v3.26.3
Income Taxes
 9 Months Ended
Sep. 30, 2026
Income Tax Disclosure [Abstract]  
Income Tax Disclosure
13. Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in interim periods.
For the three months ended September 30, 2026, the Company had an income tax expense of $10.9 million (on a pre-tax income of $28.8 million resulting in an effective tax rate of 37.7%) compared to income tax expense for the three months ended September 30, 2025 of $9.6 million (on a pre-tax income of $33.3 million resulting in an effective tax rate of 28.7%).
The effective tax rate increased by 9.0 percentage points compared with the prior-year period, and income tax expense increased by $1.3 million. The increase in the tax rate primarily related to a higher estimated annual effective tax rate and increased losses for which no tax benefit was recognized, offset by state tax refunds applied in the current period, and other discrete items.
For the nine months ended September 30, 2026, the Company had an income tax expense of $7.6 million (on a pre-tax income of $2.9 million resulting in an effective tax rate of 265.3%) compared to income tax expense for the nine months ended September 30, 2025 of $14.0 million (on a pre-tax income of $27.7 million resulting in an effective tax rate of 50.3%).
The effective tax rate increased by 215.0 percentage points compared with the prior-year period, and income tax expense decreased by $6.4 million. The increase in the tax rate primarily related to the significant decline in pre-tax income in 2026 and increased losses for which no tax benefit was recognized, offset by state tax refunds applied in the current period, and other discrete items.
Tax Receivable Agreement
In connection with the Company’s Tax Receivable Agreement (“TRA”), the Company is required to make cash payments to Stagwell Media equal to 85% of certain U.S. federal, state and local income tax or franchise tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) increases in the tax basis of the assets of Stagwell Global LLC (“OpCo”), the Company’s only operating subsidiary, resulting from exchanges of Paired Units (each share of Class C Common Stock is paired with a corresponding common unit of OpCo, a “Paired Unit”) for shares of Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to us making payments under the TRA.
Effective April 4, 2025, all Paired Units were exchanged for Class A Shares. As a result of the Class C Exchange, the Company recorded an increase to its deferred tax asset balance by $237.9 million and an increase to its TRA liability balance by $229.7 million. The total TRA liability and the associated deferred tax balances, net of amortization, in connection with the exchange of Paired Units and the projected obligations under the TRA were as follows:

September 30, 2026December 31, 2025
(dollars in thousands)
Tax Receivable Agreement liability (1)
$252,390 $254,944 
 Deferred tax assets (2)
285,538 285,538 

(1) TRA liability as of December 31, 2025 includes $2.6 million short-term liability included under Accruals and other liabilities on the Unaudited Consolidated Balance Sheets. The Company paid $2.6 million of TRA liability during the nine months ended September 30, 2026. As a result, no short-term TRA liability remained outstanding as of September 30, 2026.
(2) Deferred tax asset balances, net of deferred tax liabilities, on the Unaudited Consolidated Balance Sheets were $280.2 million and $281.1 million as of September 30, 2026 and December 31, 2025, respectively, principally due to jurisdictional netting.