Income Taxes (Unaudited)

9 Months Ended

Sep. 30, 2026

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

In July 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. As part of the enactment of the OBBBA, the company became subject to the corporate alternative minimum tax (CAMT) and recorded CAMT credit carryforwards of $187 million during 2025. In February 2026, the Internal Revenue Service (IRS) issued Notice 2026-7, providing interim relief for the CAMT through a favorable adjustment related to the amortization of research and development expenditures under IRC Section 174. The company recognized the impacts of Notice 2026-7 during the first quarter of 2026, resulting in a $187 million decrease in CAMT credit carryforwards and a corresponding increase in Taxes receivable, as well as a $19 million reduction to federal income tax expense.

	Three Months Ended September 30						Nine Months Ended September 30
$ in millions	2026			2025			2026			2025
Federal and foreign income tax expense	$	174		$	223		$	403		$	573
Effective income tax rate	13.4		%	16.9		%	11.5		%	17.2		%

Current Quarter

Third quarter 2026 income tax expense decreased $49 million, or 22 percent, due to a lower effective tax rate (ETR) and $25 million of lower earnings before income taxes. The third quarter 2026 ETR decreased to 13.4 percent from 16.9 percent principally due to higher research credits. The third quarter 2026 ETR includes benefits of $112 million for research credits and $15 million for foreign-derived deduction-eligible income (FDDEI), partially offset by $21 million of interest expense on unrecognized tax benefits. The third quarter 2025 ETR included benefits of $66 million for research credits and $16 million for foreign derived intangible income (FDII), partially offset by $19 million of interest expense on unrecognized tax benefits.

Year to Date
Year to date 2026 income tax expense decreased $170 million, or 30 percent, due to a lower ETR, partially offset by $168 million of higher earnings before income taxes. The year to date 2026 ETR decreased to 11.5 percent from 17.2 percent primarily due to the remeasurement of unrecognized tax benefits during the second quarter of 2026 given recent developments with the IRS towards resolving our previously filed federal income tax returns and refund claims, as well as higher research credits, including a $19 million benefit related to the CAMT guidance discussed above. The year to date 2026 ETR includes benefits of $356 million for research credits, inclusive of the unrecognized tax benefit remeasurement of $115 million, and $35 million for FDDEI, partially offset by $46 million of interest expense on unrecognized tax benefits. The year to date 2025 ETR included benefits of $169 million for research credits and $34 million for FDII, partially offset by $53 million of interest expense on unrecognized tax benefits and $17 million of tax expense related to nondeductible goodwill in the divested training services business.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Certain matters related to the company’s 2018-2024 federal income tax returns are currently under IRS examination. Certain matters related to the company’s 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.

Current unrecognized tax benefits, which are included in Other current liabilities, were $800 million and $436 million as of September 30, 2026 and December 31, 2025, respectively. Non-current unrecognized tax benefits, which are included in Other non-current liabilities, were $1.3 billion and $1.6 billion as of September 30, 2026 and December 31, 2025, respectively.

Taxes receivable, which are included in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position, were $1.0 billion as of September 30, 2026 and $924 million as of December 31, 2025.