Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The components of income tax expense for the years ended December 31 included in the Consolidated Statements of Income were as follows:

TABLE 20.1: COMPONENTS OF INCOME TAX EXPENSE

(Millions)	2024		2023		2022
Current income tax expense:
U.S. federal	$	2,368	$	2,455	$	2,445
U.S. state and local	494		351		339
Non-U.S.	894		662		476
Total current income tax expense	3,756		3,468		3,260
Deferred income tax (benefit) expense:
U.S. federal	(797)		(952)		(763)
U.S. state and local	(146)		(139)		(117)
Non-U.S.	(47)		(238)		(309)
Total deferred income tax (benefit) expense	(990)		(1,329)		(1,189)
Total income tax expense	$	2,766	$	2,139	$	2,071

A reconciliation of the U.S. federal statutory rate of 21 percent as of December 31, 2024, 2023 and 2022, to our actual income tax rate was as follows:

TABLE 20.2: RECONCILIATION OF ACTUAL INCOME TAX RATE

	2024		2023		2022
U.S. statutory federal income tax rate	21.0	%	21.0	%	21.0	%
(Decrease) increase in taxes resulting from:
Tax credits and tax-exempt income	(0.7)		(0.7)		(0.9)
State and local income taxes, net of federal benefit	2.5		2.4		3.1
Non-U.S. subsidiaries’ earnings (a)	(1.0)		(0.8)		(0.1)
Tax settlements and lapse of statute of limitations	(0.5)		(2.0)		(2.1)
Valuation allowances	—		0.1		(0.1)
Other	0.2		0.3		0.7
Actual tax rates	21.5	%	20.3	%	21.6	%

(a)In certain jurisdictions outside the United States, we benefit from agreements that temporarily lower our income tax expense. The impact of these agreements was not material to our Consolidated Statements of Income.

We record a deferred income tax (benefit) provision when there are differences between assets and liabilities measured for financial reporting and for income tax return purposes. These temporary differences result in taxable or deductible amounts in future years and are measured using the tax rates and laws that will be in effect when such differences are expected to reverse.

The significant components of deferred tax assets and liabilities as of December 31 are reflected in the following table:

TABLE 20.3: COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES

(Millions)	2024		2023
Deferred tax assets:
Reserves not yet deducted for tax purposes	$	4,950	$	4,552
Employee compensation and benefits	343		335
Net operating loss and tax credit carryforwards	464		466
Capitalized developed software	1,084		743
Other	853		723
Gross deferred tax assets	7,694		6,819
Valuation allowance	(655)		(614)
Deferred tax assets after valuation allowance	7,039		6,205
Deferred tax liabilities:
Intangibles and fixed assets	673		683
Deferred revenue	—		62
Deferred interest	113		114
Other	579		566
Gross deferred tax liabilities	1,365		1,425
Net deferred tax assets	$	5,674	$	4,780

The net operating loss and tax credit carryforward balance as of December 31, 2024, shown in the table above, is related to pre-tax U.S. federal and non-U.S. net operating loss (NOL) carryforwards of $10 million and $1.2 billion, respectively, and foreign tax credit (FTC) carryforwards of $137 million. If not utilized, certain U.S. federal and non-U.S. NOL carryforwards will expire between 2025 and 2032, whereas others have an unlimited carryforward period. The FTC carryforwards will expire between 2029 and 2034.

A valuation allowance is established when management determines that it is more likely than not that all or some portion of the benefit of the deferred tax assets will not be realized. The valuation allowances for both periods presented above are associated with certain non-U.S. deferred tax assets, state NOLs, and FTC carryforwards.

Accumulated earnings of certain non-U.S. subsidiaries, which totaled approximately $1.2 billion as of December 31, 2024, are intended to be permanently reinvested outside the U.S. We do not provide for state income and foreign withholding taxes on foreign earnings intended to be permanently reinvested outside the U.S. Accordingly, state income and foreign withholding taxes, which would have aggregated to approximately $0.1 billion as of December 31, 2024, have not been provided on those earnings.

Net income taxes paid by us during 2024, 2023 and 2022, were approximately $3.6 billion, $3.3 billion and $3.0 billion, respectively. These amounts include estimated tax payments and cash settlements relating to prior tax years.

We are subject to the income tax laws of the United States, its states and municipalities and those of the foreign jurisdictions in which we operate. These tax laws are complex, and the manner in which they apply to the taxpayer’s facts is sometimes open to interpretation. Given these inherent complexities, we must make judgments in assessing the likelihood that a tax position will be sustained upon examination by the taxing authorities based on the technical merits of the tax position. A tax position is recognized only when, based on management’s judgment regarding the application of income tax laws, it is more likely than not that the tax position will be sustained upon examination. The amount of benefit recognized for financial reporting purposes is based on management’s best judgment of the largest amount of benefit that is more likely than not to be realized on ultimate settlement with the taxing authority given the facts, circumstances and information available at the reporting date. We adjust the level of unrecognized tax benefits when there is new information available to assess the likelihood of the outcome.

We are under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which we have significant business operations. The tax years under examination and open for examination vary by jurisdiction. We are currently under examination by the IRS for the 2017 and 2018 tax years.

In December 2024, we received a Notice of Proposed Adjustment (Notice) from the IRS regarding transfer pricing between our U.S. and foreign subsidiaries for the 2017 and 2018 tax years currently under examination. The Notice proposes an increase to our U.S. taxable income that would result in an additional estimated U.S. federal income tax payment of approximately $185 million for 2017 and 2018, excluding interest and state income taxes, and asserts penalties of approximately $50 million for the same period. Although the Notice only applies to the 2017 and 2018 tax years currently under examination, the IRS may seek similar adjustments for subsequent tax years.

We strongly disagree with the IRS’s positions and plan to pursue all available remedies to vigorously contest the adjustments made by the IRS. We believe our income tax reserves are appropriate for all open tax years and that final resolution of this matter will not have a material impact on our results of operations. However, the ultimate outcome of this matter is uncertain, and if we are required to pay the IRS additional U.S. taxes, interest and/or potential penalties, our results of operations could be materially affected for the period in which the matter is resolved.

The following table presents changes in unrecognized tax benefits:

TABLE 20.4: ROLLFORWARD OF UNRECOGNIZED TAX BENEFITS

(Millions)	2024		2023		2022
Balance, January 1	$	875	$	962	$	1,024
Increases:
Current year tax positions	161		132		119
Tax positions related to prior years	47		40		30
Decreases:
Tax positions related to prior years	(4)		(50)		(30)
Settlements with tax authorities	(39)		(160)		(74)
Lapse of statute of limitations	(21)		(49)		(104)
Effects of foreign currency translations	(13)		—		(3)
Balance, December 31	$	1,006	$	875	$	962

Included in the unrecognized tax benefits of $1.0 billion, $0.9 billion and $1.0 billion for December 31, 2024, 2023 and 2022, respectively, are approximately $780 million, $670 million and $750 million, respectively, that, if recognized, would favorably affect the effective tax rate in a future period.

We believe it is reasonably possible that our unrecognized tax benefits could decrease within the next twelve months by as much as $107 million, principally as a result of potential resolutions of prior years’ tax items with various taxing authorities. The prior years’ tax items include unrecognized tax benefits relating to the deductibility of certain expenses or losses and the attribution of taxable income to a particular jurisdiction or jurisdictions. Of the $107 million of unrecognized tax benefits, approximately $84 million relates to amounts that, if recognized, would impact the effective tax rate in a future period.

Interest and penalties relating to unrecognized tax benefits are reported in the income tax provision. For the years ended December 31, 2024, 2023 and 2022, we recognized approximately $110 million, $30 million and $10 million, respectively, in expenses for interest and penalties.

We had approximately $500 million and $410 million accrued for the payment of interest and penalties as of December 31, 2024 and 2023, respectively.