YELP INCYELP
YELP INC Income Taxes Disclosure
INCOME TAXES
The following table presents domestic and foreign components of income before income taxes for the periods presented (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | 218,683 | $ | 203,177 | $ | 131,459 | |||||||||||
| Foreign | (14,654) | (20,217) | (26,377) | ||||||||||||||
| Total income before income taxes | $ | 204,029 | $ | 182,960 | $ | 105,082 | |||||||||||
The income tax provision is composed of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 25,480 | $ | 61,873 | $ | 20,466 | |||||||||||
| State | 4,158 | 8,020 | 3,934 | ||||||||||||||
| Foreign | 3,718 | 5,137 | 3,659 | ||||||||||||||
| Total current tax | 33,356 | 75,030 | 28,059 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 22,562 | (24,747) | (19,934) | ||||||||||||||
| State | 1,376 | 680 | (2,085) | ||||||||||||||
| Foreign | 1,135 | (853) | (131) | ||||||||||||||
| Total deferred tax | 25,073 | (24,920) | (22,150) | ||||||||||||||
Total provision for income taxes | $ | 58,429 | $ | 50,110 | $ | 5,909 | |||||||||||
The following table (in thousands, except percentages) presents a reconciliation of the provision for income taxes computed at the statutory federal rate to that computed at the Company’s effective tax rate for the year ended December 31, 2025 as required by ASU 2023-09. Prior periods presented have been conformed to the new additional disclosure requirements as applicable. See Note 2, “Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements,” for additional details on the adoption of ASU 2023-09:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| Income tax at federal statutory rate | $ | 42,846 | 21.0 | % | $ | 38,422 | 21.0 | % | $ | 22,067 | 21.0 | % | |||||||||||||||||||||||
State and local income tax, net of federal (national) income tax effect(1) | 3,958 | 1.9 | 7,078 | 3.8 | 903 | 0.8 | |||||||||||||||||||||||||||||
Foreign tax effects: | |||||||||||||||||||||||||||||||||||
Canada | |||||||||||||||||||||||||||||||||||
Stock-based compensation | 4,070 | 2.0 | 5,012 | 2.7 | 5,388 | 5.1 | |||||||||||||||||||||||||||||
Other | (290) | (0.1) | (1,415) | (0.8) | (1,696) | (1.6) | |||||||||||||||||||||||||||||
Germany | |||||||||||||||||||||||||||||||||||
Stock-based compensation | 1,134 | 0.5 | 1,411 | 0.8 | 1,578 | 1.5 | |||||||||||||||||||||||||||||
Other | (189) | (0.1) | (306) | (0.2) | (279) | (0.3) | |||||||||||||||||||||||||||||
United Kingdom | |||||||||||||||||||||||||||||||||||
Stock-based compensation | 3,422 | 1.7 | 4,146 | 2.3 | 4,022 | 3.8 | |||||||||||||||||||||||||||||
Other | (352) | (0.2) | (377) | (0.2) | (26) | — | |||||||||||||||||||||||||||||
Other foreign jurisdictions | 126 | 0.1 | 58 | — | 84 | 0.1 | |||||||||||||||||||||||||||||
| Effect of cross-border tax laws | |||||||||||||||||||||||||||||||||||
Other | 56 | — | (765) | (0.4) | (609) | (0.6) | |||||||||||||||||||||||||||||
Global Intangible Low-Taxed Income | — | — | — | — | (10,747) | (10.2) | |||||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
Research and development credits | (6,963) | (3.4) | (8,680) | (4.7) | (13,078) | (12.4) | |||||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
Stock-based compensation(2) | (900) | (0.4) | (5,509) | (3.0) | (7,587) | (7.2) | |||||||||||||||||||||||||||||
Executive compensation limitation | 4,812 | 2.4 | 4,513 | 2.5 | 4,560 | 4.3 | |||||||||||||||||||||||||||||
Other | 1,189 | 0.5 | 3,610 | 2.0 | 803 | 0.8 | |||||||||||||||||||||||||||||
| Change in unrecognized tax benefits | 5,055 | 2.5 | 2,951 | 1.6 | 268 | 0.3 | |||||||||||||||||||||||||||||
Other | 455 | 0.2 | (39) | — | 258 | 0.2 | |||||||||||||||||||||||||||||
Income tax provision and effective tax rate | $ | 58,429 | 28.6 | % | $ | 50,110 | 27.4 | % | $ | 5,909 | 5.6 | % | |||||||||||||||||||||||
(1) The state and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include: 2025: California, New York, and New York City; 2024: California, Illinois, New York, and New York City; and 2023: California, Illinois, and New York.
(2) Stock-based compensation consists of: stock-based compensation windfalls/shortfalls, Section 1032 intercompany stock gain not recognized, disqualifying dispositions, and intercompany stock-based compensation.
Deferred Tax Balances
Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company’s deferred tax assets and liabilities for the periods presented (in thousands):
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Reserves and others | $ | 11,137 | $ | 8,612 | |||||||
| Stock-based compensation | 13,569 | 15,050 | |||||||||
| Net operating loss carryforward | 6,530 | 6,228 | |||||||||
| Tax credit carryforward | 26,820 | 29,810 | |||||||||
| Capitalized research and development | 122,700 | 140,813 | |||||||||
| Operating lease liabilities | 3,439 | 9,140 | |||||||||
| Gross deferred tax assets | 184,195 | 209,653 | |||||||||
| Valuation allowance | (31,172) | (34,743) | |||||||||
| Total deferred tax assets | 153,023 | 174,910 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation and amortization | (29,870) | (24,329) | |||||||||
| Deferred contract costs | (5,249) | (6,250) | |||||||||
| Operating lease right-of-use assets | (2,446) | (4,747) | |||||||||
| Total deferred tax liabilities | (37,565) | (35,326) | |||||||||
| Net deferred tax assets | $ | 115,458 | $ | 139,584 | |||||||
As of December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $16.3 million and $42.1 million, respectively, expiring beginning in 2034 and 2029, respectively. The Company had federal research credit carryforwards of approximately $2.5 million (gross) that begin to expire in 2027, if unused, and California research credit carryforwards of approximately $72.0 million (gross) that do not expire. The Company had Canada research credit carryforwards of approximately $1.2 million (gross) that begin to expire in 2045.
Utilization of net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company does not expect any previous ownership changes, as defined under Section 382 and 383 of the Internal Revenue Code, to result in a limitation that will materially reduce the total amount of net operating loss carryforwards and credits that can be utilized. Further, foreign loss carryforwards may be subject to limitations under the applicable laws of the taxing jurisdictions due to ownership change limitations.
As of December 31, 2025, the Company had accumulated undistributed earnings generated by its foreign subsidiaries of approximately $50.4 million. The Company continues to assert that all its foreign earnings are to be permanently reinvested and expects future U.S. cash generation to be sufficient to meet future U.S. cash needs. As such, the Company has not recognized a deferred tax liability related to unremitted foreign earnings.
Deferred Tax Valuation Allowance
As more fully described in “Income Taxes” in Note 2, “Summary of Significant Accounting Policies,” the Company maintains valuation allowances against deferred tax balances where appropriate and considers all positive and negative evidence that the Company would have future taxable income sufficient to realize the benefit of its DTAs.
Valuation allowances of $31.2 million and $34.7 million primarily related to California state tax credits were recorded against the Company’s net deferred tax asset balances as of December 31, 2025 and 2024, respectively. Since the Company mainly conducts research and development activities in California but earns a substantial portion of its U.S. income in other states, the Company could not assert, at the required more-likely-than-not level of certainty, that it would generate future
taxable California income sufficient to realize the benefit of these DTAs. Accordingly, the Company maintained a valuation allowance against specific state credits.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at the beginning of the year | $ | 75,683 | $ | 64,459 | $ | 59,764 | |||||||||||
(Decrease) increase based on tax positions related to the prior year | (608) | 91 | (2,146) | ||||||||||||||
| Increase based on tax positions related to the current year | 6,524 | 11,641 | 6,841 | ||||||||||||||
Decrease from tax authorities’ settlements | — | (508) | — | ||||||||||||||
| Lapse of statute of limitations | (355) | — | — | ||||||||||||||
| Balance at the end of the year | $ | 81,244 | $ | 75,683 | $ | 64,459 | |||||||||||
As of December 31, 2025, the Company had $50.3 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company’s policy is to record interest and penalties related to unrecognized tax benefits as income tax expense. During the years ended December 31, 2025 and 2024, the Company recorded interest and penalties of $9.1 million and $3.9 million, respectively. During the year ended December 31, 2023, the Company recorded an immaterial amount of interest and penalties.
In addition, the Company is subject to the continuous examination of its income tax returns by the IRS and other tax authorities. The Company’s federal and state income tax returns for tax years subsequent to 2012 remain open to examination. In the Company’s foreign jurisdictions — Canada, Germany, Ireland and the United Kingdom — the tax years subsequent to 2019 remain open to examination. The Company regularly assesses the likelihood of adverse outcomes resulting from examinations to determine the adequacy of its provision for income taxes, and monitors the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
Supplemental Disclosures of Other Cash Flow Information — Cash Paid for Income Taxes, Net
Supplemental cash flow information related to cash paid for income taxes, net for the years ended December 31, 2025, 2024 and 2023 was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Supplemental Disclosures of Other Cash Flow Information | |||||||||||||||||
Cash paid for federal income taxes | $ | 26,168 | $ | 51,668 | $ | 20,650 | |||||||||||
Cash paid for state income taxes | 7,893 | 3,953 | 6,648 | ||||||||||||||
Cash paid for foreign income taxes | 406 | 2,573 | 3,327 | ||||||||||||||
Cash paid for income taxes, net(1) | $ | 34,467 | $ | 58,194 | $ | 30,625 | |||||||||||
(1) Individual jurisdictions equaling 5% or more of the cash paid for income taxes, net for the year includes: 2025: United States federal $26.2 million, Canada $2.0 million, United Kingdom $(1.8) million, and Foreign Other $0.2 million; 2024: United States federal $51.7 million and Foreign $2.6 million; and 2023: United States federal $20.7 million, United Kingdom $1.5 million and Foreign Other $1.8 million.
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.