EXAGEN INC.XGN

EXAGEN INC. Income Taxes Disclosure

10-KFiled Mar 10, 20265 min read
Income Taxes
The provision for income taxes consists of the following (in thousands):
Year Ended December 31,
20252024
Current:
Federal$— $— 
State51 12 
Total current51 12 
Deferred:
Federal— — 
State— — 
Total deferred— — 
Income tax expense$51 $12 
The Company's losses before income taxes for the years ended December 31, 2025 and 2024 were generated solely in the United States.
The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows (in thousands, except percentages):
Year Ended December 31,
20252024
Federal statutory tax rate$(4,179)21.0 %$(3,168)21.0 %
State and local income taxes, net of federal income tax effect(1)
42 (0.2)%10 (0.1)%
Enactment of new tax laws— — %— — %
Tax credits:
Research and development tax credits— — %(16)0.1 %
Change in valuation allowance3,300 (16.6)%1,926 (12.8)%
Nondeductible items:
Stock compensation(75)0.4 %882 (5.8)%
Warrant liability484 (2.4)%— — %
Entertainment379 (1.9)%281 (1.9)%
Other103 (0.6)%97 (0.6)%
Changes in unrecognized tax benefits— — %— — %
Other adjustments(3)— %— — %
Provision for income taxes$51 (0.3)%$12 (0.1)%
(1) In 2025 and 2024, state and local income taxes in Texas made up the majority (greater than 50%) of the tax effect in this category.
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. Significant components of the Company’s deferred tax assets at December 31, 2025 and 2024 are as follows (in thousands):
December 31,
20252024
Deferred tax assets:
Net operating loss carryforwards$39,775 $35,348 
Research and development tax credits2,360 2,360 
Accruals, reserves and other917 955 
Interest expense3,572 2,785 
Indefinite lived assets193 276 
Stock compensation596 598 
Lease liability1,084 681 
Capitalization of research and experimentation costs1,894 2,942 
Total gross deferred tax assets50,391 45,945 
Less: valuation allowance(49,211)(45,237)
Deferred tax assets, net1,180 708 
Deferred tax liabilities:
Right of use assets(1,039)(592)
Basis differences in fixed and intangible assets(141)(116)
Deferred tax liabilities(1,180)(708)
Net deferred tax assets$— $— 
The Company accounts for deferred taxes under ASC 740, Income Taxes, which requires that the tax benefit of net operating losses (NOLs), temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is more likely than not. Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets is currently not likely to be realized and, accordingly, has provided a valuation allowance.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2025 and 2024, which related primarily to increases in NOL carryforwards, research and development tax credits, and capitalization of research and experimentation costs were as follows (in thousands):
December 31,
20252024
Valuation allowance at the beginning of the year$45,237 $42,942 
Increases recorded to income tax provision3,974 2,295 
Valuation allowance at the end of the year$49,211 $45,237 
As of December 31, 2025, the Company had federal NOL carryforwards of approximately $115.7 million, which do not expire, federal NOL carryforwards of $43.5 million, which begin to expire in 2026, and state NOL carryforwards of $113.2 million, which begin to expire in 2030.
As of December 31, 2025, the Company had U.S. federal and California tax credits of approximately $1.4 million and $1.2 million, respectively. The federal tax credits begin to expire in 2026, while the California tax credits do not expire.
At December 31, 2025, the Company's deferred tax assets are primarily comprised of federal and state tax NOL carryforwards. The Company completed a formal study through the year ended December 31, 2019 and determined ownership changes within the meaning of Internal Revenue Code (IRC), Section 382 had occurred in 2003, 2008,
2012, 2017 and 2019. Based on the analysis, $55.0 million of the Company's tax attribute carryforwards through December 31, 2017 cannot be utilized under IRC Section 382. The Company's ability to utilize NOL carryforwards generated after December 31, 2017 will not expire under the Tax Cuts and Jobs Act of 2017. The Company adjusted tax attribute carry forwards and deferred tax assets accordingly. As the deferred tax assets associated with the tax attribute carry forwards were fully offset by a valuation allowance, a corresponding reduction in the Company's valuation allowance was also recorded, resulting in no income tax impact.
The Company is subject to taxation in the United States and in various state jurisdictions. The Company’s tax years for 2006 and forward are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized NOLs and research and development credits.
The Company recognizes interest and/or penalties related to income tax matters in its provision for income taxes. The Company does not have any material accruals for, and did not recognize any, material interest or penalties in these financial statements in any period presented.
As of December 31, 2025 and 2024, the Company had no unrecognized tax benefits.
A summary of the Company's income tax payments made for the years ended December 31, 2025 and 2024 is as follows (in thousands):
December 31,
20252024
Federal$— $— 
State and local:
Texas24 18 
South Carolina5 5 
New York3 2 
New Jersey— 2 
Tennessee2 1 
Other1 4 
Total cash paid$35 $32 
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted by the U.S. government. The OBBBA includes significant provisions, such as the permanent extension of expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company determined that the OBBBA does not have a material impact on its financial statements.

Historical Timeline

Fiscal YearFiled
2025Mar 10, 2026Showing above
2024Mar 11, 2025
2023Mar 18, 2024
2022Mar 20, 2023
2021Mar 22, 2022
2020Mar 16, 2021
2019Mar 25, 2020

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.

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