UPWORK, INCUPWK
UPWORK, INC Income Taxes Disclosure
Income Taxes
For the years ended December 31, 2025, 2024, and 2023, income before income taxes consisted of the following:
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Domestic | $ | 152,596 | $ | 89,556 | $ | 48,662 | |||||||||||
| Foreign | 580 | 871 | 215 | ||||||||||||||
Total income before income taxes | $ | 153,176 | $ | 90,427 | $ | 48,877 | |||||||||||
For the years ended December 31, 2025, 2024, and 2023, the components of the income tax benefit (provision) were as follows:
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (10,366) | $ | (1,394) | $ | (978) | |||||||||||
| State | (3,245) | (2,593) | (902) | ||||||||||||||
| Foreign | (5,647) | (112) | (110) | ||||||||||||||
| Total current | $ | (19,258) | $ | (4,099) | $ | (1,990) | |||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | (9,773) | $ | 110,923 | $ | — | |||||||||||
| State | (12,334) | 18,335 | — | ||||||||||||||
| Foreign | 3,614 | — | — | ||||||||||||||
| Total deferred | $ | (18,493) | $ | 129,258 | $ | — | |||||||||||
Income tax benefit (provision) | $ | (37,751) | $ | 125,159 | $ | (1,990) | |||||||||||
For the years ended December 31, 2025, 2024, and 2023, the components of the income taxes paid (net of refunds) were as follows:
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
U.S. Federal | $ | 10,300 | $ | 1,816 | $ | 1,300 | |||||||||||
U.S. State and Local | |||||||||||||||||
| Illinois | — | 339 | 181 | ||||||||||||||
| Pennsylvania | — | — | 179 | ||||||||||||||
| Florida | — | 303 | — | ||||||||||||||
| New York | — | 614 | — | ||||||||||||||
| New York City | — | 542 | — | ||||||||||||||
Other | 2,955 | 918 | 317 | ||||||||||||||
| Foreign | 234 | 58 | 7 | ||||||||||||||
Total | $ | 13,489 | $ | 4,590 | $ | 1,984 | |||||||||||
The Company had an effective tax rate of 24.6%, (138.4)%, and 4.1% for the years ended December 31, 2025, 2024, and 2023, respectively. The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2025, 2024, and 2023 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
in millions (except for percentages) | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||
| U.S. federal statutory rate | $ | 32.20 | 21.0 | % | $ | 19.00 | 21.0 | % | $ | 10.30 | 21.0 | % | |||||||||||||||||||||||
State and local income taxes, net of federal income tax effect (1) | 14.90 | 9.7 | % | (16.70) | (18.5) | % | (0.10) | (0.2) | % | ||||||||||||||||||||||||||
| Foreign tax effects | |||||||||||||||||||||||||||||||||||
| Netherlands | |||||||||||||||||||||||||||||||||||
| Acquisition integration | 1.50 | 1.0 | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| Other foreign jurisdictions | 0.40 | 0.2 | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| Effect of cross-border tax laws | |||||||||||||||||||||||||||||||||||
| Foreign-derived intangible income | (11.20) | (7.3) | % | (3.40) | (3.8) | % | (2.70) | (5.6) | % | ||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| Research & development credit | (4.90) | (3.2) | % | (5.80) | (6.4) | % | (5.00) | (10.3) | % | ||||||||||||||||||||||||||
| Changes in valuation allowances | — | — | % | (122.70) | (135.7) | % | (14.70) | (30.1) | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
| Stock based and non-deductible employee compensation | 3.50 | 2.3 | % | 2.60 | 2.9 | % | 8.60 | 17.7 | % | ||||||||||||||||||||||||||
| Other | 1.30 | 0.9 | % | 0.20 | 0.2 | % | (0.40) | (0.8) | % | ||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | 1.25 | 0.8 | % | 1.64 | 1.8 | % | 1.19 | 2.5 | % | ||||||||||||||||||||||||||
| Other adjustments | |||||||||||||||||||||||||||||||||||
| Other | (1.20) | (0.8) | — | — | % | 4.80 | 9.9 | % | |||||||||||||||||||||||||||
| Effective tax rate | $ | 37.75 | 24.6 | % | $ | (125.16) | (138.4) | % | $ | 1.99 | 4.1 | % | |||||||||||||||||||||||
(1) State taxes in California made up the majority (greater than 50%) of the tax effect in this category for 2025 and 2024. State taxes in Illinois, Pennsylvania, and Texas made up the majority (greater than 50%) of the tax effect in this category for 2023.
Deferred income taxes reflect the 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. As of December 31, 2025 and 2024, the significant components of the Company’s deferred tax assets and liabilities were as follows:
| (In thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 7,035 | $ | 10,799 | |||||||
| Stock-based compensation | 8,386 | 8,056 | |||||||||
| Operating lease liability | 2,646 | 2,561 | |||||||||
| Accrued liabilities, reserves and other | 7,950 | 7,080 | |||||||||
| Acquired intangible assets | 1,637 | — | |||||||||
| Capitalized research and development | 96,888 | 78,606 | |||||||||
| Tax Credits | 8,778 | 25,882 | |||||||||
| Gross deferred tax assets | 133,320 | 132,984 | |||||||||
| Valuation allowance | (15,911) | — | |||||||||
| Total deferred tax assets | 117,409 | 132,984 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Prepaid expenses | — | (250) | |||||||||
| Operating lease asset | (1,165) | (1,316) | |||||||||
Acquired intangibles | (4,749) | (2,639) | |||||||||
| Total deferred tax liabilities | (5,914) | (4,205) | |||||||||
| Net deferred tax assets | $ | 111,495 | $ | 128,779 | |||||||
The change in valuation allowance for deferred tax assets was as follows for the periods presented:
(In thousands) Year Ended December 31, | Balance at Beginning of Year | Additions Charged to Costs & Expenses | Additions Charged to Other Accounts | Deductions | Balance at End of Year | |||||||||||||||||||||||||||
| 2025 | $ | — | $ | 15,916 | $ | (5) | $ | — | $ | 15,911 | ||||||||||||||||||||||
| 2024 | 140,339 | (140,339) | — | — | — | |||||||||||||||||||||||||||
| 2023 | 157,353 | (16,262) | (752) | — | 140,339 | |||||||||||||||||||||||||||
The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that some or all of its deferred tax assets will not be realized. This assessment is based on the weight of all available positive and negative evidence, including cumulative pre-tax income or losses, anticipated future earnings, the impact of permanent differences, and items recorded in other comprehensive income or losses.
As of December 31, 2024, the Company released its U.S. federal and state valuation allowance after concluding that it was more likely than not that its deferred tax assets would be realized. This conclusion was supported by the achievement of cumulative U.S. pre-tax income over the prior three-year period, adjusted for permanent differences and other comprehensive losses, which provided objective and verifiable evidence of sustained profitability.
The Company recorded a valuation allowance of $15.9 million as of December 31, 2025 against its California deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met “more likely than not” realization criteria. The valuation allowance increase during 2025 was primarily driven by additional California research and development tax credit generated during the year, following the full release of the Company’s valuation allowance in 2024. The Company expects research and development tax credit generation to exceed its ability to utilize the credits in future years. The Company will continue to monitor the need for a valuation allowance against its deferred tax assets on a quarterly basis.
The Company had federal net operating loss, which is referred to as NOL, carryforwards of approximately $2.0 million and $18.9 million as of December 31, 2025 and 2024, respectively. The federal NOL carryforwards of $2.0 million generated after December 31, 2017 can be carried forward indefinitely with utilization in any year limited to 80% of the Company’s taxable income or any limitation under Section 382. The Company has California NOL carryforwards of approximately $90.9 million and $91.0 million as of December 31, 2025 and 2024, respectively. California NOLs will begin to expire in 2032 if not utilized.
The Company had federal research and development credits of approximately $4.4 million and $31.1 million as of December 31, 2025 and 2024, respectively. The federal research and development credits will begin to expire in 2045 if not utilized. The Company has California research and development credits of approximately $20.4 million and $16.7 million as of December 31, 2025 and 2024, respectively. California research and development credits have an infinite carryforward period.
The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of NOLs and tax credit carryforwards in the event that there is a change in ownership as provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Such a limitation could result in the expiration of the NOL carryforwards and tax credits before utilization, which could result in increased future tax liabilities.
Uncertain Tax Positions
As of December 31, 2025, the Company’s total amount of unrecognized tax benefits was $22.8 million, of which $13.5 million would impact the Company’s effective tax rate, if recognized.
For the years ended December 31, 2025, 2024, and 2023, the activity related to the unrecognized tax benefits were as follows:
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Gross unrecognized tax benefits—beginning balance | $ | 19,966 | $ | 18,157 | $ | 16,573 | |||||||||||
| Increase related to tax positions taken during prior year | 655 | 112 | 342 | ||||||||||||||
| Decrease related to tax positions taken during prior year | (28) | (19) | (21) | ||||||||||||||
| Increase related to tax positions taken during current year | 2,161 | 1,716 | 1,263 | ||||||||||||||
| Gross unrecognized tax benefits—ending balance | $ | 22,754 | $ | 19,966 | $ | 18,157 | |||||||||||
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the provision for income taxes in the period that such determination is made. As of December 31, 2025, the Company did not currently recognize any penalties or interest charges relating to uncertain tax positions. The Company does not anticipate the recorded reserves to change significantly in the next 12 months.
The Company is subject to taxation in the United States and various other state and foreign jurisdictions. Due to certain tax attribute carryforwards, the tax years 2001 to 2024 remain open to examination by the major taxing jurisdictions in which the Company is subject to tax. As of December 31, 2025, the Company was not under examination by the Internal Revenue Service. Due to differing interpretations of tax laws and regulations, tax authorities may dispute the Company’s tax filing positions. The Company periodically evaluates its exposures associated with its tax filing positions and believes that adequate amounts have been reserved for adjustments that may result from tax examinations.
On July 4, 2025, Public Law 119-21 was enacted, introducing changes to U.S. tax law, including 100% bonus depreciation and the expensing of domestic research costs. In accordance with ASC 740, Income Taxes, the effects of enacted tax law changes must be recognized in the period in which the legislation is enacted. Certain provisions became effective in the third quarter of 2025, and these impacts have been reflected in the Company’s 2025 results.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 15, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 7, 2019 | |
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.