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Taxes on Income
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Taxes on Income Taxes on Income
A reconciliation between the effective tax rate and the U.S. statutory rate is as follows:
 202420232022
AmountTax RateAmountTax RateAmountTax Rate
U.S. statutory rate applied to income before taxes
$4,186 21.0 %$397 21.0 %$3,453 21.0 %
Differential arising from:
Foreign earnings(1,301)(6.5)(941)(49.8)(1,821)(11.1)
Tax settlements and statute lapses
(557)(2.8)— — (10)(0.1)
R&D tax credit(202)(1.0)(214)(11.3)(117)(0.7)
Inventory donations
(71)(0.4)(65)(3.5)(52)(0.3)
State taxes(39)(0.2)(117)(6.2)(110)(0.7)
Charges for certain research and development asset acquisitions
554 2.8 253 13.4 — — 
Valuation allowances54 0.3 70 3.7 108 0.7 
Restructuring52 0.3 41 2.2 11 0.1 
GILTI and the foreign-derived intangible income deduction29 0.1 (80)(4.3)462 2.8 
Acquisition-related costs, including amortization
18 0.1 42 2.2 (3)— 
Acquisition of Prometheus
— — 2,139 113.3 — — 
Other80 0.4 (13)(0.7)(3)— 
 $2,803 14.1 %$1,512 80.0 %$1,918 11.7 %
Where applicable, the impact of changes in uncertain tax positions is reflected in the reconciling items above.
The Company’s remaining transition tax liability under the Tax Cuts and Jobs Act (TCJA) of 2017, which has been reduced by payments and the expected utilization of foreign tax credits, was a net liability of $518 million at December 31, 2024, which is comprised of a $1.2 billion tax liability included in Income taxes payable, offset by $702 million of foreign tax credits included in Other Assets that Merck expects to be applied upon the completion of the IRS’s examination of the Company’s tax returns for the 2017 and 2018 federal tax years. As a result of the transition tax under the TCJA, the Company is no longer indefinitely reinvested with respect to its undistributed earnings from foreign subsidiaries and has provided a deferred tax liability for foreign withholding taxes that would apply. The
Company remains indefinitely reinvested with respect to its financial statement basis in excess of tax basis of its foreign subsidiaries. A determination of the net deferred tax liability with respect to this basis difference is not practicable.
The foreign earnings tax rate differentials in the tax rate reconciliation above primarily reflect the impacts of operations in jurisdictions with different effective tax rates than the U.S., particularly Ireland, the Netherlands and Switzerland, as well as Singapore and Puerto Rico which operate under tax incentive grants (which begin to expire in 2025), thereby yielding a favorable impact on the effective tax rate compared with the U.S. statutory rate of 21%. The Company has an additional Cantonal tax holiday in Switzerland that provides for a tax rate reduction and is effective through 2032. The Company’s income that is subject to tax incentive grants and the Cantonal tax holiday in Switzerland is subject to the global minimum tax provision of the Organization for Economic Cooperation and Development (OECD) Pillar 2, effective in 2024.
Income before taxes consisted of:
Years Ended December 31202420232022
Domestic$(1,849)$(15,622)$1,011 
Foreign21,785 17,511 15,433 
 $19,936 $1,889 $16,444 
Taxes on income consisted of:
Years Ended December 31202420232022
Current provision
Federal$944 $928 $2,265 
Foreign3,123 2,435 1,164 
State(15)48 57 
 4,052 3,411 3,486 
Deferred provision
Federal(1,475)(1,559)(1,510)
Foreign212 (233)71 
State14 (107)(129)
 (1,249)(1,899)(1,568)
 $2,803 $1,512 $1,918 
Deferred income taxes at December 31 consisted of:
 20242023
AssetsLiabilitiesAssetsLiabilities
Product intangibles and licenses$71 $978 $— $1,308 
R&D capitalization3,062 — 2,099 — 
Inventory related84 413 86 370 
Accelerated depreciation— 645 — 626 
Undistributed foreign earnings
275 371 76 118 
Equity investments— 90 — 73 
Pensions and other postretirement benefits224 400 323 249 
Compensation related400 — 357 — 
Unrecognized tax benefits152 — 147 — 
Net operating losses and other tax credit carryforwards910 — 868 — 
Other802 159 755 214 
Subtotal5,980 3,056 4,711 2,958 
Valuation allowance(710) (656) 
Total deferred taxes$5,270 $3,056 $4,055 $2,958 
Net deferred income taxes$2,214 $1,097 
Recognized as:
Other Assets$3,601 $1,968 
Deferred Income Taxes $1,387  $871 
The Company has net operating loss (NOL) carryforwards in several jurisdictions. As of December 31, 2024, $324 million of deferred tax assets on NOL carryforwards relate to foreign jurisdictions. Valuation allowances of $264 million have been established on these foreign NOL carryforwards and other foreign deferred tax assets. In addition, the Company has $586 million of deferred tax assets relating to various U.S. tax credit carryforwards and NOL carryforwards. Valuation allowances of $446 million have been established on these U.S. tax credit carryforwards and NOL carryforwards.
Income taxes paid in 2024, 2023 and 2022 consisted of:
Years Ended December 31202420232022
Domestic (1)
$974 $2,258 $1,891 
Foreign2,954 2,080 1,348 
 $3,928 $4,338 $3,239 
(1)    Includes TCJA transition tax payments.
Tax benefits relating to stock option exercises were $26 million in 2024, $12 million in 2023 and $45 million in 2022.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
202420232022
Balance January 1$2,384 $1,835 $1,529 
Additions related to current year positions421 553 344 
Additions related to prior year positions35 91 48 
Reductions for tax positions of prior years
(33)(20)(40)
Settlements
(18)(23)(6)
Lapse of statute of limitations (1)
(528)(52)(40)
Balance December 31$2,261 $2,384 $1,835 
(1)    Amount in 2024 reflects a reduction of $451 million resulting from the expiration of the statute of limitations related to the 2019 and 2020 federal tax return years.
If the Company were to recognize the unrecognized tax benefits of $2.3 billion at December 31, 2024, the income tax provision would reflect a favorable net impact of $2.2 billion.
The Company is under examination by numerous tax authorities in various jurisdictions globally. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits as of December 31, 2024 could decrease by up to approximately $22 million in the next 12 months as a result of various audit closures, settlements or the expiration of the statute of limitations. The ultimate finalization of the Company’s examinations with relevant taxing authorities can include formal administrative and legal proceedings, which could have a significant impact on the timing of the reversal of unrecognized tax benefits. The Company believes that its reserves for uncertain tax positions are adequate to cover existing risks or exposures.
Interest and penalties associated with uncertain tax positions amounted to an expense of $51 million in 2024, $131 million in 2023 and $54 million in 2022. These amounts reflect the beneficial impacts of various tax settlements. Liabilities for accrued interest and penalties were $437 million and $388 million as of December 31, 2024 and 2023, respectively.
In 2024, the Company recorded a benefit of $519 million due to a reduction in reserves for unrecognized income tax benefits resulting from the expiration in 2024 of the statute of limitations for assessments related to the 2019 and 2020 federal tax return years. The Internal Revenue Service (IRS) is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018, including the one-time transition tax enacted under the TCJA. If the IRS disagrees with the Company’s transition tax position, it may result in a significant tax liability. The IRS is also currently conducting examinations of the Company’s tax returns for the years 2021 and 2022. In addition, various state and foreign tax examinations are in progress and for these jurisdictions, the Company’s income tax returns are open for examination for the period 2009 through 2024.