X4 Pharmaceuticals, IncXFOR
X4 Pharmaceuticals, Inc Income Taxes Disclosure
Income Taxes
During the year ended December 31, 2025, the Company recorded a current global income tax provision of $41 thousand, which primarily relates to its Austrian subsidiary. The Company’s overall tax provision for the year ended December 31, 2024 primarily related to U.S. federal income taxes, which was due to a gain on the sale of a priority review voucher that was not fully offset by deductible expenses. The Company’s overall tax provision for the year ended December 31, 2023 primarily related to its Austrian subsidiary and Security Corp subsidiary. For the years ended December 31, 2025 and December 31, 2023 in which the Company had taxable losses, the Company recorded no income tax benefits for the net operating losses incurred, research and development credits generated, and orphan drug credits generated in its U.S. entity due to the uncertainty of realizing a benefit from those items.
Loss before the provision for income taxes for the years ended December 31, 2025, 2024 and 2023 consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| United States | $ | (79,409) | $ | (38,846) | $ | (102,126) | |||||||||||
| Foreign (Austria) | 251 | 1,706 | 1,037 | ||||||||||||||
| Loss before provision for income taxes | $ | (79,158) | $ | (37,140) | $ | (101,089) | |||||||||||
Income tax expense consisted of the following:
| Year Ended December 31, | ||||||||
| (in thousands) | 2025 | |||||||
| Federal | — | |||||||
| State | 13 | |||||||
| Foreign (Austria) | 28 | |||||||
| Total income tax expense | $ | 41 | ||||||
Income taxes paid net of refunds received disaggregated by federal, state, and foreign were as follows for the tax year ended (in thousands):
| Year Ended December 31, | ||||||||
| 2025 | ||||||||
| Federal | 210 | |||||||
| State | 90 | (a) | ||||||
| Foreign (Austria) | 38 | |||||||
| Total income taxes paid | $ | 338 | ||||||
(a) Includes $62 to the state of Pennsylvania
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company's effective rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09:
| (dollars in thousands) | Year Ended December 31, 2025 | |||||||||||||
| Amount | Percent | |||||||||||||
| U.S. federal statutory income tax rate | $ | (16,623) | 21.0 | % | ||||||||||
| State income tax, net of federal benefit (a) | 10 | — | % | |||||||||||
| Foreign tax effects | (24) | — | % | |||||||||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | % | |||||||||||
| Effect of cross-border tax laws | — | — | % | |||||||||||
| Tax Credits: | ||||||||||||||
| Research and development credits | (2,563) | 3.2 | % | |||||||||||
| Orphan drug credits | (3,570) | 4.5 | % | |||||||||||
| Changes in valuation allowance | 23,440 | (29.6) | % | |||||||||||
| Non-taxable or non-deductible items | ||||||||||||||
| Stock-based compensation expense | 1,454 | (1.8) | % | |||||||||||
| Change in fair value of warrant liability | (2,683) | 3.4 | % | |||||||||||
| Other | 548 | (0.7) | % | |||||||||||
| Changes in unrecognized tax benefits | — | — | % | |||||||||||
| Other adjustments | 52 | (0.1) | % | |||||||||||
| Effective income tax rate | $ | 41 | (0.1) | % | ||||||||||
(a) State tax effects in New Hampshire made up the majority (greater than 50%) of the tax effects in this category.
A reconciliation of the expected income tax expense (benefit) at the U.S. federal statutory income tax rate to the actual income tax expense (benefit) at the Company’s effective income tax rate for the years ended December 31, 2024 and 2023 is as follows:
| Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Expected tax expense (benefit) at U.S. federal statutory income tax rate | (21.0) | % | (21.0) | % | ||||||||||
| State income taxes, net of federal benefit | (11.4) | (6.0) | ||||||||||||
| Research and development tax credits | (3.9) | (1.4) | ||||||||||||
| Orphan drug credits | (23.7) | — | ||||||||||||
| Other permanent differences | 2.2 | (0.2) | ||||||||||||
| Change in deferred tax asset valuation allowance | 58.6 | 29.3 | ||||||||||||
| Other | — | (0.7) | ||||||||||||
| Effective income tax rate | 0.8 | % | — | % | ||||||||||
Net deferred tax assets as of December 31, 2025 and 2024 consisted of the following:
| December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Net operating loss carryforwards | $ | 129,943 | $ | 115,332 | |||||||
| Tax credit carryforwards | 25,158 | 18,649 | |||||||||
| Capitalized research and development expenses | 55,625 | 44,524 | |||||||||
| Lease liabilities | 282 | 523 | |||||||||
| Other | 3,576 | 6,658 | |||||||||
| Total deferred tax assets | 214,584 | 185,686 | |||||||||
| Valuation allowance | (214,185) | (184,908) | |||||||||
| Deferred tax assets, net of valuation allowance | $ | 399 | $ | 778 | |||||||
| Right of use assets | 399 | 778 | |||||||||
| Total deferred tax liabilities | $ | 399 | $ | 778 | |||||||
| Total deferred tax assets, net | $ | — | $ | — | |||||||
As of December 31, 2025, the Company had U.S. federal and state net operating loss carryforwards of $432.0 million and $383.9 million, respectively, which may be available to offset future taxable income and begin to expire in 2035. The Company has federal net operating losses of $384.0 million, which do not expire, and $48.0 million of federal net operating losses generated prior to 2018 that will expire at various dates through 2037. In addition, as of December 31, 2025, the Company had foreign net operating loss carryforward of $65.3 million, which do not expire but are generally limited in their usage to an annual deduction equal to 75% of taxable income. As of December 31, 2025, the Company also had U.S. federal and state research and development tax credit carryforwards of $9.7 million and $3.9 million, respectively, which may be available to offset future tax liabilities and each begin to expire in 2031 and 2030, respectively. Additionally, the Company has U.S. federal Orphan Drug credit carryforwards of $12.4 million which may be available to offset future tax liabilities which begin to expire in 2042.
Utilization of the Company’s U.S. net operating loss carryforwards and research and development tax credit carryforwards are subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously and could be further limited as a result of ownership changes that could occur in the future. These ownership changes limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. In 2025, the Company conducted a Section 382 study through December 31, 2024 to assess whether a change or changes of control, as defined by Section 382, have occurred since inception. The Company has determined that multiple changes of control have occurred with the latest in the year ended December 31, 2022. Utilization of the Company’s U.S. net operating loss carryforwards generated prior to the last change of control are subject to an annual usage limitation. Net operating loss carryforwards generated after the Tax Cuts and Jobs Act of 2019 (“TCJA”) are also subject to an 80% annual usage limitation in addition to the Section 382 limitation. During the year ended December 31, 2025, the Company generated U.S. federal net operating losses of $61.9 million. Given the Company’s loss position, the Company has not undertaken an analysis for IRC Section 382 purposes of any activities post December 31, 2024. A full valuation allowance has been provided against the deferred tax assets related to the Company’s net operating loss and tax credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.
Each period, the Company evaluates the positive and negative evidence bearing upon its ability to realize its federal, state and foreign deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2025, 2024 and 2023.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2025, 2024 and 2023 related primarily to the increases in net operating loss carryforwards and research and development tax credit carryforwards and were as follows:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Valuation allowance, beginning of year | $ | (184,908) | $ | (163,994) | $ | (133,112) | |||||||||||
| Current year activity | (29,277) | (20,914) | (30,882) | ||||||||||||||
| Valuation allowance, end of year | $ | (214,185) | $ | (184,908) | $ | (163,994) | |||||||||||
As of December 31, 2025, uncertain tax position reserves recorded were $0.2 million for U.S. federal and state research and development tax credits.
The following table summarizes the Company’s reserve for uncertain tax positions for the three years ended December 31, 2025:
| (in millions) | Reserve for Uncertain Tax Position | ||||
| Balance as of December 31, 2023 | $ | 0.2 | |||
| Balance as of December 31, 2024 | $ | 0.2 | |||
| Balance as of December 31, 2025 | $ | 0.2 | |||
The Company’s U.S. federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2022 through December 31, 2024. There are currently no pending income tax examinations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.
In 2017, the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law. Among other provisions, the 2017 Tax Act requires taxpayers to capitalize and amortize research and experimental (“R&E”) expenditures under Section 174 for tax years beginning after December 31, 2021. As such, the rule became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of R&E costs during the 2024, 2023 and 2022 tax years. Domestic R&E costs were amortized over five years and international R&E costs were amortized over 15 years.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted. OBBBA, among other changes, makes permanent many of the tax provisions enacted in 2017 as part of the 2017 Tax Act that were set to expire at the end of 2025. The changes include permanently extending 100% bonus depreciation, the immediate deduction for domestic research and experimental expenditures incurred in the current year, and more favorable rules for deducting net business interest offering continued relief for businesses. The Company has incorporated the relevant provisions of OBBBA in its 2025 tax provision and these changes did not have a significant impact to the Company’s annual effective tax rate.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 17, 2026 | Showing above |
| 2024 | Mar 26, 2025 | |
| 2023 | Mar 21, 2024 | |
| 2022 | Mar 21, 2023 | |
| 2021 | Mar 17, 2022 | |
| 2020 | Mar 19, 2021 | |
| 2019 | Mar 12, 2020 | |
| 2018 | Mar 11, 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.