Income Taxes

12 Months Ended

Dec. 31, 2025

Taxes

The Company adopted ASU 2023-09, Income Taxes – Improvements to Income Tax Disclosures, for the annual disclosures for the year ended December 31, 2025 on a prospective basis. Comparative financial information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods.

Income before provision for income taxes consisted of the following (in thousands):


	Years Ended December 31,
	2025		2024		2023
United States	$	1,584,577	$	426,944	$	174,637
Foreign	72,791		62,229		62,454
Income before provision for income taxes	$	1,657,368	$	489,173	$	237,091

Provision for income taxes consisted of the following (in thousands):


	Years Ended December 31,
	2025		2024		2023
Current:
Federal	$	—	$	—	$	—
State	1,537		1,556		2,333
Foreign	25,101		20,265		22,189
Total current provision	26,638		21,821		24,522
Deferred:
Federal	—		—		—
State	—		—		—
Foreign	(3,914)		(566)		(4,806)
Total deferred provision	(3,914)		(566)		(4,806)
Total provision for income taxes	$	22,724	$	21,255	$	19,716

A reconciliation of the expected tax provision at the statutory federal income tax rate to the Company’s recorded tax provision consisted of the following, subsequent to the adoption of ASU 2023-09 (in thousands, except percentages):


	Year Ended December 31, 2025
	Amount		Percent
U.S. federal tax at statutory rate	$	348,047	21.0	%
State and local income taxes, net of federal income tax effect(1)	1,537		0.1
Foreign tax effects:
United Kingdom (“U.K.”):
Statutory tax rate difference between the U.K. and U.S.	(29,130)		(1.8)
Stock-based compensation expense	(159,108)		(9.6)
Changes in valuation allowance	184,024		11.1
Other	(3,279)		(0.2)
Other foreign jurisdictions	8,637		0.5
Effects of changes in tax laws or rates enacted in the current period	—		—
Effects of cross-border tax laws	—		—
Tax credits	(151,602)		(9.1)
Changes in valuation allowances	467,493		28.1
Nontaxable or nondeductible items:
Stock-based compensation expense	(720,691)		(43.4)
Nondeductible officers' compensation	34,453		2.1
Other	4,442		0.3
Changes in unrecognized tax benefits	37,901		2.3

Total provision for income taxes and effective tax rate	$	22,724	1.4	%

————

(1) State taxes in Maryland made up the majority of the tax effect in this category.

A reconciliation of the expected tax provision at the statutory federal income tax rate to the Company’s recorded tax provision consisted of the following, prior to the adoption of ASU 2023-09 (in thousands):


	Years Ended December 31,
	2024		2023
Expected tax provision at U.S. federal statutory rate	$	102,726	$	49,789
State income taxes - net of federal benefit	1,365		2,309
Foreign tax rate differential	(15,767)		859
Research and development tax credits	(103,858)		(45,667)
Stock-based compensation	(513,841)		(79,128)
Non-deductible officers’ compensation	33,404		34,479
Change in valuation allowance	507,149		35,070
Base Erosion Anti-Abuse Tax and related elections	—		14,700
Taxes withheld at source	5,599		4,378
Non-deductible expenses	5,545		3,610
Other	(1,067)		(683)
Total provision for income taxes	$	21,255	$	19,716

For the year ended December 31, 2025, the Company recorded a provision for income taxes of $22.7 million compared to $21.3 million for the year ended December 31, 2024.

For the year ended December 31, 2024, the Company recorded a provision for income taxes of $21.3 million compared to $19.7 million for the year ended December 31, 2023.

The amounts of cash taxes for the year ended December 31, 2025 included the following, subsequent to the adoption of ASU 2023-09 (in thousands):


	Year Ended December 31, 2025
Federal	$	—
State	2,500
Foreign
Korea	5,771
Japan	4,796
France	2,843
Germany	1,724
All other foreign	4,052
Income taxes, net of amounts refunded	$	21,686
Employment taxes	$	364,675

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities consisted of the following (in thousands):


	As of December 31,
	2025		2024
Net operating loss carryforwards	$	2,617,820	$	1,583,076
Capitalized research and experimental expenses	85,377		504,156
Reserves and accruals	113,289		87,111
Tax credit carryforwards	528,449		394,579
Stock-based compensation	62,453		76,604
Lease liabilities	54,842		60,103
Depreciation and amortization	16,679		15,839
Capitalized facilitative expenses	22,573		38,436
Gross deferred tax assets	3,501,482		2,759,904
Acquisition related intangibles	(4,925)		(6,827)
Right-of-use assets	(47,941)		(50,208)
Total net deferred tax assets before valuation allowance	3,448,616		2,702,869
Valuation allowance	(3,452,323)		(2,710,393)
Net deferred tax assets (liabilities)	$	(3,707)	$	(7,524)

The Company reviews the recognition of deferred tax assets on a regular basis to determine if realization of such assets is more likely than not. Due to the weight of objectively verifiable negative evidence, including the Company’s history of U.S. and certain foreign net operating tax losses, primarily in the U.K., the Company has continued to maintain a full valuation allowance against potential future benefits for U.S, federal, state, and certain foreign deferred tax assets as of December 31, 2025.

The Company will release the valuation allowance when there is sufficient positive evidence to support a conclusion that it is more likely than not the future benefit on such deferred tax assets will be realized. Although the Company has achieved positive cumulative income before provision for income taxes in the U.S. over the past three years, when adjusting for permanent differences, primarily related to excess tax benefits from stock-based compensation, the outcome resulted in a cumulative tax loss position for that period. The future timing and amount of such valuation allowance being released is uncertain based on the

Company’s future assessment of all available evidence, including its recent earnings and anticipated future earnings, expected temporary and permanent differences, especially those related to excess tax benefits from stock-based compensation, scheduled reversals of deferred tax liabilities, and tax planning strategies. As such, there is a reasonable possibility that the Company may have sufficient positive evidence in the future to release all or a portion of the valuation allowance it recorded against its deferred tax assets. The release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and may result in a material decrease to income tax expense for the period the release is recorded.

The valuation allowance totaled $3.5 billion and $2.7 billion for the years ended December 31, 2025 and 2024, respectively. The valuation allowance on our net deferred tax assets increased by $741.9 million and $608.1 million during the years ended December 31, 2025 and 2024, respectively. Such increase was primarily a result of an increase in excess tax benefits from permanent differences related to excess tax benefits from stock-based compensation, partially offset by an increase in income before provision for income taxes in the U.S.

Provisions enacted in the 2017 Tax Cuts and Jobs Act related to the capitalization for tax purposes of research and experimental (“R&E”) expenditures became effective on January 1, 2022. All U.S. and non-U.S. based R&E expenditures had to be capitalized and amortized over five and fifteen years, respectively. As a result of this enactment, the Company began capitalizing and amortizing R&E expenditures over five years for domestic research and fifteen for international research rather than expensing these costs as incurred during the fiscal year ended December 31, 2022. As of December 31, 2024, the Company has recorded a deferred tax asset of $504.2 million related to the capitalization requirement.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, introducing several significant U.S. income tax provisions relevant to the Company. The provisions include immediate expensing of domestic R&E expenditures beginning in 2025. As a result, the Company expensed the domestic R&E expenditures paid or incurred in the current year and also the unamortized domestic R&E expenditures capitalized in the prior years. As of December 31, 2025, the Company has recorded a deferred tax asset of $85.4 million related to the capitalization requirement.

As of December 31, 2025, the Company had U.S. federal and state net operating losses of approximately $9.0 billion and $4.8 billion, respectively. As of December 31, 2024, the Company had U.S. federal and state net operating losses of approximately $5.5 billion and $3.2 billion, respectively. The U.S. federal net operating loss carryforwards will expire at various dates beginning in 2035 through 2037 if not utilized, with the exception of $8.3 billion which can be carried forward indefinitely. The state net operating loss carryforwards will expire at various dates beginning in 2026 through 2045 if not utilized.

Additionally, as of December 31, 2025, the Company had federal and California research and development credits of approximately $577.9 million and $152.1 million, respectively. As of December 31, 2024, the Company had federal and California research and development credits of approximately $426.3 million and $122.6 million, respectively. The federal research and development credits will begin to expire in the years 2027 through 2045 if not utilized and the California research and development credits have no expiration date. Utilization of the net operating losses and research and development credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss and research and development credit carryforwards before utilization.

As of December 31, 2025, the Company had U.S. federal capital loss carryforwards of $355.3 million. As of December 31, 2024, the Company had U.S. federal capital loss carryforwards of $351.5 million. The capital loss carryforwards will expire beginning in 2027 if not utilized.

As of December 31, 2025, the Company had foreign net operating losses, primarily in the U.K., of approximately $1.8 billion. As of December 31, 2024, the Company had foreign net operating losses, primarily in the U.K., of approximately $0.9 billion. These net operating losses can be carried forward indefinitely.

As of December 31, 2025, the Company had an immaterial amount of earnings from its wholly-owned foreign subsidiaries indefinitely reinvested outside the U.S. The Company does not intend to repatriate these earnings and, accordingly, the Company does not provide for U.S. income taxes and foreign withholding tax on these earnings.

The Organisation for Economic Co-operation and Development (“OECD”) Base Erosion and Profit Shifting (“BEPS”) global minimum tax provision (“Pillar Two”) rules are at varying stages of adoption across jurisdictions where the Company operates. While the United States has not yet adopted Pillar Two, several countries have enacted Pillar Two and these rules were applicable to the Company starting January 1, 2024 in some jurisdictions, and it did not have a material impact on our financial condition or results of operations for the periods presented. Furthermore, in response to trade negotiations with the United States, the Group of 7 countries (the “G7”) announced a joint understanding to exempt U.S.-parented multinational corporations from Pillar Two by adopting a “side-by-side” system between Pillar Two and the existing U.S. global minimum tax provisions, and the OECD released “Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), Side-by-Side Package: Inclusive Framework on BEPS” on January 5, 2026, to this effect, which reduces the impact of Pillar Two rules on the Company.

Uncertain Tax Positions

A reconciliation of the gross unrecognized tax benefits consists of the following (in thousands):


	Years Ended December 31,
	2025		2024		2023
Unrecognized tax benefit beginning of year	$	151,183	$	112,016	$	81,904
Increases in current year tax positions	45,426		39,494		14,346
Increases in prior year tax positions	43		2,926		15,766
Decreases in prior year tax positions	—		—		—
Decreases in prior year tax positions due to settlements	(12,445)		(3,253)		—
Decreases in prior year tax positions due to lapse of statute of limitations	—		—		—
Unrecognized tax benefit end of year	$	184,207	$	151,183	$	112,016

As of December 31, 2025, 2024, and 2023, the Company recorded gross unrecognized tax benefits of $184.2 million, $151.2 million, and $112.0 million, respectively, that, if recognized, would not benefit the Company’s effective tax rate due to the valuation allowance that currently offsets deferred tax assets.

It is the Company’s policy to recognize interest and penalties related to income tax matters in provision for income taxes on the consolidated statements of operations. The Company has recorded immaterial interest and penalties related to uncertain tax positions as of December 31, 2025, 2024, and 2023.

The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitation. The material jurisdictions where the Company is subject to potential examination by tax authorities are the U.S. (federal and state) for tax years 2004 through 2025 and the U.K. for tax years 2024 through 2025.

- Definition

The entire disclosure for income tax.

+ References

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+ Details

Palantir Technologies Inc. 10-K