Upstart Holdings, Inc.UPST
Upstart Holdings, Inc. Income Taxes Disclosure
Income Taxes
_________
Income (loss) before income taxes consisted entirely of income (loss) from domestic operations of $(240.0) million, $(128.4) million, and $54.3 million for the calendar years ended December 31, 2023, 2024 and 2025, respectively. Income tax expense included in the consolidated statements of operations and comprehensive income (loss) consisted of the following:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2024 | 2025 | ||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | ||||||||||||||
| State | 107 | 185 | 728 | |||||||||||||||||
| Total current tax expense | 107 | 185 | 728 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | ||||||||||||||
| State | — | — | — | |||||||||||||||||
| Total deferred tax expense | — | — | — | |||||||||||||||||
| Total provision for income taxes | $ | 107 | $ | 185 | $ | 728 | ||||||||||||||
Income tax expense differed from the amount computed by applying the Federal statutory income tax rate of 21% to net income (loss) before income taxes for the years ended December 31, 2023, 2024 and 2025 as a result of the following:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2024 | 2025 | ||||||||||||||||||||||||||||||||||||
| Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||||||||||||||||
| U.S. federal statutory tax rate | $ | (50,405) | 21.00 | % | $ | (26,963) | 21.00 | % | $ | 11,409 | 21.00 | % | ||||||||||||||||||||||||||
State and local income taxes, net of federal income tax effect(1) | 28 | (0.01) | % | 180 | (0.14) | % | 672 | 1.24 | % | |||||||||||||||||||||||||||||
| Foreign tax effects | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||
| Effect of changes in tax law or rates enacted in the current period | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||
| Effect of cross-border tax laws | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||
| Tax credits | ||||||||||||||||||||||||||||||||||||||
| Research and development tax credits | (6,288) | 2.62 | % | (7,806) | 6.08 | % | (10,187) | (18.75) | % | |||||||||||||||||||||||||||||
| Changes in valuation allowance | 38,189 | (15.91) | % | 50,585 | (39.40) | % | 9,711 | 17.87 | % | |||||||||||||||||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 2,306 | (0.96) | % | (30,120) | 23.46 | % | (26,048) | (47.94) | % | |||||||||||||||||||||||||||||
| Section 162(m) limitation | 16,586 | (6.91) | % | 13,840 | (10.78) | % | 15,304 | 28.17 | % | |||||||||||||||||||||||||||||
| Other | 490 | (0.20) | % | 381 | (0.30) | % | 544 | 1.00 | % | |||||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | 287 | (0.12) | % | 178 | (0.14) | % | 426 | 0.78 | % | |||||||||||||||||||||||||||||
| Other adjustment | ||||||||||||||||||||||||||||||||||||||
| Federal provision-to-return adjustment | (1,154) | 0.48 | % | (608) | 0.47 | % | (1,133) | (2.09) | % | |||||||||||||||||||||||||||||
| Other | 68 | (0.03) | % | 518 | (0.40) | % | 30 | 0.06 | % | |||||||||||||||||||||||||||||
| Effective tax rate | $ | 107 | (0.04) | % | $ | 185 | (0.15) | % | $ | 728 | 1.34 | % | ||||||||||||||||||||||||||
_________
(1)State taxes in Pennsylvania and Texas made up the majority (greater than 50 percent) of the tax effect in this category.
On July 4, 2025, the One Big Beautiful Bill Act (the “Act”) was enacted into law. The Act includes significant changes to the U.S. tax code, including restoration of immediate recognition of domestic research and development (“R&D”) expenditures and reinstatement of 100% bonus depreciation for qualifying property. The Company has assessed the Act’s impact and concluded that it did not materially affect its effective tax rate for the current quarter. The Company has elected to immediately expense domestic R&D expenditures incurred in 2025 and will continue to amortize any previously capitalized amounts over the original amortization period.
The tax effects of temporary differences that gave rise to significant portions of the Company’s deferred tax assets and liabilities related to the following:
| December 31, | ||||||||||||||
| 2024 | 2025 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating loss carryforwards | $ | 346,356 | $ | 357,440 | ||||||||||
| Research and development tax credits | 56,675 | 69,300 | ||||||||||||
| Capitalized research and experimental expenditures | 84,572 | 65,211 | ||||||||||||
| Accruals and reserves | 19,494 | 18,795 | ||||||||||||
| Convertible debt transactions | 1,189 | 12,574 | ||||||||||||
| Investment in partnerships | — | 11,363 | ||||||||||||
| Stock-based compensation | 12,249 | 10,622 | ||||||||||||
| Operating lease liabilities | 14,564 | 5,456 | ||||||||||||
| Amortization | 612 | 322 | ||||||||||||
| Other | 402 | 288 | ||||||||||||
| Total deferred tax assets | 536,113 | 551,371 | ||||||||||||
| Less: valuation allowance | (508,966) | (531,883) | ||||||||||||
| Deferred tax assets – net of valuation allowance | 27,147 | 19,488 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Servicing rights | 7,607 | 9,436 | ||||||||||||
| Right of use asset | 12,587 | 4,234 | ||||||||||||
| Interest receivables | 2,481 | 2,821 | ||||||||||||
| Intangible assets | 2,728 | 2,135 | ||||||||||||
| Depreciation | 1,183 | 784 | ||||||||||||
| Investment in partnerships | 242 | — | ||||||||||||
| Other | 319 | 78 | ||||||||||||
| Total deferred tax liabilities | 27,147 | 19,488 | ||||||||||||
| Net deferred tax assets | $ | — | $ | — | ||||||||||
Management believes that, based on available evidence, both positive and negative, it is more likely than not that the deferred tax assets will not be utilized, and as such the Company maintains a full valuation allowance at December 31, 2025. The valuation allowance increased by $22.9 million for the year ended December 31, 2025 primarily as a result of current year activities.
As of December 31, 2025, the Company had approximately $1,164.9 million and $1,680.0 million of federal and state (post-apportioned) net operating losses (NOL), that will begin to expire in 2035 and 2034, respectively. The Company has Federal and California research and development tax credits of approximately $77.3 million and $28.1 million, respectively. The Federal research credits will begin to expire in 2032 and the California research credits have no expiration date. The Internal Revenue Code (“IRC”) limits the amount of NOL
carryforwards that a company may use in a given year in the event of certain cumulative changes in ownership over a three-year period as described in Section 382 of the IRC. Utilization of NOL carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company performed an ownership analysis and identified ownership changes in prior years, as defined under IRC Section 382 and 383, however neither resulted in a material limitation that will reduce the total amount of NOL carryforwards and credits that can be utilized.
A reconciliation of the beginning and ending balances of gross unrecognized tax benefits is as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2024 | 2025 | ||||||||||||||||||
| Balance at beginning of year | $ | 18,474 | $ | 22,158 | $ | 26,466 | ||||||||||||||
| Additions for tax positions of prior years | 308 | 179 | 441 | |||||||||||||||||
| Tax positions related to the current year | 3,376 | 4,129 | 5,290 | |||||||||||||||||
| Balance at end of year | $ | 22,158 | $ | 26,466 | $ | 32,197 | ||||||||||||||
If recognized, all of the unrecognized tax benefits would not impact the effective tax rate due to the valuation allowance against certain deferred tax assets. As of December 31, 2025, the Company had $32.2 million unrecognized income tax benefits and there was increases of $5.7 million to the Company’s unrecognized tax benefits during the year. The Company’s policy is to classify interest and penalties associated with unrecognized tax benefits as income tax expense. The Company had no interest or penalty accruals associated with uncertain tax benefits in its consolidated balance sheet and consolidated statement of operations and comprehensive income (loss) for the tax year ended December 31, 2025.
The Company files income tax returns in the U.S. Federal jurisdiction and various state and local jurisdictions. The Company is currently under examination by the Internal Revenue Service with respect to its U.S. federal income tax return for the 2023 tax year. The Company is not under examination by state or local income tax authorities at this time. However, because the Company has net operating losses and credits carried forward in several jurisdictions, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax attributes carried forward to open years. All tax returns will remain open for examination by the federal and most state taxing authorities for three years and four years, respectively, from the date of utilization of any net operating loss carryforwards or research and development credits.
The Company paid income taxes to multiple jurisdictions during the period. The table below summarizes income taxes paid, net of refunds received, to federal, state and local, and foreign tax authorities:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2024 | 2025 | ||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | ||||||||||||||
| State and local | (658) | 258 | 590 | |||||||||||||||||
| Foreign | — | — | — | |||||||||||||||||
| Total | $ | (658) | $ | 258 | $ | 590 | ||||||||||||||
Income taxes paid (net of refunds) exceeds 5 percent of total income taxes paid (net of refund) in the following jurisdictions:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2024 | 2025 | ||||||||||||||||||
| State and local | ||||||||||||||||||||
| California | $ | (1,200) | * | * | ||||||||||||||||
| New York | 184 | 71 | 119 | |||||||||||||||||
| North Carolina | 88 | 30 | 117 | |||||||||||||||||
| Tennessee | * | 32 | 107 | |||||||||||||||||
| Oregon | 67 | 36 | 94 | |||||||||||||||||
| New York City | 92 | 22 | 58 | |||||||||||||||||
| Texas | 52 | 45 | 46 | |||||||||||||||||
| Louisiana | * | * | 30 | |||||||||||||||||
* Jurisdiction below the threshold for the period presented.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 10, 2026 | Showing above |
| 2024 | Feb 14, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 18, 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.