Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income before provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2024		2023		2022
Domestic	$	2,635,557	$	1,977,687	$	1,260,614
Foreign	629,477		444,339		321,182
Income before income taxes	$	3,265,034	$	2,422,026	$	1,581,796

The components of the provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2024		2023		2022
Current provision for income taxes:
Federal	$	751,279	$	574,449	$	359,158
State	114,731		106,866		76,321
Foreign	39,771		24,186		38,250
Total current	905,781		705,501		473,729
Deferred tax expense (benefit):
Federal	(504,730)		(372,270)		(219,568)
State	(42,781)		(41,152)		(34,689)
Foreign	54,710		42,626		9,878
Total deferred tax expense (benefit)	(492,801)		(370,796)		(244,379)
Total provision for income taxes	$	412,980	$	334,705	$	229,350

The reconciliation of the statutory federal income tax rate and our effective income tax rate is as follows (in percentages):

	Year Ended December 31,
	2024		2023		2022
U.S. federal statutory income tax rate	21.00	%	21.00	%	21.00	%
State tax, net of federal benefit	1.75		2.13		2.09
Taxes on foreign earnings differential	(2.38)		(1.96)		(2.24)
Tax credits	(2.79)		(2.74)		(2.24)
Stock-based compensation	(4.96)		(4.59)		(4.07)
Acquisition and integration costs	—		0.01		0.05
Other, net	0.03		(0.04)		(0.09)
Effective tax rate	12.65	%	13.81	%	14.50	%

The change in our effective tax rate was due to a favorable change in state taxes and tax benefits attributable to stock-based compensation. Excess tax benefits resulting from stock awards were $212.3 million, $151.2 million and $93.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are as follows (in thousands) :

	December 31,
	2024		2023
Deferred tax assets:
Intangible assets	$	273,867	$	322,325
Reserves and accruals not currently deductible	135,167		120,973
Deferred revenue	566,273		295,268
Tax credits	130,188		118,123
Lease financing obligation	13,719		15,485
Capitalized research and development expenses	634,534		417,095
Stock-based compensation	38,631		28,079
Net operating losses	25,916		34,274
Other	3,593		1,328
Gross deferred tax assets	1,821,888		1,352,950
Valuation allowance	(179,789)		(146,268)
Total deferred tax assets	1,642,099		1,206,682
Deferred tax liabilities:
US tax on foreign earnings	(189,823)		(245,074)
Right of use asset	(11,571)		(12,935)
Other	(287)		(2,881)
Total deferred tax liabilities	(201,681)		(260,890)
Net deferred tax assets	$	1,440,418	$	945,792

As of December 31, 2024 and 2023, $1.4 billion and $0.9 billion were recorded as deferred tax assets, non-current respectively. We did not have any balance related to deferred tax liabilities as of December 31, 2024 and 2023.

As of December 31, 2024, we had $225.1 million and $120.6 million of net operating loss carryforwards for federal and state income tax purposes, respectively, from acquisitions. These federal and state losses will begin to expire in 2028 and 2029, respectively. We do not have any material foreign net operating losses.

As of December 31, 2024, our state tax credit carryforwards for income tax purposes before valuation allowances were approximately $238.4 million, which can be carried over indefinitely. We have provided a valuation allowance of $179.8 million for deferred tax assets, primarily related to state carryforwards that we do not believe are more likely than not to be realized.

Utilization of the net operating losses and tax credit carryforwards may be subject to limitations due to ownership change limitations provided in the Internal Revenue Code and similar state or foreign provisions.

U.S. tax law generally requires U.S. shareholders of a controlled foreign corporation (“CFC”) to include the annual earnings of foreign subsidiaries into U.S. taxable income each year. Correspondingly, most of the undistributed earnings are deemed to be previously taxed for U.S. tax purposes and distributions of the unremitted earnings do not have any significant U.S. federal income tax impact. We have not provided for any remaining tax effect, if any, of limited outside basis differences of our foreign subsidiaries based upon plans of future reinvestment. The determination of the future tax consequences of the remittance of these earnings is not practicable.

Uncertain Tax Positions

We recognize uncertain tax positions only to the extent that management believes that it is more likely than not that the position will be sustained. The reconciliation of the beginning and ending amount of gross unrecognized tax benefits as of December 31, 2024, 2023 and 2022 is as follows (in thousands):

	Year Ended December 31,
	2024		2023		2022
Gross unrecognized tax benefits—beginning balance	$	163,266	$	137,357	$	114,813
Increases related to tax positions taken in a prior year	294		4,690		1,566
Increases related to tax positions taken during current year	52,701		39,895		25,355
Decreases related to tax positions taken in a prior year	(8,624)		(513)		(3,781)
Decreases related to lapse of statute of limitations	(26,010)		(18,163)		(596)
Decreases related to settlements with taxing authorities	(150)		—		—
Gross unrecognized tax benefits—ending balance	$	181,477	$	163,266	$	137,357

As of December 31, 2024, 2023 and 2022, the total amount of gross unrecognized tax benefits was $181.5 million, $163.3 million and $137.4 million, respectively, of which $103.4 million, $90.0 million and $79.3 million would affect our effective tax rate if recognized.

Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2024 and 2023, the net expense for interest and penalties and the recognized liability for interest and penalties were not material.

The statute of limitations for Federal and most states remains open for 2021 and forward. Some states have net operating loss and tax credit carryforwards, and therefore remain open to examination. Our foreign tax returns, where the statute of limitations have not yet lapsed, are open to audit in the respective foreign countries where the subsidiaries are located. It is possible that the amount of existing gross unrecognized tax benefits may decrease within the next 12 months as a result of statute of limitation lapses or payments to tax authorities in certain jurisdictions. However, any such changes are not anticipated to be material.