TELA Bio, Inc. Income Taxes Disclosure

(11) Income Taxes

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company evaluated the impact of the OBBBA and determined that it did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2025.

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The Company has incurred losses since inception. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.

The following table sets forth the Company’s loss before income tax (expense) benefit disaggregated between domestic and foreign:

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Components of the Company’s current and deferred income tax expense or benefit consisted of the following (in thousands):

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Significant components of the Company’s deferred tax assets for federal income taxes consisted of the following (in thousands):

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The Company does not have unrecognized tax benefits as of December 31, 2025 and 2024. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company’s net operating loss (“NOL”) carryforwards for federal and state income tax purposes consisted of the following (in thousands):

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The NOL carryforwards begin expiring in 2032 for federal purposes and in 2026 for state income tax purposes yet $224.7 million of the federal NOL carryforwards have no expiration. The Company recorded a valuation allowance on the majority of its deferred tax assets as of December 31, 2025 and 2024 because of the uncertainty of their realization. The valuation allowance increased by $8.7 million and $5.7 million for the years ended December 31, 2025 and 2024, respectively, mainly due to losses incurred.

Utilization of the net operating losses and general business tax credits carryforwards may be subject to a substantial limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if changes in ownership of the company have occurred previously or occur in the future. Ownership changes may limit the amount of net operating losses and general business tax credits carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of 5% shareholders in the stock of a corporation by more than 50 percentage points over a three-year period. If the Company experiences a Section 382 ownership change, the tax benefits related to the NOL carryforwards may be further limited or lost. The Company has not performed an analysis under Section 382 and cannot predict or otherwise determine whether there would be any limitation to the amount of net operating losses and general business tax credits carryforwards that can be utilized.

A reconciliation of income tax (expense) benefit at the statutory federal income tax rate and as reflected in the consolidated financial statements is as follows ($ in thousands, except percentages):

* The following states made up the majority (greater than 50%) of the tax effect in this category: California, Colorado, Florida, Georgia, North Carolina, New York and Pennsylvania.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and the United Kingdom. Tax years 2021 and forward remain open for examination for federal and the Company’s more significant state tax jurisdictions. Carryforward attributes from prior years may be adjusted upon examination by taxing authorities if used in an open period. There were no tax payments or refunds received during the years ended December 31, 2025, 2024 or 2023.