Udemy, Inc.UDMY
Udemy, Inc. Income Taxes Disclosure
9. Income taxes
The following footnote reflects the Company’s adoption of ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Refer to Note 2 – Summary of significant accounting policies for more information about recently adopted accounting pronouncements.
The domestic and foreign components of income (loss) before provision for income taxes consisted of the following (in thousands):
| Fiscal Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Domestic | $ | (884) | $ | (88,789) | $ | (110,640) | |||||||||||
Foreign | 9,221 | 7,851 | 6,999 | ||||||||||||||
Total net income (loss) before taxes | $ | 8,337 | $ | (80,938) | $ | (103,641) | |||||||||||
The provision for income taxes consisted of the following (in thousands):
| Fiscal Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Current | |||||||||||||||||
Federal | $ | — | $ | — | $ | — | |||||||||||
State | 234 | 512 | 324 | ||||||||||||||
Foreign | 4,366 | 3,912 | 3,494 | ||||||||||||||
Total current income tax expense | 4,600 | 4,424 | 3,818 | ||||||||||||||
Deferred: | |||||||||||||||||
Federal | — | — | — | ||||||||||||||
State | — | — | — | ||||||||||||||
Foreign | (70) | (74) | (165) | ||||||||||||||
Total deferred income tax benefit | (70) | (74) | (165) | ||||||||||||||
Total provision for income taxes | $ | 4,530 | $ | 4,350 | $ | 3,653 | |||||||||||
The Company had an effective tax rate of 54.34%, (5.37)%, and (3.52)% for the periods ended December 31, 2025, 2024, and 2023, respectively. The difference between the 21% statutory federal tax rate and the effective tax rate was primarily a result of the decrease in the total of valuation allowances against federal and state net deferred tax assets, offset by income earned in jurisdictions with higher statutory tax rates, foreign withholding taxes, and tax credits.
The reconciliation between the statutory federal income tax rate and the Company’s effective tax rate as a percentage of net income before taxes is as follows (dollar amounts in thousands):
Fiscal Year Ended December 31, 2025 | |||||||||||
| Amount | As a % of net income before taxes | ||||||||||
| Net income before taxes | $ | 8,337 | |||||||||
| U.S. federal statutory tax rate | 1,751 | 21.00 | % | ||||||||
State and local income taxes, net of federal income tax effect(1) | 182 | 2.18 | % | ||||||||
| Foreign tax effects | 264 | 3.16 | % | ||||||||
| Effect of changes in tax laws or rates enacted in the current period | |||||||||||
| Effect of cross-border tax laws | |||||||||||
| Withholding taxes | 1,683 | 20.19 | % | ||||||||
| Tax credits | |||||||||||
| Research credits | (1,915) | (22.97) | % | ||||||||
| Changes in valuation allowance - federal | (6,371) | (76.43) | % | ||||||||
| Non-taxable or non-deductible items | |||||||||||
| Non-deductible compensation | 1,331 | 15.97 | % | ||||||||
| Stock-based compensation | 6,453 | 77.41 | % | ||||||||
| Changes in unrecognized tax benefits | 437 | 5.24 | % | ||||||||
| Other | 715 | 8.59 | % | ||||||||
| Income tax provision | $ | 4,530 | 54.34 | % | |||||||
| (1) States taxes in Virginia and Florida made up the majority (greater than 50%) of the tax effect in this category. | |||||||||||
As previously disclosed for the periods ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:
| Fiscal Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Federal tax expense | 21.00 | % | 21.00 | % | |||||||
State taxes, net of federal benefit | 0.49 | % | 0.50 | % | |||||||
Foreign rate differential | (0.28) | % | (1.40) | % | |||||||
Withholding taxes | (2.43) | % | (1.77) | % | |||||||
Nondeductible compensation | (6.18) | % | (10.20) | % | |||||||
Stock-based compensation | (9.48) | % | (1.84) | % | |||||||
Change in valuation allowance | (16.40) | % | (18.33) | % | |||||||
Research and development credits | 7.57 | % | 7.94 | % | |||||||
Nontaxable dividends | — | % | 1.31 | % | |||||||
Other | 0.34 | % | (0.73) | % | |||||||
Effective tax rate | (5.37) | % | (3.52) | % | |||||||
The amount of cash taxes paid by Udemy, Inc., inclusive of amounts withheld by customers and remitted to tax authorities on the Company's behalf, are as follows (in thousands):
Fiscal Year Ended December 31, 2025 | ||||||||
| Federal | $ | — | ||||||
| State | 611 | |||||||
| Foreign | ||||||||
| India | 1,563 | |||||||
| Australia | 654 | |||||||
| All other foreign | 2,217 | |||||||
| Cash taxes, net of amounts refunded | $ | 5,045 | ||||||
Significant components of the net deferred tax assets (liabilities) for the fiscal years ended December 31, 2025 and 2024, consisted of the following (in thousands):
| December 31, | December 31, | ||||||||||
| 2025 | 2024 | ||||||||||
Deferred tax assets: | |||||||||||
Accruals and reserves | $ | 4,340 | $ | 3,852 | |||||||
Deferred revenue | 64,332 | 64,179 | |||||||||
Net operating loss | 39,420 | 21,983 | |||||||||
Research and development tax credits | 37,378 | 34,772 | |||||||||
Stock-based compensation expense | 2,518 | 4,005 | |||||||||
Indirect tax reserves | 742 | 377 | |||||||||
Property and equipment, net | 1,969 | 2,088 | |||||||||
Capitalized research and development costs | 22,832 | 48,726 | |||||||||
Operating lease liabilities | 1,985 | 2,152 | |||||||||
| Other deferred tax assets | 4,082 | 3,052 | |||||||||
Gross deferred tax assets | 179,598 | 185,186 | |||||||||
Valuation allowance | (160,923) | (165,488) | |||||||||
Total deferred tax assets | 18,675 | 19,698 | |||||||||
Deferred tax liabilities: | |||||||||||
Deferred contract costs | (9,095) | (9,329) | |||||||||
Operating lease right-of-use-assets | (1,610) | (2,064) | |||||||||
Other deferred tax liabilities | (7,663) | (8,067) | |||||||||
Total deferred tax liabilities | (18,368) | (19,460) | |||||||||
Net deferred tax assets | $ | 307 | $ | 238 | |||||||
A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. We regularly assess our ability to realize our deferred tax assets on a quarterly basis and will establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. In 2025, after considering both positive and negative evidence, we determined that there is not sufficient objectively verifiable positive evidence to conclude that it is more-likely-than-not that our US deferred tax assets are realizable in the future. As a result, we continue to record a full valuation allowance against our U.S. Federal and State net deferred tax balances.
As of December 31, 2025, the Company has established a valuation allowance of $160.9 million, against its gross deferred tax assets due to the uncertainty surrounding the realization of such assets. The change in total valuation allowance from 2024 to 2025 was an decrease of $4.6 million.
As of December 31, 2025, the Company had $170.4 million of federal net operating loss (“NOL”) carryforwards. All of the federal NOL carryforwards generated in taxable years beginning after December 31, 2017 have an indefinite carryforward period, but are subject to the 80% deduction limitation based upon pre-NOL deduction taxable income.
As of December 31, 2025, the Company had $58.0 million of state NOL carryforwards. The state NOL carryforwards begin expiring in 2030, if not utilized.
As of December 31, 2025, the Company had U.S. federal and state research and development tax credit carryforwards of $30.6 million and $20.2 million, respectively. The federal research and development tax credit carryforwards will expire in various amounts beginning in 2035 while the state research and development tax credit carryforwards can be carried forward indefinitely.
In July 2025, the United States enacted tax legislation commonly referred to as the One Big Beautiful Bill Act (the “OBBB Act”). The OBBB Act, among other things, extends certain provisions of 2017 U.S. federal tax legislation relating to federal bonus depreciation and immediate expensing for domestic research and development expenditures. These provisions did not have a material effect on the Company’s consolidated financial statements for the year ended December 31, 2025. We will continue to monitor future developments, including regulatory guidance and interpretations, which could have a material impact.
The utilization of the Company’s net operating losses may be subject to a limitation due to the “ownership change” provisions under Section 382 of the Internal Revenue Code and similar state and foreign provisions. The Company has performed a Section 382 study through December 31, 2025 to determine any potential Section 382 limitations on the utilization of its net operating loss carryforwards and tax credit carryforwards and has determined that the Company has not experienced any ownership changes expected to impact Net Operating Loss carryforwards.
Uncertain tax positions— As of December 31, 2025 and 2024, the Company had gross unrecognized tax benefits of $10.0 million and $9.0 million, respectively, related to federal and state research and development tax credits. The Company has performed a R&D tax credit study. The Company’s tax position of such credits is not more likely than not to be sustained upon examination. The Company has recorded an uncertain tax position related to the deferred tax asset recognized for these credits.
A reconciliation of the beginning and ending balance of unrecognized tax benefit is as follows (in thousands):
| Fiscal Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Gross unrecognized tax benefits at the beginning of the year | $ | 9,032 | $ | 7,232 | $ | 5,310 | |||||||||||
| Increases related to prior year tax positions | 220 | 133 | 58 | ||||||||||||||
Increases related to current year tax positions | 723 | 1,667 | 1,864 | ||||||||||||||
Statues of limitations expirations | — | — | — | ||||||||||||||
Gross unrecognized tax benefits at the end of the year | $ | 9,975 | $ | 9,032 | $ | 7,232 | |||||||||||
The Company is currently unaware of uncertain tax positions that could result in significant additional payments, accruals, or other material deviations in the next 12 months. The Company currently does not record interest and penalties, if any, related to unrecognized tax benefits due to the existence of tax attribute carryforwards.
The Company intends to indefinitely reinvest any future undistributed foreign earnings outside the United States and therefore such earnings will not be subject to U.S. federal or state, or foreign withholding tax.
The Company files income tax returns in U.S. federal, and certain state and foreign jurisdictions with varying statutes of limitations. Due to NOL carryforwards and tax credit carryforwards, the statutes of limitations remain open for tax years from inception of the Company through the fiscal year ended December 31, 2025. There are currently no income tax audits underway by U.S. federal or state tax authorities.
The Company’s subsidiary, Udemy India LLP, has received tax assessments from the India Income Tax Department. These assessments have challenged the transfer pricing methodology used by Udemy India LLP for the fiscal years ended March 31, 2022 and 2021. The Company believes the proposed adjustments are without merit and will vigorously defend its position; however, it could take a number of years to reach resolution of this matter.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2021 | Mar 25, 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.