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Income Taxes (Unaudited)
 6 Months Ended
Jul. 04, 2025
Jun. 30, 2025
Income Tax Disclosure [Abstract]    
INCOME TAXES   INCOME TAXES
 Three Months Ended June 30Six Months Ended June 30
$ in millions2025202420252024
Federal and foreign income tax expense$253 $206 $350 $393 
Effective income tax rate17.7 %18.0 %17.5 %17.3 %
Current Quarter
Second quarter 2025 income tax expense increased $47 million, or 23 percent, due to higher earnings before income taxes, partially offset by a lower effective tax rate (ETR). The second quarter 2025 ETR decreased to 17.7 percent from 18.0 percent in the prior year period primarily due to lower interest expense on unrecognized tax benefits and higher research credits, partially offset by additional income tax expense related to nondeductible goodwill in the divested training services business. The second quarter 2025 ETR includes benefits of $68 million for research credits and $12 million for foreign derived intangible income (FDII), partially offset by $18 million of interest expense on unrecognized tax benefits and $17 million of tax expense related to nondeductible goodwill in the divested business. The second quarter 2024 ETR included benefits of $46 million for research credits and $15 million for FDII, partially offset by $25 million of interest expense on unrecognized tax benefits.
Year to Date
Year to date 2025 income tax expense decreased $43 million, or 11 percent, due to lower earnings before income taxes, partially offset by a higher effective tax rate. The year to date 2025 ETR increased to 17.5 percent from 17.3 percent in the prior year period primarily due to additional income tax expense related to nondeductible goodwill in the divested training services business and lower benefits for FDII and employee share-based compensation. These increases were partially offset by higher research credits and lower interest expense on unrecognized tax benefits. The year to date 2025 ETR includes benefits of $103 million for research credits and $18 million for FDII, partially offset by $34 million of interest expense on unrecognized tax benefits and $17 million of tax expense related to nondeductible goodwill in the divested business. The year to date 2024 ETR included benefits of $90 million for research credits and $30 million for FDII, partially offset by $46 million of interest expense on unrecognized tax benefits.
During 2025, we increased our unrecognized tax benefits by approximately $140 million principally in connection with state apportionment matters and research credits. It is reasonably possible that within the next 12 months the company’s unrecognized tax benefits may increase by approximately $80 million.
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. During the fourth quarter of 2024, the company entered into an agreed Revenue Agent’s Report (“RAR”) for certain matters related to the company’s 2018-2020 federal income tax returns, resulting in a $766 million reduction to our unrecognized tax benefits and an immaterial impact to income tax expense. The matters not addressed by the agreed RAR related to the company’s 2018-2020 federal income tax returns are currently under Internal Revenue Service (IRS) examination. Certain matters related to the 2014-2017 federal income tax returns and refund claims related to its 2007-2016 federal tax returns are currently under review by the IRS Appeals Office.
The Organization for Economic Co-operation and Development issued Pillar Two model rules for a global minimum tax of 15% effective January 1, 2024. Pillar Two had no impact on our second quarter or year to date 2025 or 2024 ETR, and we do not currently expect Pillar Two to significantly impact our ETR going forward.
Subsequent Event
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted. Key income tax-related provisions of the OBBBA include the repeal of mandatory capitalization of research and development expenditures under Internal Revenue Code (IRC) Section 174 (reinstating full expensing beginning in 2025), extension of bonus depreciation, and revisions to international tax regimes. The company is evaluating the financial implications of the OBBBA and will begin reflecting its effects in the third quarter of 2025. We currently expect the impact of the OBBBA will be to increase the company’s effective tax rate and to favorably impact the timing of cash taxes, subject to the federal corporate alternative minimum tax. For 2025, we currently expect the OBBBA will increase our 2025 effective tax rate to the high 17 percent range and provide a current year cash tax benefit of $200 million to $250 million.
Subsequent Events
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted. Key income tax-related provisions of the OBBBA include the repeal of mandatory capitalization of research and development expenditures under Internal Revenue Code (IRC) Section 174 (reinstating full expensing beginning in 2025), extension of bonus depreciation, and revisions to international tax regimes. The company is evaluating the financial implications of the OBBBA and will begin reflecting its effects in the third quarter of 2025. We currently expect the impact of the OBBBA will be to increase the company’s effective tax rate and to favorably impact the timing of cash taxes, subject to the federal corporate alternative minimum tax. For 2025, we currently expect the OBBBA will increase our 2025 effective tax rate to the high 17 percent range and provide a current year cash tax benefit of $200 million to $250 million.