Workday, Inc.WDAY

Workday, Inc. Income Taxes Disclosure

10-KFiled Mar 6, 20265 min read
Income Taxes
The components of income before provision for (benefit from) income taxes were as follows (in millions):
 Year Ended January 31,
 202620252024
Domestic$943 $660 $465 
Foreign66 (22)(109)
Income before provision for (benefit from) income taxes$1,009 $638 $356 
The provision for (benefit from) income taxes consisted of the following (in millions):
 Year Ended January 31,
 202620252024
Current:
Federal$34 $12 $2 
State46 45 19 
Foreign28 23 14 
Total108 80 35 
Deferred:
Federal198 52 (855)
State12 (20)(207)
Foreign(2)0 2 
Total208 32 (1,060)
Provision for (benefit from) income taxes$316 $112 $(1,025)
The income tax provision for fiscal 2026 was primarily attributable to an increase in our U.S. pretax income and income tax expenses in profitable foreign jurisdictions.
We adopted ASU No. 2023-09 on a prospective basis effective February 1, 2025. The following table reconciles the difference between income taxes computed at the federal statutory income tax rate and the provision for (benefit from) income taxes (in millions, except percentages):
 
Year Ended January 31, 2026
 
Amount
Percentage
U.S. federal statutory tax rate
$212 21.0 %
State and local income taxes, net of federal income tax effect (1)
34 3.4 %
Foreign tax effects:
Ireland:
Intercompany transactions
(97)(9.6)%
Change in valuation allowance115 11.4 %
Other(14)(1.4)%
Other foreign jurisdictions
6 0.5 %
Effect of cross-border tax laws:
Foreign-derived intangible income
(24)(2.4)%
Other2 0.1 %
Tax credits:
Research and development tax credit(68)(6.7)%
Nontaxable or nondeductible items:
Share-based compensation
81 8.1 %
Intercompany transactions
26 2.6 %
Other12 1.2 %
Changes in unrecognized tax benefits (2)
32 3.2 %
Other adjustments
(1)(0.1)%
Effective tax rate
$316 31.3 %
(1)State and local taxes in New York state, New Jersey, Illinois, and New York city made up the majority (greater than 50 percent) of the tax effect in this category.
(2)Changes in unrecognized tax benefits are presented on an aggregated basis for all jurisdictions.
 Year Ended January 31,
 20252024
Federal statutory rate21.0 %21.0 %
Effect of:
Foreign income at other than U.S. rates0.2 %10.9 %
Intercompany transactions(1.0)%(4.3)%
Research tax credits(15.4)%(26.3)%
State taxes, net of federal benefit3.1 %5.1 %
Changes in valuation allowance0.0 %(315.5)%
Share-based compensation 8.1 %19.1 %
Permanent difference1.6 %1.2 %
Other(0.1)%1.2 %
Total17.5 %(287.6)%
The following table presents income taxes paid, net of refunds (in millions):
 
Year Ended January 31, 2026
Federal taxes
$17 
State taxes:
California
7 
New York
8 
Other states
38 
Total state taxes
53 
Total U.S. taxes
70 
Foreign taxes
26 
Cash paid for income taxes, net of refunds
$96 
Cash paid for income taxes, net of refunds were $65 million and $39 million in fiscal 2025 and 2024, respectively.
Significant components of our deferred tax assets and liabilities were as follows (in millions):
As of January 31,
20262025
Deferred tax assets:
Tax attributes carryforward$1,338 $1,290 
Capitalized research and development expense497 621 
Intangibles424 429 
Operating lease liabilities148 81 
Share-based compensation77 76 
Other reserves and accruals65 65 
Other69 37 
Total deferred tax assets2,618 2,599 
Valuation allowance(1,433)(1,259)
Deferred tax assets, net of valuation allowance1,185 1,340 
Deferred tax liabilities:
Deferred commissions(182)(162)
Operating lease right-of-use assets(128)(71)
Other(46)(75)
Total deferred tax liabilities(356)(308)
Net deferred tax assets$829 $1,032 
We periodically evaluate the realizability of our deferred tax assets based on all available evidence, both positive and negative, such as historic results, future reversals of existing deferred tax liabilities, projected future taxable income, as well as prudent and feasible tax-planning strategies. The assessment requires significant judgment and is performed in each of the applicable jurisdictions. The valuation allowance of $1.4 billion and $1.3 billion as of January 31, 2026, and 2025, respectively, was primarily related to tax credits in certain state jurisdictions, foreign intangible assets from intercompany transactions, and net operating losses in certain foreign jurisdictions.
The valuation allowance increased by $174 million during fiscal 2026 primarily due to an increase in deferred tax assets on certain state tax credits and foreign intangible assets from intercompany transactions, in addition to net operating losses in certain foreign jurisdictions.
The valuation allowance increased by $77 million during fiscal 2025 primarily due to an increase in deferred tax assets on certain state tax credits and net operating losses in certain foreign jurisdictions.
As of January 31, 2026, we had approximately $299 million of federal, $1.4 billion of state, and $4.3 billion of foreign net operating loss and other tax attributes carryforwards available to offset future taxable income. If not utilized, the pre-fiscal 2018 federal and the state net operating loss carryforwards expire in varying amounts between fiscal 2029 and 2047. The federal net operating losses generated in and after fiscal 2018 and the foreign net operating losses and other tax attributes do not expire and may be carried forward indefinitely.
We also had approximately $470 million of federal and $461 million of California research and development tax credit carryforwards as of January 31, 2026. The federal credits expire in varying amounts between fiscal 2027 and 2046. The California research and development tax credits do not expire and may be carried forward indefinitely.
Our ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code of 1986, as amended, and similar state tax law.
We intend to indefinitely reinvest any future earnings in our foreign operations unless such earnings are subject to U.S. federal income taxes.
A reconciliation of the gross unrecognized tax benefits is as follows (in millions):
 Year Ended January 31,
 202620252024
Unrecognized tax benefits at the beginning of the period$309 $253 $196 
Additions for tax positions taken in prior years3 15 30 
Additions for tax positions related to the current year30 41 27 
Reductions related to a lapse of applicable statute of limitations(1)0 0 
Unrecognized tax benefits at the end of the period$341 $309 $253 
Our policy is to include interest and penalties related to unrecognized tax benefits within our provision for income taxes. As of January 31, 2026, the amount of interest and penalties accrued was $5 million. We did not accrue any material interest expense or penalties during fiscal 2025 and 2024.
As of January 31, 2026, we had unrecognized tax benefits of $341 million, of which $199 million would impact the effective tax rate, if recognized.
We file federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to our net operating loss carryforwards, our income tax returns generally remain subject to examination by federal and most state and foreign tax authorities.

Historical Timeline

Fiscal YearFiled
2026Mar 6, 2026Showing above
2025Mar 11, 2025
2024Mar 8, 2024
2023Feb 27, 2023
2022Feb 28, 2022
2021Mar 2, 2021
2020Mar 3, 2020
2019Mar 18, 2019
2018Mar 14, 2018
2017Mar 20, 2017
2016Mar 22, 2016

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.

Other Available Disclosures

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