TWILIO INCTWLO
TWILIO INC Income Taxes Disclosure
Income Taxes
The following table presents domestic and foreign components of income (loss) before provision for income taxes for the periods presented:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| United States | $ | 150,891 | $ | 40,982 | $ | (816,089) | ||||||||||||||
| International | (95,797) | (129,595) | (180,640) | |||||||||||||||||
Income (loss) before provision for income taxes | $ | 55,094 | $ | (88,613) | $ | (996,729) | ||||||||||||||
Provision for income taxes consists of the following:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Current: | (In thousands) | |||||||||||||||||||
| Federal | $ | 341 | $ | 5,617 | $ | 2,567 | ||||||||||||||
| State | 1,515 | 2,305 | 1,533 | |||||||||||||||||
| Foreign | 20,692 | 14,850 | 31,354 | |||||||||||||||||
| Total | 22,548 | 22,772 | 35,454 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | 95 | 196 | (1,337) | |||||||||||||||||
| State | (27) | 149 | (208) | |||||||||||||||||
| Foreign | (1,356) | (2,327) | (15,197) | |||||||||||||||||
| Total | (1,288) | (1,982) | (16,742) | |||||||||||||||||
| Provision for income taxes | $ | 21,260 | $ | 20,790 | $ | 18,712 | ||||||||||||||
The provision for income taxes recorded in the years ended December 31, 2025, 2024 and 2023, consists primarily of income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business. Due to a history of losses in the U.S., the Company maintains a full valuation allowance against its U.S. deferred tax assets.
As described in Note 2(ae), in the current period, the Company adopted ASU 2023-09 on a prospective basis. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate for the year ended December 31, 2025, pursuant to the disclosure requirements of ASU 2023-09, is as follows:
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Year Ended December 31, 2025 | ||||||||||||||
Amount (in thousands) | Percent | |||||||||||||
| Tax at federal statutory rate | $ | 11,570 | 21 | % | ||||||||||
Federal: | ||||||||||||||
| Effect of cross-border tax laws: | ||||||||||||||
| Foreign income taxed in the United States, net of foreign tax deductions | (1,440) | (3) | ||||||||||||
Withholding taxes | 157 | — | ||||||||||||
| Tax Credits: | ||||||||||||||
| Research and development tax credits | (40,879) | (74) | ||||||||||||
| Changes in valuation allowance | 36,651 | 67 | ||||||||||||
| Nontaxable or nondeductible items: | ||||||||||||||
| Excess benefit on share-based payment awards | (41,493) | (75) | ||||||||||||
Other share-based payment award related items | 14,216 | 26 | ||||||||||||
| Other | 1,651 | 3 | ||||||||||||
| Other adjustments | 264 | 1 | ||||||||||||
State and local taxes, net of federal income tax effect (1) | 1,080 | 2 | ||||||||||||
Foreign tax effects: | ||||||||||||||
Ireland: | ||||||||||||||
Statutory tax rate difference between Ireland and United States | 9,473 | 17 | ||||||||||||
Changes in valuation allowance | 9,720 | 18 | ||||||||||||
Foreign exchange gains/losses | 7,394 | 13 | ||||||||||||
Other | (580) | (1) | ||||||||||||
Brazil: | ||||||||||||||
Withholding taxes | 7,758 | 14 | ||||||||||||
Other | 1,213 | 2 | ||||||||||||
Other foreign jurisdictions (2) | 6,118 | 11 | ||||||||||||
Worldwide changes in unrecognized tax benefits (gross) | (1,613) | (3) | ||||||||||||
| Effective tax rate | $ | 21,260 | 39 | % | ||||||||||
(1) State taxes in North Carolina and Texas made up the majority (greater than 50 percent) of the tax effect in this category.
(2) Other foreign jurisdictions is comprised of $2.6 million related to India. The remaining foreign jurisdictions are not significant.
A reconciliation of the U.S. federal statutory income tax rates to the Company’s effective tax rate for the years ended December 31, 2024 and 2023, pursuant to previous disclosure requirements, is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Tax at federal statutory rate | 21 | % | 21 | % | |||||||
| State tax, net of federal benefit | 1 | 3 | |||||||||
| Stock-based compensation | (40) | (7) | |||||||||
| Credits | 20 | 2 | |||||||||
| Foreign rate differential | (67) | 1 | |||||||||
| Permanent book vs. tax differences | 8 | — | |||||||||
| Change in valuation allowance | 32 | (23) | |||||||||
| Other | 2 | 1 | |||||||||
| Effective tax rate | (23) | % | (2) | % | |||||||
Cash paid for income taxes, net of refunds, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:
Year Ended December 31, 2025 | ||||||||
| (In thousands) | ||||||||
U.S. federal taxes | $ | 3,157 | ||||||
U.S. state taxes | 3,973 | |||||||
Non-U.S. taxes | 10,581 | |||||||
Total income taxes paid, net | $ | 17,711 | ||||||
Income taxes paid exceeds 5% of total income taxes paid, net of refunds, in the following jurisdictions:
Year Ended December 31, 2025 | ||||||||
| (In thousands) | ||||||||
U.S. State | ||||||||
California | $ | 1,723 | ||||||
Non-U.S. | ||||||||
Brazil | $ | 2,446 | ||||||
Colombia | $ | 1,879 | ||||||
Japan | $ | 1,678 | ||||||
India | $ | 3,706 | ||||||
Income taxes paid, net, for the years ended December 31, 2024 and 2023 were $36.5 million and $37.8 million, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company's deferred tax assets and liabilities:
| As of December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Deferred tax assets: | (In thousands) | |||||||||||||
| Net operating loss carryforwards | $ | 818,284 | $ | 810,278 | ||||||||||
| Accruals and reserves | 80,185 | 73,535 | ||||||||||||
| Stock-based compensation | 31,673 | 28,238 | ||||||||||||
| Research and development credits | 237,447 | 175,746 | ||||||||||||
| Intangibles | 135,500 | 135,500 | ||||||||||||
| Capitalized research and development expenses | 230,302 | 299,061 | ||||||||||||
| Lease liability | 21,499 | 30,697 | ||||||||||||
| Investments and other basis differences | 126,369 | 81,248 | ||||||||||||
| Other | 8,992 | 18,139 | ||||||||||||
| Gross deferred tax assets | 1,690,251 | 1,652,442 | ||||||||||||
| Valuation allowance | (1,554,727) | (1,488,328) | ||||||||||||
| Net deferred tax assets | 135,524 | 164,114 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Capitalized software | (39,022) | (38,394) | ||||||||||||
| Prepaid expenses | (863) | (900) | ||||||||||||
| Acquired intangibles | (32,633) | (55,283) | ||||||||||||
| Right-of-use asset | (8,913) | (13,112) | ||||||||||||
| Deferred commissions | (37,173) | (42,313) | ||||||||||||
Net deferred tax asset | $ | 16,920 | $ | 14,112 | ||||||||||
The following table summarizes the Company’s tax carryforwards, carryovers and credits:
| As of December 31, 2025 | Expiration Date (If not utilized) | |||||||||||||
| (In thousands) | ||||||||||||||
| Federal tax credits | $ | 205,987 | Various dates beginning in 2038 | |||||||||||
| Federal net operating loss carryforwards | $ | 2,866,460 | Indefinite | |||||||||||
| State net operating loss carryforwards | $ | 2,400,985 | Various dates beginning in 2026 | |||||||||||
| State tax credits | $ | 155,404 | Various dates beginning in 2029 | |||||||||||
| Foreign net operating loss carryforwards | $ | 965,615 | Indefinite | |||||||||||
A limitation may apply to the use of the federal and state net operating loss and credit carryforwards, under provisions of the Internal Revenue Code of 1986, as amended, and similar state tax provisions that are applicable if the Company experiences an “ownership change.” An ownership change may occur, for example, as a result of issuance of new equity. Should these limitations apply, the carryforwards would be subject to an annual limitation, resulting in a potential reduction in the gross deferred tax assets before considering the valuation allowance.
The Company's accounting for deferred taxes involves the evaluation of a number of factors related to the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company's deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible.
At present, the Company does not believe that it is more likely than not that the federal, state and certain foreign net deferred tax assets will be realized, and accordingly, a valuation allowance has been established. The valuation allowance increased by approximately $66.4 million during the year ended December 31, 2025, and decreased by approximately $45.6 million during the year ended December 31, 2024.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Unrecognized tax benefit, beginning of year | $ | 252,208 | $ | 233,778 | $ | 228,966 | ||||||||||||||
| Gross increases for tax positions of prior years | 6,647 | 7,476 | 3,427 | |||||||||||||||||
| Gross decreases for tax positions of prior years | (1,085) | (198) | (5,130) | |||||||||||||||||
| Gross increases for tax positions of current year | 24,889 | 13,253 | 7,754 | |||||||||||||||||
| Gross decreases for tax positions of current year | (168) | — | — | |||||||||||||||||
| Lapse of statute of limitations | (1,795) | (2,101) | (1,239) | |||||||||||||||||
| Unrecognized tax benefit, end of year | $ | 280,696 | $ | 252,208 | $ | 233,778 | ||||||||||||||
As of December 31, 2025, the Company had approximately $280.7 million of unrecognized tax benefits. If the $280.7 million is recognized, $1.3 million would affect the effective tax rate. The remaining amount would be offset by the reversal of related deferred tax assets which are subject to a full valuation allowance.
The Company files U.S. federal income tax returns as well as income tax returns in many U.S. states and foreign jurisdictions. As of December 31, 2025, the tax years 2008 through the current period remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized. The Company is fully reserved for all open U.S. federal, state and local, or non-U.S. income tax examinations by any tax authorities.
On June 7, 2019, a three-judge panel from the U.S. Court of Appeals for the Ninth Circuit overturned the U.S. Tax Court's decision in Altera Corp. v. Commissioner and upheld the portion of the Treasury regulations under Section 482 of the Internal Revenue Code that requires related parties in a cost-sharing arrangement to share expenses related to share-based compensation. As a result of this decision, the Company's gross unrecognized tax benefits increased to reflect the impact of including share-based compensation in cost-sharing arrangements. The Company will continue to monitor future developments related to this matter and their potential effects on its consolidated financial statements. There is no impact on the Company’s effective tax rate for years ended December 31, 2025 and 2024 due to a full valuation allowance against its deferred tax assets.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Feb 22, 2017 | |
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.