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Taxes on Earnings
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Taxes on Earnings Taxes on Earnings
Taxes on earnings reflect the annual effective rates, including charges for interest and penalties. Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts.
Taxes on earnings include approximately $50 million, $22 million and $43 million in excess tax benefits associated with share-based compensation in 2024, 2023 and 2022, respectively. As a result of the resolution of various tax positions related to prior years, taxes on earnings in 2024, 2023 and 2022 also include approximately $25 million, $80 million and $20 million of net tax expense, respectively. In the fourth quarter of 2024, taxes on earnings includes $7.5 billion in non-cash valuation allowance adjustments resulting from the restructuring of certain foreign affiliates and the confirmation of certain tax filing positions. The restructuring improved profitability to several of Abbott’s affiliates and management concluded that the related preexisting deferred tax assets, which historically had a full valuation allowance, were more likely than not to be realizable in future periods. In particular, Abbott considered the likelihood of sustained ongoing profitability of the affiliates as a positive factor that outweighed all available negative evidence considered. Accordingly, Abbott released the full valuation allowance on such deferred tax assets and recorded the offset to tax expense.
The TCJA includes a one-time transition tax that is based on Abbott’s total post-1986 earnings and profits (E&P) that were previously deferred from U.S. income taxes. The tax computation also requires the determination of the amount of post-1986 E&P considered held in cash and other specified assets. As of December 31, 2024, the remaining balance of Abbott’s transition tax obligation related to the TCJA is approximately $432 million, which will be paid over the next two years as allowed by the TCJA. Undistributed foreign earnings remain indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in its foreign entities is not practicable.
In the U.S., Abbott’s federal income tax returns through 2016 are settled. In September 2023, Abbott received a Statutory Notice of Deficiency (SNOD) from the U.S. Internal Revenue Service (IRS) for the 2019 Federal tax year in the amount of $417 million. The primary adjustments proposed in the SNOD relate to the reallocation of income between Abbott’s U.S. entities and its foreign affiliates. Abbott believes that the income reallocation adjustments proposed in the SNOD are without merit, in part because certain adjustments contradict methods that were agreed to with the IRS in prior audit periods. The SNOD also contains other proposed adjustments that Abbott believes are erroneous and unsupported. Abbott filed a petition with the U.S. Tax Court contesting the SNOD in December 2023.
In June 2024, Abbott received a SNOD from the IRS for the 2017 and 2018 Federal tax years in the amount of $192 million. The matters proposed in the 2017/2018 SNOD are substantially similar to the income allocation adjustments included in the 2019 SNOD. Abbott filed a petition in September 2024 with the U.S. Tax Court contesting the 2017/2018 SNOD in a manner consistent with its petition for the 2019 SNOD.
In October 2024, Abbott received a SNOD from the IRS for the 2020 Federal tax year assessing an additional $443 million of income tax. The primary adjustments proposed in the SNOD are substantially similar to the income allocation adjustments included in the 2017/2018 and 2019 SNODs. Abbott believes that the income reallocation adjustments proposed in the SNOD are without merit. The SNOD also contains other proposed adjustments and omissions that Abbott believes are erroneous and unsupported. In addition to the tax assessment for the 2020 tax year, the 2020 SNOD also contested a deduction for which an estimated $440 million cash tax benefit would be available in a different taxable year as allowed under applicable U.S. tax law. Abbott filed a petition with the U.S. Tax Court contesting the SNOD in December 2024.
Abbott intends to vigorously defend its filing positions through ongoing discussions with the IRS, the IRS independent appeals process and/or through litigation as necessary. Abbott reserves for uncertain tax positions related to unresolved matters with the IRS and other taxing authorities. Abbott continues to believe that its reserves for uncertain tax positions are appropriate.
There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which Abbott expects to be individually significant. Reserves for interest and penalties are not significant.
The Organization for Economic Cooperation & Development (OECD) has proposed a two-pillared plan for a revised international tax system. Pillar 1 proposes to reallocate taxing rights among the jurisdictions in which in-scope multinational corporations operate. Abbott is continuing to analyze the Pillar 1 proposal. Pillar 2 proposes to assess a 15 percent minimum tax on the earnings of in-scope multinational corporations on a country-by-country basis. Numerous countries have enacted legislation to adopt the Pillar 2 model rules. The enactment of current Pillar 2 model rules did not and is not projected to have a material impact to Abbott's consolidated financial statements.
Earnings before taxes, and the related provisions for taxes on earnings, were as follows:
(in millions)202420232022
Earnings Before Taxes:
Domestic$947 $1,192 $3,732 
Foreign6,066 5,472 4,574 
Total$7,013 $6,664 $8,306 

(in millions)202420232022
Taxes on Earnings:
Current:
Domestic$497 $528 $1,309 
Foreign1,075 874 723 
Total current1,572 1,402 2,032 
Deferred:
Domestic(459)(382)(610)
Foreign(7,502)(79)(49)
Total deferred(7,961)(461)(659)
Total$(6,389)$941 $1,373 
Differences between the effective income tax rate and the U.S. statutory tax rate were as follows:
202420232022
Statutory tax rate on earnings21.0 %21.0 %21.0 %
Impact of foreign operations(1.8)(3.6)(2.5)
Foreign-derived intangible income benefit(2.3)(2.2)(2.0)
Valuation allowance adjustments(107.1)— — 
Excess tax benefits related to stock compensation(0.7)(0.3)(0.5)
Research tax credit(1.0)(1.1)(0.9)
Resolution of certain tax positions pertaining to prior years0.4 1.2 0.2 
Intercompany restructurings and integration0.2 (1.4)— 
State taxes, net of federal benefit0.3 0.5 0.7 
All other, net(0.1)— 0.5 
Effective tax rate on earnings(91.1)%14.1 %16.5 %
Impact of foreign operations is primarily derived from operations in Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica, Singapore, Malta and Malaysia.
The tax effect of the differences that give rise to deferred tax assets and liabilities were as follows:
(in millions)20242023
Deferred tax assets:
Compensation and employee benefits$— $89 
Trade receivable reserves230 221 
Research and development costs773 568 
Inventory reserves168 198 
Lease liabilities265 272 
Deferred intercompany profit284 283 
NOLs, reserves not currently deductible, credit carryforwards and other10,353 9,922 
Total deferred tax assets before valuation allowance12,073 11,553 
Valuation allowance(1,664)(8,690)
Total deferred tax assets10,409 2,863 
Deferred tax liabilities:
Compensation and employee benefits(276)— 
Depreciation(408)(414)
Right of Use lease assets(249)(258)
Other, primarily the excess of book basis over tax basis of intangible assets(1,365)(1,777)
Total deferred tax liabilities(2,298)(2,449)
Total net deferred tax assets (liabilities)$8,111 $414 
The following table summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled:
(in millions)20242023
January 1$3,323 $2,036 
Increase due to current year tax positions167 225 
Increase due to prior year tax positions174 1,338 
Decrease due to prior year tax positions(50)(89)
Settlements(13)(144)
Lapse of statute(33)(43)
December 31$3,568 $3,323 
Abbott’s unrecognized tax benefits table includes amounts related to tax positions for which a deferred tax asset has not been recognized because the recognition of the future benefit is not expected.
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $2.6 billion. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease approximately $90 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.