Income Taxes

12 Months Ended

Dec. 31, 2025

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

In December 2023, the Financial Accounting Standards Board issued updated accounting guidance on disclosure for income taxes which the Company adopted prospectively as of January 1, 2025. Refer to Note 1 for additional information.

As required under the updated guidance, the components of pretax income for the year ended December 31, 2025 included in the Consolidated Statements of Income were as follows:

TABLE 19.1: COMPONENTS OF PRETAX INCOME

(Millions)	2025
Income (loss) from continuing operations before income tax expense (benefit):
U.S.	$	8,302
Non-U.S.	5,493
Total	$	13,795

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

TABLE 19.2: COMPONENTS OF INCOME TAX EXPENSE

(Millions)	2025		2024		2023
Current income tax expense:
U.S. federal	$	1,735	$	2,368	$	2,455
U.S. state and local	497		494		351
Non-U.S.	1,272		894		662
Total current income tax expense	3,504		3,756		3,468
Deferred income tax (benefit) expense:
U.S. federal	(328)		(797)		(952)
U.S. state and local	(120)		(146)		(139)
Non-U.S.	(95)		(47)		(238)
Total deferred income tax (benefit) expense	(542)		(990)		(1,329)
Total income tax expense	$	2,962	$	2,766	$	2,139

A reconciliation of the U.S. federal statutory rate of 21 percent to our actual income tax rate as of December 31, 2025, prepared under the updated guidance was as follows:

TABLE 19.3: RECONCILIATION OF ACTUAL INCOME TAX RATE FOR 2025

	2025
(Millions, except percentages)	$		%
U.S. statutory federal income tax rate	$	2,897	21.0	%
(Decrease) increase in taxes resulting from:
State and local income taxes, net of federal benefit (a)	265		1.9
Foreign tax effects:
Jersey – Statutory tax rate differential	(423)		(3.1)
Jersey – Multinational corporate income tax & other	182		1.3
Other foreign jurisdictions (b)	148		1.1
Effect of cross-border tax laws	(42)		(0.3)
Tax credits	(146)		(1.0)
Changes in valuation allowances	22		0.2
Non-taxable or non-deductible items	(9)		(0.1)
Changes in unrecognized tax benefits	69		0.5
Actual tax rates	$	2,962	21.5	%

(a)State and local income taxes in California, New York, New York City and Florida comprise the majority of the state and local income taxes, net of federal benefit as of December 31, 2025.

(b)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.

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

TABLE 19.4: RECONCILIATION OF ACTUAL INCOME TAX RATE FOR 2024 AND 2023

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

(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, 2025 and 2024 are reflected in the following table:

TABLE 19.5: COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES

(Millions)	2025		2024
Deferred tax assets:
Reserves not yet deducted for tax purposes	$	5,529	$	4,950
Employee compensation and benefits	443		343
Net operating loss and tax credit carryforwards	511		464
Capitalized developed software	995		1,084
Other	952		853
Gross deferred tax assets	8,430		7,694
Valuation allowance	(718)		(655)
Deferred tax assets after valuation allowance	7,712		7,039
Deferred tax liabilities:
Intangibles and fixed assets	733		673
Deferred interest	112		113
Other	606		579
Gross deferred tax liabilities	1,451		1,365
Net deferred tax assets	$	6,261	$	5,674

The net operating loss and tax credit carryforward balance as of December 31, 2025, shown in the table above, is related to pre-tax U.S. federal and non-U.S. net operating loss (NOL) carryforwards of $70 million and $1.2 billion, respectively, and foreign tax credit (FTC) carryforwards of $160 million. If not utilized, certain U.S. federal and non-U.S. NOL carryforwards will expire between 2026 and 2032, whereas others have an unlimited carryforward period. The FTC carryforwards will expire between 2029 and 2035.

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 $1.7 billion as of December 31, 2025, are intended to be permanently reinvested outside the United States. We do not provide for state income and foreign withholding taxes on foreign earnings intended to be permanently reinvested outside the United States. Accordingly, state income and foreign withholding taxes, which would have aggregated to approximately $0.2 billion as of December 31, 2025, have not been provided on those earnings.

As required under the updated guidance, the income taxes paid (net of refunds received) disaggregated by jurisdictional categories (U.S. federal, U.S. state and non-U.S.) for the year ended December 31, 2025 were as follows:

TABLE 19.6: INCOME TAXES PAID

(Millions)	2025
Income taxes paid by jurisdiction:
U.S. federal	1,833
U.S. state and local	452
Non-U.S.
Mexico	226
Other	685
Total	3,195

Net income taxes paid by us during 2024 and 2023 were approximately $3.6 billion and $3.3 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 19.7: ROLLFORWARD OF UNRECOGNIZED TAX BENEFITS

(Millions)	2025		2024		2023
Balance, January 1	$	1,006	$	875	$	962
Increases:
Current year tax positions	153		161		132
Tax positions related to prior years	46		47		40
Effects of foreign currency translations	13		—		—
Decreases:
Tax positions related to prior years	(12)		(4)		(50)
Settlements with tax authorities	(85)		(39)		(160)
Lapse of statute of limitations	(18)		(21)		(49)
Effects of foreign currency translations	—		(13)		—
Balance, December 31	$	1,102	$	1,006	$	875

Included in the unrecognized tax benefits of $1.1 billion, $1.0 billion and $0.9 billion for December 31, 2025, 2024 and 2023, respectively, are approximately $840 million, $780 million and $670 million, respectively, that, if recognized, would favorably affect 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, 2025, 2024 and 2023, we recognized approximately $120 million, $110 million and $30 million, respectively, in expenses for interest and penalties.

We had approximately $640 million and $500 million accrued for the payment of interest and penalties as of December 31, 2025 and 2024, respectively.