, non-controlling interests in the Partnership, and non-controlling interests in subsidiaries. As a result of the 2025 Exchange (as defined in note 14), the Company recorded a $10.6 million decrease in deferred tax assets recorded through equity for the year ended March 31, 2026.
During the years ended March 31, 2026 and 2025, the Company recognized an expense within equity-based compensation expense in the consolidated statements of income (loss) to remeasure the profits interests issued in SPW which are accounted for as liability classified awards. This expense is not currently deductible for tax purposes, resulting in a temporary difference that increased the Company’s deferred tax asset by $232.6 million and $90.4 million during the years ended March 31, 2026 and 2025, respectively. See note 10 for more information.
In connection with the exchanges of Class B, Class C and Class D units of the Partnership for Class A common stock by certain limited partners of the Partnership during fiscal 2026, the Company recorded an overall increase to the deferred tax assets for the year ended March 31, 2026 of $52.5 million, and an increase in the valuation allowance of $8.1 million. Additionally, the Company recorded a corresponding Tax Receivable Agreements liability of $43.0 million, representing 85% of the incremental net cash tax savings for the Company as a result of these exchanges. The Company made payments of $12.6 million, $9.8 million and $10.3 million during the years ended March 31, 2026, 2025 and 2024, respectively, under the Tax Receivable Agreements. As of March 31, 2026, the Company’s total Tax Receivable Agreements liability was $344.2 million. See note 13 for more information on the Tax Receivable Agreements.
The Company evaluates the realizability of its deferred tax assets on a quarterly basis and adjusts the valuation allowance when it is more-likely-than-not that all or a portion of the deferred tax assets may not be realized. The total ending valuation allowance for the year ended March 31, 2026 was $31.8 million. Apart from the valuation allowance, the Company believes that the remaining deferred tax assets will be realized in full.
A summary of the change in valuation allowance by year is as follows:
| Valuation Allowance | |||||
| Balance at March 31, 2024 | $ | 13,596 | |||
| Income tax increase | 3,900 | ||||
| Equity increase | 6,439 | ||||
| Balance at March 31, 2025 | 23,935 | ||||
| Income tax decrease | (150) | ||||
| Equity increase | 8,051 | ||||
| Balance at March 31, 2026 | $ | 31,836 | |||
The Company files income tax returns as required by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company may be subject to examination by U.S. federal and certain state and local tax authorities. Management has analyzed the Company’s tax positions taken with respect to all applicable income tax issues, for all open tax years, and for all jurisdictions in which the Company is required to file tax returns and has concluded that no provision for income taxes related to uncertain tax positions is required in the Company’s consolidated financial statements for the years ended March 31, 2026, 2025 and 2024.
The Company files U.S. federal, state, local and foreign tax returns on a calendar-year basis, with certain foreign jurisdictions filing on a fiscal-year basis. With limited exception, returns filed prior to 2021 are no longer subject to examination by the applicable taxing authorities. There are currently no material examinations being conducted of the Company by tax authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | May 27, 2026 | Showing above |
| 2025 | May 23, 2025 | |
| 2024 | May 24, 2024 | |
| 2023 | May 26, 2023 | |
| 2022 | May 31, 2022 | |
| 2021 | Jun 23, 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.