WEX Inc.WEX
WEX Inc. Income Taxes Disclosure
| 14. | Income Taxes | ||||
Income before income taxes consisted of the following for the years ended December 31:
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| United States | $ | 332.8 | $ | 290.6 | $ | 225.8 | |||||||||||
| Foreign | 87.4 | 127.2 | 143.0 | ||||||||||||||
| Total | $ | 420.2 | $ | 417.8 | $ | 368.8 | |||||||||||
Income taxes from continuing operations consisted of the following for the years ended December 31:
| (in millions) | United States | State and Local | Foreign | Total | |||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| Current | $ | 30.4 | $ | 18.1 | $ | 24.0 | $ | 72.5 | |||||||||||||||
| Deferred | $ | 35.0 | $ | 6.5 | $ | 2.1 | $ | 43.6 | |||||||||||||||
| Income taxes | $ | 116.1 | |||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| Current | $ | 48.2 | $ | 16.5 | $ | 32.4 | $ | 97.1 | |||||||||||||||
| Deferred | $ | 14.1 | $ | 2.0 | $ | (5.0) | $ | 11.1 | |||||||||||||||
| Income taxes | $ | 108.2 | |||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| Current | $ | 77.0 | $ | 13.3 | $ | 33.2 | $ | 123.5 | |||||||||||||||
| Deferred | $ | (16.7) | $ | — | $ | (4.6) | $ | (21.3) | |||||||||||||||
| Income taxes | $ | 102.2 | |||||||||||||||||||||
Income taxes paid (net of refunds) consisted of the following for the year ended December 31, 2025:
| (in millions) | |||||
| Federal | $ | 10.6 | |||
| State and local | 9.0 | ||||
| Foreign: | |||||
| Australia | 2.3 | ||||
| United Kingdom | 18.0 | ||||
| Other | 4.6 | ||||
| Total foreign | 24.9 | ||||
| Income taxes paid (net of refunds) | $ | 44.5 | |||
Income taxes paid (net of refunds) during the years ended December 31, 2024 and 2023 were $131.9 million and $130.3 million, respectively.
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $351.0 million and $313.6 million at December 31, 2025 and 2024, respectively. During the third quarter of 2025, the Company reevaluated its historic indefinite reinvestment assertion and determined that any historical undistributed earnings as well as the future earnings for WEX Brazil are no longer considered to be indefinitely reinvested. The Company continues to maintain its indefinite reinvestment assertion for its investments in all other foreign subsidiaries, except for any historical undistributed earnings and future earnings for WEX Australia and WEX Brazil. Upon distribution of these earnings, the Company would be subject to withholding taxes payable to foreign countries, where applicable, but would generally have no further federal income tax liability. It is not practicable to estimate the unrecognized deferred tax liability associated with these undistributed earnings; however, it is not expected to be material.
The reconciliation between the income tax computed by applying the U.S. federal statutory rate and the reported effective tax rate on income from continuing operations is as follows for the years ended December 31:
| 2025 | ||||||||
| (in millions) | Amount | Percent | ||||||
| U.S. Federal statutory tax rate | $ | 88.2 | 21.0 | % | ||||
State and local income taxes, net of federal income tax effect (a) | 19.4 | 4.6 | ||||||
| Foreign tax effects | 8.2 | 1.9 | ||||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | ||||||
| Effect of cross-border tax laws | (1.1) | (0.3) | ||||||
| Tax credits | 2.0 | 0.5 | ||||||
| Changes in valuation allowances | (4.0) | (1.0) | ||||||
| Nontaxable or nondeductible items | 7.9 | 1.9 | ||||||
| Changes in unrecognized tax benefits | (5.3) | (1.2) | ||||||
| Other adjustments | 0.8 | 0.2 | ||||||
| Effective tax rate | $ | 116.1 | 27.6 | % | ||||
(a) State taxes in California, North Dakota, Illinois, Utah and New Jersey made up the majority (greater than 50 percent) of the tax effect in this category.
| 2024 | 2023 | ||||||||||
| U.S. Federal statutory rate | 21.0 | % | 21.0 | % | |||||||
| State income taxes, net of federal income tax effect | 2.9 | 2.8 | |||||||||
| Foreign income tax rate differential | 1.5 | 2.3 | |||||||||
| Revaluation of deferred tax assets for foreign and state tax rate changes, net | 0.5 | 0.4 | |||||||||
| Tax credits | (0.3) | (0.3) | |||||||||
| Tax reserves | 0.9 | 1.0 | |||||||||
| Change in valuation allowance | (2.0) | (4.7) | |||||||||
| Nondeductible expenses | 1.7 | 4.1 | |||||||||
| Incremental tax benefit from share-based compensation awards | (0.6) | 2.0 | |||||||||
| GILTI | 0.1 | 0.5 | |||||||||
| Other | 0.2 | (1.4) | |||||||||
| Effective tax rate | 25.9 | % | 27.7 | % | |||||||
The Company’s effective tax rate for the year ended December 31, 2025 was favorably impacted by the reduction in unrecognized tax benefits of $5.3 million due to a lapse in statute of limitations.
The Company’s effective tax rate for the year ended December 31, 2024 was favorably impacted by the reduction of valuation allowance of $8.6 million, which was partially offset by a discrete tax item of $3.7 million primarily associated with an unrecognized tax benefit related to state income taxes.
The Company’s effective tax rate for the year ended December 31, 2023 was adversely impacted by the loss on extinguishment of Convertible Notes of $70.1 million, which was disallowed for tax purposes, and a tax shortfall arising from stock-based compensation, which was largely offset by a release in valuation allowance primarily attributable to foreign tax credits and net operating losses in the U.K.
The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes that give rise to significant portions of the deferred tax assets and liabilities are presented below:
| December 31, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| Deferred tax assets related to: | |||||||||||
| Reserve for credit losses | $ | 18.5 | $ | 17.2 | |||||||
| Tax credit carryforwards | 8.4 | 16.2 | |||||||||
| Stock-based compensation, net | 31.3 | 32.8 | |||||||||
| Net operating loss carry forwards | 32.8 | 36.6 | |||||||||
| Capital loss carry forwards | 22.7 | 21.3 | |||||||||
| Accruals | 44.4 | 41.2 | |||||||||
| Operating lease liabilities | 14.5 | 16.2 | |||||||||
| Contractual obligations | 17.3 | 31.8 | |||||||||
| Property, equipment and capitalized software | — | 4.8 | |||||||||
| Unrealized losses on debt securities | — | 27.8 | |||||||||
| Other | 5.4 | 5.1 | |||||||||
| Total | $ | 195.3 | $ | 250.9 | |||||||
| Deferred tax liabilities related to: | |||||||||||
| Property, equipment and capitalized software | (14.7) | — | |||||||||
| Intangibles | (266.0) | (265.0) | |||||||||
| Operating lease assets | (12.0) | (12.7) | |||||||||
| Other | (3.0) | (4.3) | |||||||||
| Total | $ | (295.7) | $ | (282.0) | |||||||
| Valuation allowance | (70.0) | (96.3) | |||||||||
| Deferred income taxes, net | $ | (170.4) | $ | (127.4) | |||||||
Net deferred tax (liabilities) assets by jurisdiction are as follows:
| December 31, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| United States | $ | (184.5) | $ | (142.1) | |||||||
| Australia | 8.6 | 8.9 | |||||||||
| Europe | 2.6 | 2.8 | |||||||||
| Singapore | 1.7 | 2.3 | |||||||||
| Other | 1.2 | 0.7 | |||||||||
| Deferred income taxes, net | $ | (170.4) | $ | (127.4) | |||||||
The Company had approximately $529.3 million and $496.8 million of post apportionment state net operating loss carryforwards as of December 31, 2025 and 2024, respectively. The Company’s foreign net operating loss carryforwards were approximately $26.1 million and $33.5 million at December 31, 2025 and 2024, respectively. The Company had $0.3 million and $15.9 million federal net operating loss carryforwards at December 31, 2025 and 2024, respectively. The Company had $6.9 million and $14.7 million United States foreign tax credit carryforwards at December 31, 2025 and 2024, respectively. The U.S. state losses expire at various times through 2045. United States federal losses and foreign losses in Australia and the United Kingdom have indefinite carryforward periods. Most of the United States foreign tax credit carryforwards will expire in 2026.
At December 31, 2025, the Company’s valuation allowance primarily pertains to i) foreign capital losses arising from a portion of the legal settlement of proceedings and appeals related to the acquisition of eNett and Optal, and ii) net deferred tax assets for certain states. In each case, the Company has determined it is not more likely than not that the benefits will be utilized. During 2025, 2024, and 2023 the Company recorded net tax benefits of $1.0 million, $8.6 million, and $17.1 million, respectively, resulting from changes to the valuation allowance. During 2025, the Company recorded a $28.1 million reversal of the valuation allowance on debt securities through accumulated other comprehensive income, driven by the recovery of previously unrealized losses. In 2025, a $4.4 million deferred tax asset related to the 2015 U.S. foreign tax credits carryforward expired. As a result, both the deferred tax asset and its fully offsetting valuation allowance were derecognized. The following table provides a summary of the Company’s valuation allowance:
| (in millions) | Balance at Beginning of Year | Charges to Expense | Releases | (Charges to)/ Releases from Accumulated Other Comprehensive Loss | Foreign Currency Translation | Balance at End of Year | ||||||||||||||
| Year Ended December 31, 2025 | $ | (96.3) | $ | (4.0) | $ | 5.0 | $ | 28.1 | $ | (2.8) | $ | (70.0) | ||||||||
| Year Ended December 31, 2024 | $ | (100.7) | $ | (4.2) | $ | 12.8 | $ | (8.0) | $ | 3.9 | $ | (96.3) | ||||||||
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The total amounts of interest and penalties recognized in the consolidated statements of operations were not material for the years ended December 31, 2025, 2024, and 2023. As of December 31, 2025 and 2024 the amount accrued for interest and penalties related to unrecognized tax benefits totaled $1.2 million and $2.7 million, respectively.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits excluding interest and penalties is as follows:
| Year ended December 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Beginning balance | $ | 12.6 | $ | 10.1 | $ | 7.5 | |||||||||||
| Increases related to prior year tax positions | — | 2.5 | 3.7 | ||||||||||||||
| Increases related to current year tax positions | — | — | 1.5 | ||||||||||||||
| Decreases related to prior year tax positions | (4.9) | — | (2.6) | ||||||||||||||
| Lapse of statute | (3.8) | — | — | ||||||||||||||
| Ending balance | $ | 3.9 | $ | 12.6 | $ | 10.1 | |||||||||||
At December 31, 2025, the Company had $3.9 million of unrecognized tax benefits, which would decrease our effective tax rate if fully recognized.
The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom. The Company or one of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions, where required. The Company is generally no longer subject to income tax examination after the three-year Internal Revenue Service statute of limitations. At December 31, 2025, U.S. state tax returns were no longer subject to tax examination for years prior to 2021. The tax years remaining open for income tax audits in the United Kingdom are 2022 through 2024, while the tax years open for audit in Australia are 2021 through 2024.
On December 12, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15 percent, as established by the Organization for Economic Co-operation and Development (“OECD”) Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates were January 1, 2024, and January 1, 2025, for different aspects of the directive. The impact of the Pillar Two Framework on the Company’s income tax provision for the years ended December 31, 2025 and 2024 was not material. The Company is continuing to evaluate the potential impact of the Pillar Two Framework on future periods, pending legislative adoption by additional individual countries.
On July 4, 2025, President Trump signed into law the OBBBA, which makes certain tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) permanent, introduces new tax provisions with varying effective dates, and rolls back certain incentives from the 2022 Inflation Reduction Act. One of the key features impacting the Company from the OBBBA includes domestic research cost expensing in tax years beginning after December 31, 2024. As a result, the Company’s
cash paid for U.S. federal income taxes decreased during 2025 relative to prior years. However, a higher allocation of these costs to foreign source income has limited the Company's ability to utilize foreign tax credit carryforwards. As a result, a $1.0 million increase in the valuation allowance against U.S. foreign tax credit carryforwards was recorded during the year ended December 31, 2025. The Company is currently assessing the comprehensive impact of other OBBBA provisions; however, these are not anticipated to materially impact the effective tax rate or cash paid for income taxes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 6, 2017 | |
| 2015 | Feb 26, 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.