Income Taxes

3 Months Ended

Mar. 31, 2025

Income Taxes

Income Taxes

4.    Income Taxes

Our effective income tax rate was 19.2% and 18.6% for the three months ended March 31, 2025 and 2024, respectively. The increase in our effective income tax rate when comparing the three months ended March 31, 2025 and 2024 was primarily driven by the timing of amortization resulting from our investment in low-income housing investments offset, in part, by federal tax credits. We evaluate our effective income tax rate at each interim period and adjust it as facts and circumstances warrant.

Investments Qualifying for Federal Tax Credits 

Renewable Natural Gas — Through our subsidiaries, including our WM Renewable Energy segment, we have invested in building landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and RNG. We expect our new RNG facilities to qualify for federal tax credits and to realize those credits through 2026 under Section 48 of the Internal Revenue Code.

During the three months ended March 31, 2025 and 2024, we recognized a reduction in our income tax expense of $46 million and $37 million, respectively due to federal tax credits expected to be realized from our RNG investments.

Low-Income Housing — We have significant financial interests in entities established to invest in and manage low-income housing properties. We support the operations of these entities in exchange for a pro-rata share of the tax credits they generate. The low-income housing investments qualify for federal tax credits that we expect to realize through 2036 under Section 42 or Section 45D of the Internal Revenue Code.

Under the proportional amortization method, the equity investment is amortized in proportion to the income tax credits and other income tax benefits received. The amortization expense and the income tax credits are required to be presented on a net basis in income tax expense on the Condensed Consolidated Statements of Operations.

During the three months ended March 31, 2025, we recognized income tax expense of $20 million related to amortization under ASU 2023-02 and a reduction in our income tax expense of $27 million primarily due to federal tax credits realized from these investments. In addition, during the three months ended March 31, 2025, we recognized interest expense of $9 million associated with our investments in low-income housing properties.

During the three months ended March 31, 2024, we recognized $20 million of net losses and a reduction in our income tax expense of $28 million primarily due to federal tax credits realized from these investments. In addition, during the three months ended March 31, 2024, we recognized interest expense of $6 million associated with our investments in low-income housing properties.

See Note 12 for additional information related to these unconsolidated variable interest entities.