Personalis, Inc.

Note 13. Income Taxes

We account for income taxes under the liability method; under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

We utilize a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

For financial reporting purposes, income (loss) before income taxes includes the following components (in thousands):

Income Taxes Paid

Income taxes paid, net of refunds received (in thousands):

• The amount of income taxes paid during the year does not meet the 5% disaggregation threshold.

Provision for Income Taxes

The provision (benefit) for income taxes consists of the following (in thousands):

Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss as follows (in thousands):

In 2025, state and local income taxes in California comprised the majority of the state and local income tax expenses, net of federal effect category. In 2024, state and local income taxes in California comprised the majority of the state and local income taxes, net of federal effect category.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets for federal and state income taxes are as follows (in thousands):

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Because of the Company’s lack of U.S. earnings history, the net U.S. deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $11.8 million and $16.8 million during the years ended December 31, 2025 and 2024, respectively.

As required under ASU 2023-09, the Company has included only the portion of the valuation allowance related to federal deferred tax assets in the "change in valuation allowance" line of the rate reconciliation. The following table presents a reconciliation of the total change in the valuation allowance (in thousands):

Undistributed earnings of the Company’s foreign subsidiary in the UK are considered to be permanently reinvested and accordingly, no deferred U.S. income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to U.S. income tax. At the present time it is not practicable to estimate the amount of U.S. income taxes that might be payable if these earnings were repatriated.

Net Operating Loss and Tax Credit Carryforwards

As of December 31, 2025, the Company had a net operating loss carryforward for federal income tax purposes of $509.5 million, of which $86.0 million is subject to expiration beginning in 2031. The Company had a total state net operating loss carryforward of approximately $392.3 million, which will begin to expire in 2031. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization.

As of December 31, 2025, the Company has federal credits of approximately $9.9 million, which will begin to expire in 2031 and state research credits of approximately $9.1 million, which have no expiration date. These tax credits are subject to the same limitations discussed above.

Unrecognized Tax Benefits

The Company has incurred net operating losses since inception and does not have any significant unrecognized tax benefits. The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations. If the Company is eventually able to recognize its uncertain positions, the effective tax rate would be reduced. The Company currently has a full valuation allowance against its net deferred tax assets, which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future. Any adjustments to the Company’s uncertain tax positions would result in an adjustment of net operating loss or tax credit carryforwards rather than resulting in a cash outlay.

The Company has the following activity relating to unrecognized tax benefits (in thousands):

During the years ended December 31, 2025 and 2024, no interest or penalties were required to be recognized relating to unrecognized tax benefits.

The Company files income tax returns in the U.S. and the UK. We are currently under examination in the U.S. for tax year 2023. Because of net operating losses and research credit carryovers, substantially all the Company’s tax years remain open to examination.