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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The components of the Company’s benefit (provision) for income taxes are as follows (in thousands):
Year ended December 31,
202120202019
Current income tax benefit (expense):
Federal$(99)$(688)$— 
State(239)(517)(56)
Foreign(356)(81)(49)
$(694)$(1,286)$(105)
Deferred income tax benefit (expense):
Federal912 (3,161)2,169 
State(415)(232)687 
Foreign371 17 — 
868 (3,376)2,856 
Total benefit (provision) for income taxes$174 $(4,662)$2,751 
The effective income tax rate differs from the statutory rate in 2021 primarily due to the limitation imposed by Internal Revenue Code Section 162(m), the inclusion of a valuation allowance, and the impact of stock-based compensation, which resulted in a $15.5 million, $2.4 million, and $(8.5) million permanent item, respectively. The effective income tax rate differs from the statutory rate in 2020 primarily due to the impact of stock-based compensation related secondary market transactions, which resulted in a $15.3 million permanent item.
Year ended December 31,
202120202019
Statutory rate21.0 %21.0 %21.0 %
State tax*4.7 %20.2 %42.5 %
Research and development (R&D) credit5.1 %2.5 %12.6 %
Rate differentials for controlled foreign corporations (CFCs) and charitable organizations that affect valuation allowance(1.9)%0.6 %(2.8)%
Permanent items and others1.0 %3.5 %(11.2)%
Stock-based compensation - federal16.5 %110.1 %(13.4)%
Change in valuation allowance - federal(18.1)%— %133.2 %
162(m) limitation(27.0)%— %— %
Total1.3 %157.9 %181.9 %
*State taxes include the impact of stock-based compensation expense related to secondary market transactions in 2020.
The components of the net deferred tax assets are as follows (in thousands):
As December 31,
20212020
Deferred tax assets (liabilities):
NOL carryforwards $415 $275 
Tax credit carryforwards 318 81 
Accruals and reserves 169 231 
Stock-based compensation 2,364 449 
Interest expense limitation245 — 
Lease liabilities591 984 
Charitable contributions525 — 
Property and equipment271 (650)
Capitalized software development costs(1,524)(933)
ROU assets(554)(935)
Total2,820 (498)
Less: valuation allowance(2,450)— 
Deferred tax assets (liabilities), net$370 $(498)
The Company assessed its ability to realize the benefits of its domestic deferred tax assets (DTA) by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income and (4) the length of net operating loss (NOL) carryforward periods. The Company determined it is in a three-year cumulative taxable income position as of December 31, 2020. As of December 31, 2021, the Company expects to be in a taxable loss position in the long-term foreseeable future primarily due to estimated increases in stock-based compensation expense as a result of the RSUs granted during 2021.
After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, the Company concluded it is more likely than not that taxable losses will be incurred in future periods, which will prevent the Company from fully realizing the benefits of its DTAs prior to expiration. Accordingly, the net deferred tax assets for Expensify, Inc. have been fully offset by a valuation allowance. The remaining net deferred tax assets of the Company as of December 31, 2021 solely relate to the UK. The valuation allowance increased by approximately $2.4 million from 2020 to 2021. No valuation allowance was deemed necessary as of December 31, 2020.
As of December 31, 2021, the Company had NOL carryforwards for federal and state tax purposes of $0 and $3.1 million, respectively. As of December 31, 2020, the Company had NOL carryforwards for federal and state tax purposes of $0.1 million, and $3.7 million, respectively. The NOL carryforwards will expire at various dates beginning in the year 2031 (state), unless previously utilized. As of December 31, 2021, the Company also had federal and state research and development tax credit carryforwards of $1.0 million and $1.0 million, respectively. As of December 31, 2020, the Company also had federal and state research and development tax credit carryforwards of $0.2 million and $0.6 million, respectively. The federal tax credits will expire at various dates beginning in the year 2029, unless previously utilized. The state tax credits do not expire and will carry forward indefinitely until utilized.
Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code, as well as similar state provisions. In general, an “ownership change” as defined by Code Sections 382 and 383, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the
outstanding stock of a company by certain stockholders or public groups. Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders’ subsequent disposition of those shares, have resulted in such an ownership change, and could result in an ownership change in the future upon subsequent disposition.
The Company conducted an analysis of the Company’s stock ownership under Internal Revenue Code Section 382 and 383. The net operating loss carryforwards and tax credits are subject to annual limitations as a result of the ownership changes in 2010 and 2015. However, the net operating loss carryforwards and the tax credits are not expected to expire before utilization.
The Company follows the provisions of ASC Subtopic 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. As of December 31, 2021 and 2020, the Company recorded an uncertain tax position liability, exclusive of interest and penalties, of $0.2 million and $0.7 million respectively, within Other liabilities on the consolidated balance sheets.
As of December 31, 2021 and 2020, the Company had $1.7 million and $1.3 million of unrecognized tax benefits, respectively. Approximately all of the unrecognized tax benefits, if recognized, would affect the effective tax rate. A reconciliation of the amount of unrecognized tax benefits is as follows for the years ended December 31, 2021 and 2020 (in thousands):
Year ended December 31,
20212020
Balance as of January 1$1,329 $1,253 
Additions based on tax positions related to current year336 76 
Additions based on tax positions of prior year(9)— 
Balance as of December 31$1,656 $1,329 
Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business. The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months.
The Company recognizes penalties and interest expense related to income taxes as a component of tax expense. There are immaterial amounts of interest and penalties recorded in the consolidated statements of income for the years ended December 31, 2021, 2020, and 2019 and in the consolidated balance sheets as of December 31, 2021 and 2020. There are no positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.
The Company is subject to income taxes in U.S. federal and various state, local and foreign jurisdictions. The tax years ended from December 2012 to December 2020 remain open to examination due to the carryover of unused net operating losses or tax credits.