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Income taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income taxes
9. Income taxes
The following footnote reflects the Company’s adoption of ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Refer to Note 2 – Summary of significant accounting policies for more information about recently adopted accounting pronouncements.
The domestic and foreign components of income (loss) before provision for income taxes consisted of the following (in thousands):
Fiscal Year Ended December 31,
202520242023
Domestic
$(884)$(88,789)$(110,640)
Foreign
9,221 7,851 6,999 
Total net income (loss) before taxes
$8,337 $(80,938)$(103,641)
The provision for income taxes consisted of the following (in thousands):
Fiscal Year Ended December 31,
202520242023
Current
Federal
$— $— $— 
State
234 512 324 
Foreign
4,366 3,912 3,494 
Total current income tax expense
4,600 4,424 3,818 
Deferred:
Federal
— — — 
State
— — — 
Foreign
(70)(74)(165)
Total deferred income tax benefit
(70)(74)(165)
Total provision for income taxes
$4,530 $4,350 $3,653 
The Company had an effective tax rate of 54.34%, (5.37)%, and (3.52)% for the periods ended December 31, 2025, 2024, and 2023, respectively. The difference between the 21% statutory federal tax rate and the effective tax rate was primarily a result of the decrease in the total of valuation allowances against federal and state net deferred tax assets, offset by income earned in jurisdictions with higher statutory tax rates, foreign withholding taxes, and tax credits.
The reconciliation between the statutory federal income tax rate and the Company’s effective tax rate as a percentage of net income before taxes is as follows (dollar amounts in thousands):
Fiscal Year Ended December 31, 2025
AmountAs a % of net income before taxes
Net income before taxes$8,337 
U.S. federal statutory tax rate1,751 21.00 %
State and local income taxes, net of federal income tax effect(1)
182 2.18 %
Foreign tax effects264 3.16 %
Effect of changes in tax laws or rates enacted in the current period
Effect of cross-border tax laws
Withholding taxes1,683 20.19 %
Tax credits
Research credits(1,915)(22.97)%
Changes in valuation allowance - federal(6,371)(76.43)%
Non-taxable or non-deductible items
Non-deductible compensation1,331 15.97 %
Stock-based compensation6,453 77.41 %
Changes in unrecognized tax benefits437 5.24 %
Other715 8.59 %
Income tax provision$4,530 54.34 %
(1) States taxes in Virginia and Florida made up the majority (greater than 50%) of the tax effect in this category.
As previously disclosed for the periods ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:
Fiscal Year Ended December 31,
20242023
Federal tax expense
21.00 %21.00 %
State taxes, net of federal benefit
0.49 %0.50 %
Foreign rate differential
(0.28)%(1.40)%
Withholding taxes
(2.43)%(1.77)%
Nondeductible compensation
(6.18)%(10.20)%
Stock-based compensation
(9.48)%(1.84)%
Change in valuation allowance
(16.40)%(18.33)%
Research and development credits
7.57 %7.94 %
Nontaxable dividends
— %1.31 %
Other
0.34 %(0.73)%
Effective tax rate
(5.37)%(3.52)%
The amount of cash taxes paid by Udemy, Inc., inclusive of amounts withheld by customers and remitted to tax authorities on the Company's behalf, are as follows (in thousands):
Fiscal Year Ended December 31, 2025
Federal$— 
State611 
Foreign
India1,563 
Australia654 
All other foreign2,217 
Cash taxes, net of amounts refunded$5,045 
Significant components of the net deferred tax assets (liabilities) for the fiscal years ended December 31, 2025 and 2024, consisted of the following (in thousands):
December 31,December 31,
20252024
Deferred tax assets:
Accruals and reserves
$4,340 $3,852 
Deferred revenue
64,332 64,179 
Net operating loss
39,420 21,983 
Research and development tax credits
37,378 34,772 
Stock-based compensation expense
2,518 4,005 
Indirect tax reserves
742 377 
Property and equipment, net
1,969 2,088 
Capitalized research and development costs
22,832 48,726 
Operating lease liabilities
1,985 2,152 
Other deferred tax assets4,082 3,052 
Gross deferred tax assets
179,598 185,186 
Valuation allowance
(160,923)(165,488)
Total deferred tax assets
18,675 19,698 
Deferred tax liabilities:
Deferred contract costs
(9,095)(9,329)
Operating lease right-of-use-assets
(1,610)(2,064)
Other deferred tax liabilities
(7,663)(8,067)
Total deferred tax liabilities
(18,368)(19,460)
Net deferred tax assets
$307 $238 
A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. We regularly assess our ability to realize our deferred tax assets on a quarterly basis and will establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. In 2025, after considering both positive and negative evidence, we determined that there is not sufficient objectively verifiable positive evidence to conclude that it is more-likely-than-not that our US deferred tax assets are realizable in the future. As a result, we continue to record a full valuation allowance against our U.S. Federal and State net deferred tax balances.
As of December 31, 2025, the Company has established a valuation allowance of $160.9 million, against its gross deferred tax assets due to the uncertainty surrounding the realization of such assets. The change in total valuation allowance from 2024 to 2025 was an decrease of $4.6 million.
As of December 31, 2025, the Company had $170.4 million of federal net operating loss (“NOL”) carryforwards. All of the federal NOL carryforwards generated in taxable years beginning after December 31, 2017 have an indefinite carryforward period, but are subject to the 80% deduction limitation based upon pre-NOL deduction taxable income.
As of December 31, 2025, the Company had $58.0 million of state NOL carryforwards. The state NOL carryforwards begin expiring in 2030, if not utilized.
As of December 31, 2025, the Company had U.S. federal and state research and development tax credit carryforwards of $30.6 million and $20.2 million, respectively. The federal research and development tax credit carryforwards will expire in various amounts beginning in 2035 while the state research and development tax credit carryforwards can be carried forward indefinitely.
In July 2025, the United States enacted tax legislation commonly referred to as the One Big Beautiful Bill Act (the “OBBB Act”). The OBBB Act, among other things, extends certain provisions of 2017 U.S. federal tax legislation relating to federal bonus depreciation and immediate expensing for domestic research and development expenditures. These provisions did not have a material effect on the Company’s consolidated financial statements for the year ended December 31, 2025. We will continue to monitor future developments, including regulatory guidance and interpretations, which could have a material impact.
The utilization of the Company’s net operating losses may be subject to a limitation due to the “ownership change” provisions under Section 382 of the Internal Revenue Code and similar state and foreign provisions. The Company has performed a Section 382 study through December 31, 2025 to determine any potential Section 382 limitations on the utilization of its net operating loss carryforwards and tax credit carryforwards and has determined that the Company has not experienced any ownership changes expected to impact Net Operating Loss carryforwards.
Uncertain tax positions— As of December 31, 2025 and 2024, the Company had gross unrecognized tax benefits of $10.0 million and $9.0 million, respectively, related to federal and state research and development tax credits. The Company has performed a R&D tax credit study. The Company’s tax position of such credits is not more likely than not to be sustained upon examination. The Company has recorded an uncertain tax position related to the deferred tax asset recognized for these credits.
A reconciliation of the beginning and ending balance of unrecognized tax benefit is as follows (in thousands):
Fiscal Year Ended December 31,
202520242023
Gross unrecognized tax benefits at the beginning of the year
$9,032 $7,232 $5,310 
Increases related to prior year tax positions220 133 58 
Increases related to current year tax positions
723 1,667 1,864 
Statues of limitations expirations
— — — 
Gross unrecognized tax benefits at the end of the year
$9,975 $9,032 $7,232 
The Company is currently unaware of uncertain tax positions that could result in significant additional payments, accruals, or other material deviations in the next 12 months. The Company currently does not record interest and penalties, if any, related to unrecognized tax benefits due to the existence of tax attribute carryforwards.
The Company intends to indefinitely reinvest any future undistributed foreign earnings outside the United States and therefore such earnings will not be subject to U.S. federal or state, or foreign withholding tax.
The Company files income tax returns in U.S. federal, and certain state and foreign jurisdictions with varying statutes of limitations. Due to NOL carryforwards and tax credit carryforwards, the statutes of limitations remain open for tax years from inception of the Company through the fiscal year ended December 31, 2025. There are currently no income tax audits underway by U.S. federal or state tax authorities.
The Company’s subsidiary, Udemy India LLP, has received tax assessments from the India Income Tax Department. These assessments have challenged the transfer pricing methodology used by Udemy India LLP for the fiscal years ended March 31, 2022 and 2021. The Company believes the proposed adjustments are without merit and will vigorously defend its position; however, it could take a number of years to reach resolution of this matter.