INCOME TAXES

12 Months Ended

Dec. 31, 2025

The Company files income tax returns for U.S. federal and various U.S. states, as well as various foreign jurisdictions. The liabilities for unrecognized tax benefits are carried in Other long-term liabilities on the consolidated balance sheets because the payment of cash is not anticipated within one year of the balance sheet date.

The components of income before income taxes consisted of the following (in thousands):


	Year Ended December 31,
	2025		2024		2023
Domestic	$	506,902	$	454,452	$	312,870
Foreign jurisdictions	35,475		21,470		22,812
Income before income taxes	$	542,377	$	475,922	$	335,682

Income tax provision consisted of the following (in thousands):


	Current		Deferred		Total
Year ended December 31, 2025
U.S. Federal	$	(2,810)	$	73,509	$	70,699
U.S. state and local	5,100		8,536		13,636
Foreign jurisdictions	8,047		(1,128)		6,919
	$	10,337	$	80,917	$	91,254

Year ended December 31, 2024
U.S. Federal	$	80,490	$	(19,837)	$	60,653
U.S. state and local	11,791		(5,707)		6,084
Foreign jurisdictions	5,877		(1,078)		4,799
	$	98,158	$	(26,622)	$	71,536

Year ended December 31, 2023
U.S. Federal	$	64,381	$	(24,117)	$	40,264
U.S. state and local	8,848		(1,869)		6,979
Foreign jurisdictions	4,622		1,007		5,629
	$	77,851	$	(24,979)	$	52,872

The difference between the statutory rate for federal income tax and the effective income tax rate was as follows (in thousands):


	Year Ended December 31,
	2025				2024				2023
Income tax expense calculated at the federal statutory rate	$	113,899	21.0	%	$	99,944	21.0	%	$	70,493	21.0	%
Effect of:
State and local taxes, net of federal benefit (a)	3,734		0.7		4,769		1.0		2,610		0.8
Foreign Tax Effects:
Other foreign jurisdictions	(638)		(0.1)		(175)		(0.1)		815		0.2
Effect of Cross-Border Tax Laws:
Foreign-derived intangible income	(2,175)		(0.4)		(10,931)		(2.3)		(9,358)		(2.8)
Other	5,540		1.0		447		0.1		(835)		(0.2)
Tax Credits:
Other tax credits	(935)		(0.2)		(1,144)		(0.2)		(1,340)		(0.4)
Changes in Valuation Allowance	(332)		(0.1)		(1,156)		(0.2)		1,489		0.5
Nontaxable or Nondeductible Items:
Share-based payment awards	(40,852)		(7.5)		(22,197)		(4.7)		(14,692)		(4.4)
Other	3,688		0.7		(46)		—		(1,094)		(0.3)
Changes in Unrecognized Tax Benefits	9,676		1.8		1,611		0.3		4,784		1.4
Other Adjustments	(351)		(0.1)		414		0.1		—		—
	$	91,254	16.8	%	$	71,536	15.0	%	$	52,872	15.8	%

(a) State taxes in California and local taxes in the city of Cincinnati, Ohio made up the majority (greater than 50 percent) of the tax effect in this category.

As of December 31, 2025, the Company’s accounting position is that unremitted foreign earnings are indefinitely reinvested. Therefore, the Company has not recorded deferred foreign withholding taxes on the unremitted foreign earnings and it is not practicable to determine the amount of the additional taxes that would result if these earnings were repatriated. The undistributed earnings of foreign subsidiaries was approximately $90.3 million for the year ended December 31, 2025.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain 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. Where relevant, the Company has reflected any material items that were enacted in the consolidated financial statements for the year ended December 31, 2025.

Components of the Company’s net deferred tax asset (liability) included in the consolidated balance sheets consisted of the following at December 31 (in thousands):


	2025		2024
Deferred tax assets:
Accrued liabilities	$	30,474	$	31,898
Depreciation and amortization	900		1,222
Net operating loss carryforwards	36,577		51
Tax credit carryforwards	5,172		—
Advanced billings	15,009		127,115
Other	460		2,002
Valuation allowance	(1,847)		(1,607)
Total deferred tax assets	86,745		160,681

Deferred tax liabilities:
Depreciation and amortization	(66,131)		(59,016)
Prepaid expenses	(1,700)		(1,462)
Other	(1,046)		(1,646)
Total deferred tax liabilities	(68,877)		(62,124)
Net deferred tax asset (liability)	$	17,868	$	98,557

The Company has federal, state, and foreign operating loss carryforwards for which a deferred tax asset of $36.6 million has been established as of December 31, 2025. The Company has recorded a valuation allowance against certain operating loss carryforward deferred tax assets as of December 31, 2025 based upon its assessment that it is more likely than not that this deferred tax asset will not be realized. The ultimate realization of this tax benefit is dependent upon the generation of sufficient operating income in the respective tax jurisdictions. The federal and foreign net operating loss carryforwards of $31.4 million have indefinite carryforward periods. The net operating loss expiration periods for the state and local jurisdictions of $5.2 million varies by jurisdiction. The state net operating loss carryforwards will begin to expire in 2035 for certain jurisdictions if not utilized.

Annual activity related to the Company’s valuation allowance is as follows (in thousands):


	Year Ended December 31,
	2025		2024		2023
Beginning Balance	$	1,607	$	1,826	$	430
Additions charged to expense	572		938		1,582
Reductions from utilization, reassessments and expirations	(332)		(1,157)		(186)
Ending Balance	$	1,847	$	1,607	$	1,826

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):


	Year Ended December 31,
	2025		2024		2023
Beginning Balance	$	25,527	$	20,380	$	15,947
Increases in tax positions for prior years	3,459		435		—
Decreases in tax positions for prior years	(44)		(189)		(97)
Increases in tax positions for current year	996		6,822		5,382
Lapse in statute of limitations	(1,413)		(1,921)		(852)
Ending Balance	$	28,525	$	25,527	$	20,380

Interest and penalties associated with uncertain tax positions are recognized as components of Income tax provision in the consolidated statements of operations. There was no material change to tax-related interest and penalties during the years ended December 31, 2025, 2024 and 2023. As of December 31, 2025 and 2024, respectively, the Company has a liability for interest and penalties of $8.3 million and $6.7 million that is associated with related tax liabilities of $22.7 million and $20.3 million for uncertain tax positions.

The Company operates in various foreign, state and local jurisdictions. The number of tax years for which the statute of limitations remains open for foreign, state and local jurisdictions varies by jurisdiction and is approximately four years (2021 through 2025). For federal tax purposes, the Company’s open tax years are 2022 through 2025.

Components of the Company's cash paid for taxes included in the consolidated statement of cash flows consisted of the following (in thousands):


	Year Ended December 31,
	2025		2024		2023
Federal	$	30,444	$	72,405	$	68,256
State	2,138		5,293		4,327
Foreign	7,137		5,869		3,770
Total cash paid for taxes	$	39,719	$	83,567	$	76,353

- Definition

The entire disclosure for income tax.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 942
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+ Details

Medpace Holdings, Inc. 10-K