Workhorse Group Inc.WKHS
Workhorse Group Inc. Income Taxes Disclosure
INCOME TAXES
During the years ended December 31, 2025 and 2024, we had taxable losses primarily due to operations and thus no current federal tax expense was recorded. We continue to record a valuation allowance against our net deferred tax assets as of December 31, 2025.
The U.S. components of loss before income taxes and reconciles the statutory federal income tax rate to the provision for income taxes:
| Years Ended December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State and Local | 4 | 1 | |||||||||
| Total Current | 4 | 1 | |||||||||
| Deferred: | |||||||||||
| Federal | — | — | |||||||||
| State and Local | — | — | |||||||||
| Total Deferred | — | — | |||||||||
| Total provision of income taxes | $ | 4 | $ | 1 | |||||||
The table below provides the updated requirements of ASU 2023-09 for 2025. See Note 13 - New Accounting Standards for additional details on the adoption of ASU 2023-09.
The reconciliation of taxes at the federal statutory rate to our provision for income taxes was as follows (in thousands, except percentages):
| Year Ended December 31, 2025 | |||||||||||
| $ | % | ||||||||||
| Federal tax benefit at statutory rates | $ | (13,457) | 21.0 | % | |||||||
| State and local tax at statutory rates | (2,315) | 3.6 | % | ||||||||
| Tax Credits: | |||||||||||
| Research and development tax credits | 5,105 | (8.0) | % | ||||||||
| Non-taxable or non-deductible items: | |||||||||||
| Related party interest | 3,648 | (5.7) | % | ||||||||
| Stock-based compensation deductions | 82 | (0.1) | % | ||||||||
| Fair value adjustment on convertible debt | 28 | — | % | ||||||||
| Non-deductible expenses | 160 | (0.3) | % | ||||||||
| Other temporary DTA differences | 118 | (0.2) | % | ||||||||
| Federal net operating loss adjustment | 18,069 | (28.2) | % | ||||||||
| Change in valuation allowance | (11,434) | 17.9 | % | ||||||||
| Total tax expense | $ | 4 | — | % | |||||||
As previously disclosed for the year ended December 31, 2024, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows (in thousands):
| Year Ended December 31, | |||||
| 2024 | |||||
| Statutory federal income tax rate | $ | (10,833) | |||
| State income taxes, net of federal tax benefits | (2,895) | ||||
| Foreign income taxes | (41) | ||||
| Valuation allowance | 11,545 | ||||
| Stock-based compensation | 83 | ||||
| Non-deductible interest | 2,152 | ||||
| Non-deductible expenses | 19 | ||||
| Foreign rate differential | 57 | ||||
| Other | (86) | ||||
| Tax provision | $ | 1 | |||
Deferred income taxes reflect the net 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. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2025 and 2024, our ability to realize our net deferred tax asset is not more likely than not to occur and the valuation allowance reduces the net deferred tax asset to zero.
Significant components of our deferred tax assets and liabilities are as follows:
| December 31 | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Deferred Tax Assets (Liabilities): | |||||||||||
| Accrued expenses and reserves | $ | 1,490 | $ | 479 | |||||||
| Warranty reserve | 2,574 | 817 | |||||||||
| Inventory reserve | 4,757 | 1,737 | |||||||||
| Equity compensation | — | 37 | |||||||||
| Property, plant and equipment | (3,471) | (12) | |||||||||
| Intangible assets | (2,110) | — | |||||||||
| Research and experimental costs | 11,792 | 6,236 | |||||||||
| Charitable contributions | 20 | — | |||||||||
| Lease right-of-use assets | (4,616) | (291) | |||||||||
| Lease liability | 4,728 | 291 | |||||||||
| Deferred revenue | 177 | 237 | |||||||||
| Transaction costs | 1,400 | — | |||||||||
| State deferred taxes | (1,497) | (4,207) | |||||||||
| Net operating loss carryforward | 178,992 | 58,066 | |||||||||
| Total Deferred Tax Assets | 194,236 | 63,390 | |||||||||
| Valuation Allowance | (194,236) | (63,390) | |||||||||
| Total Deferred Tax Assets, net of valuation allowance | $ | — | $ | — | |||||||
As of December 31, 2025 and 2024, we had $4.2 million and $4.2 million, respectively, of federal net operating loss (“NOL”) carryforward deferred tax assets which expire through 2038 and approximately $22.1 million and $19.2 million, respectively, of state and local NOL carryforward deferred tax assets which expire through 2045. Additionally, as of December 31, 2025 and 2024, we had approximately $152.7 million and $34.7 million, respectively, of federal NOL deferred tax assets that carryforward indefinitely. The NOL carryforwards may be limited in certain circumstances, including ownership changes.
Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Certain tax attributes are subject to an annual limitation as a result of certain cumulative changes in ownership interest of significant shareholders which could constitute a change of ownership as defined under Internal Revenue Code Section 382. We completed a full analysis of historical ownership changes and determined that a portion of the NOLs to-date have a limitation on future deductibility. As of 12/15/25, the company had $86.0 million of federal net operating losses that were incurred prior to 2018. $81.6 million of this amount will be unable to offset future taxable income and should be considered lost and have been removed from deferred tax assets, due to estimated federal annual limited utilization amount of $0.4 million.
The following table presents a reconciliation of unrecognized tax benefits:
| (in thousands) | 2025 | 2024 | |||||||||
| Unrecognized tax benefits - January 1 | $ | 805 | $ | 805 | |||||||
| Gross increases - tax positions in prior period | — | — | |||||||||
| Gross decreases - tax positions in prior period | (805) | — | |||||||||
| Gross increases - tax positions in current period | — | — | |||||||||
| Settlement | — | — | |||||||||
| Lapse of statute of limitations | — | — | |||||||||
| Unrecognized tax benefits - December 31 | $ | — | $ | 805 | |||||||
We will not recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025, due to ownership change and the 382 limitation on the credit carryovers, no amounts of interest and penalties have been recognized in the Consolidated Statements of Operations.
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and local jurisdictions. Generally, our 2022 through 2025 tax years remain open and subject to examination by federal, state and local taxing authorities. However, federal, state, and local net operating losses from 2009 through 2025 are subject to review by taxing authorities in the year utilized.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 31, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
| 2023 | Mar 12, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 13, 2020 | |
| 2018 | Mar 18, 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.