Talkspace, Inc. Income Taxes Disclosure

NOTE 12. INCOME TAXES

In December 2023, the FASB issued a new accounting standard which includes new and updated income tax disclosures, including disaggregation of information in the rate reconciliation and income taxes paid, which we adopted on a prospective basis for the year ended December 31, 2025.

The main reconciling item between the statutory tax rate and the effective tax rate for the year ended December 31, 2025 is the change in valuation allowance which was impacted by higher net income during the year ended December 31, 2025 and the enactment of the OBBBA in July 2025, which altered the treatment of unamortized Section 174 expenses and impacted the projected realization of deferred tax assets.

For the years ended December 31, 2024 and 2023, we paid $0.1 million and $0.2 million, respectively, in income taxes, net of refunds received.

Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. A valuation allowance is provided for deferred tax assets when it is “more likely than not” that some portion of the deferred tax asset will not be realized. Because of the Company’s history of operating losses, management believes the recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a full valuation allowance. A valuation allowance has been recorded for the deferred tax assets at December 31, 2025 and 2024.

The Company maintains a full valuation allowance on its net deferred tax assets. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. Management considered the Company’s cumulative loss in recent years as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, management determined that the negative evidence outweighed the positive evidence and that a full valuation allowance on the net deferred tax assets will be maintained. Management will continue to assess the realizability of our deferred tax assets going forward and will adjust the valuation allowance as needed. The valuation allowance decreased approximately $1.4 million for the year ended December 31, 2025. This change was primarily driven by the enactment of the OBBBA in July 2025, which altered the treatment of unamortized Section 174 expenses and impacted the projected realization of deferred tax assets.

At December 31, 2025, the Company has federal and state net operating loss carryovers (“NOL”) of approximately $283.2 million and $210.4 million, respectively, which are available to reduce future taxable income. The NOL carryforwards begin to expire in 2035 and may become subject to annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under I.R.C. Section 382. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or future tax liabilities. The federal losses generated from 2018 onward do not expire.

The Company is subject to U.S. federal and state and Israeli income taxes with varying statutes of limitations. The Company is no longer subject to U.S. federal, state or local income tax examinations by the tax authorities for years before 2022. The Israel subsidiary tax filings filed by the Company through the year 2020 are considered closed.

In July 2025, the OBBBA was enacted, introducing amendments to the U.S. federal income tax code. The OBBBA permanently restores 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, and allows immediate expensing of domestic research and experimental expenditures for tax years beginning after December 31, 2024. Certain provisions are effective for fiscal 2025 and are recognized in the consolidated financial statements for the year ended December 31, 2025. Certain other provisions are effective in future fiscal years. Although we continue to maintain a full valuation allowance against our U.S. deferred tax assets as of December 31, 2025, we expect these provisions to increase available deductions and extend the period during which future taxable income may be sheltered, improving liquidity to the extent we generate taxable income.