Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We use an asset-and-liability approach to account for income taxes. Our objective is to recognize the amount of taxes payable or refundable for the current year through charges or credits to the current tax provision, and to recognize deferred tax assets and liabilities for future tax consequences of temporary differences between amounts reported in our consolidated financial statements and their respective tax bases. The measurement of tax assets and liabilities is based on enacted tax laws and applicable tax rates. The effects of a tax position on our consolidated financial statements are recognized when we believe it is more likely than not that the position will be sustained. A valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.

The following table presents the components of income tax expense (benefit) for the periods indicated:

	Years Ended December 31,
(In millions)	2024		2023		2022
Current:
Federal	$	108	$	160	$	161
State	68		79		112
Non-U.S.	387		317		342
Total current expense	563		556		615
Deferred:
Federal	77		(77)		(16)
State	2		(63)		(2)
Non-U.S.	66		(44)		(44)
Total deferred expense (benefit)	145		(184)		(62)
Total income tax expense (benefit)	$	708	$	372	$	553

The following table presents a reconciliation of the U.S. statutory income tax rate to our effective tax rate based on income before income tax expense for the periods indicated:

	Years Ended December 31,
	2024		2023		2022
U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
Changes from statutory rate:
State taxes, net of federal benefit	1.8		2.4		3.1
Tax-exempt income	(1.0)		(1.5)		(1.0)
Business tax credits(1)	(2.0)		(3.6)		(4.0)
Foreign tax differential	1.0		(0.6)		—
Foreign tax credit (benefits)/ limitations(2)	0.6		(2.0)		(0.1)
Change in Valuation Allowance	(0.5)		(0.2)		(2.0)
Other, net	(0.1)		0.6		(0.4)
Effective tax rate	20.8	%	16.1	%	16.6	%

(1) Business tax credits include research, low-income housing, production and investment tax credits.

(2) Foreign tax credit (benefits)/limitations includes the period expense for global intangible low-taxed income.

Undistributed indefinitely reinvested earnings of certain foreign subsidiaries amounted to approximately $8.38 billion at December 31, 2024. As a result, no provision has been recorded for state and local or foreign withholding income taxes. If a distribution were to occur, we would be subject to state, local and to foreign withholding tax. It is expected that any distribution will be exempt from federal income tax. Although the foreign withholding tax is generally creditable against U.S. federal income tax, certain credit utilization limitations may result in a net cost.

The following table presents significant components of our gross deferred tax assets and gross deferred tax liabilities as of the dates indicated:

	December 31,
(In millions)	2024		2023
Deferred tax assets:
Other amortizable assets	$	189	$	265
Tax credit carryforwards	577		673
Lease obligations	214		236
Deferred compensation	111		104
Restructuring charges and other reserves	227		224
NOL and other carryforwards	147		167
Pension plan	21		24
Foreign currency translation	63		51
Unrealized losses on investment securities, net	184		352
Total deferred tax assets	1,733		2,096
Valuation allowance for deferred tax assets	(172)		(200)
Deferred tax assets, net of valuation allowance	$	1,561	$	1,896
Deferred tax liabilities:
Fixed and intangible assets	$	634	$	574
Investment basis differences	47		40
Right-of-use Assets	198		214
Other	40		68
Total deferred tax liabilities	$	919	$	896

The table below summarizes the deferred tax assets, carryforwards and related valuation allowances recognized as of December 31, 2024:

(In millions)	Deferred Tax Asset		Valuation Allowance		Expiration
Other amortizable assets	$	189	$	(72)	None
Tax credits	577		(8)		2042-2044
NOLs - Non-U.S.	130		(80)		2026-2042, None
NOLs - U.S.	14		(10)		2025-2043, None
Other carryforwards	2		(2)		None

Management considers the valuation allowance adequate to reduce the total deferred tax assets to an aggregate amount that will more likely than not be realized. Management has determined that a valuation allowance is not required for the remaining deferred tax assets because it is more likely than not that there will be sufficient taxable income of the appropriate nature within the carryforward periods to realize these assets.

At December 31, 2024, 2023 and 2022, the gross unrecognized tax benefits, excluding interest, were $237 million, $237 million and $285 million, respectively. Of this, the amounts that would reduce the effective tax rate, if recognized, are $220 million, $197 million and $272 million, respectively. The reduction in the effective tax rate includes the federal benefit for unrecognized state tax benefits.

The following table presents activity related to unrecognized tax benefits as of the dates indicated:

	December 31,
(In millions)	2024		2023		2022
Beginning balance	$	237	$	285	$	252
Decrease related to agreements with tax authorities	(22)		(32)		(4)
Increase related to tax positions taken during current year	36		39		48
Increase/(Decrease) related to tax positions taken during prior years	11		(34)		8
Decreases related to a lapse of the applicable statute of limitations	(25)		(21)		(19)
Ending balance	$	237	$	237	$	285

It is reasonably possible that of the $237 million of unrecognized tax benefits as of December 31, 2024, up to $37 million could decrease within the next 12 months due to agreements with tax authorities and the expiration of statutes of limitations. Management believes that we have sufficient accrued liabilities as of December 31, 2024 for tax exposures and related interest expense.

Income tax expense included related interest and penalties of approximately $8 million, $7 million and $8 million in 2024, 2023 and 2022, respectively. Total accrued interest and penalties were approximately $21 million as of both December 31, 2024 and 2023, and $15 million as of December 31, 2022.