v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. Deferred taxes related to global intangible low-taxed income (GILTI) are also recognized for the future tax effects of temporary differences.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position, based on its technical merits, will be sustained upon examination by the taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.
Following is the composition of income tax expense:
202520242023
Current:
Domestic
$4,639 $3,343 $3,042 
Foreign2,159 1,430 613 
Total current tax expense
6,798 4,773 3,655 
Deferred:
Domestic
(1,149)(2,210)(2,375)
Foreign(558)(473)34 
Total deferred tax benefit(1,707)(2,683)(2,341)
Income taxes$5,091 $2,090 $1,314 
Cash payments of U.S. federal, state, and foreign income taxes, net of refunds, were as follows:
202520242023
Cash payments of income taxes(1)
$10,814 $6,562 $5,559 
(1) 2025 included U.S. federal cash payments of $3.3 billion and cash payments to Ireland of $6.6 billion.
Cash payments of income taxes increased $4.3 billion in 2025 compared with 2024, driven primarily by a $4.2 billion increase in Ireland resulting from higher production activity to meet growing global demand for our medicines and a prior year tax payment. U.S. federal cash payments decreased from $3.8 billion in 2024 to $3.3 billion in 2025, driven primarily by immediate deductibility of U.S. research and development expenses, a prior year tax refund, and accelerated depreciation on U.S. capital investments, partially offset by higher U.S. income. Refer to the composition of income tax expense above regarding current income tax expense on current-year income.
At December 31, 2025 and 2024, prepaid expenses included prepaid taxes of $12.9 billion and $7.1 billion, respectively. Prepaid taxes largely reflect taxes paid on intercompany profit not yet recognized, primarily related to Ireland.
As of December 31, 2025, we have long-term income taxes payables of $1.1 billion that we expect to pay in 2027 and $4.8 billion that we cannot reasonably estimate the timing of future cash outflows.
Following is a reconciliation of the consolidated income tax expense applying the U.S. federal statutory rate to income before income taxes to the reported consolidated income tax expense for 2025:
2025
Amount(1)
Percent
U.S. federal statutory tax rate$5,404 21.0 %
Foreign tax effects:
Ireland
Statutory tax rate difference between Ireland and the U.S.(346)(1.3)%
Other269 1.0 %
Other foreign jurisdictions(53)(0.2)%
Effect of cross-border tax laws(2)
Foreign-derived intangible income
(334)(1.3)%
Other(149)(0.5)%
Tax credits
(327)(1.3)%
Nontaxable or nondeductible items:
Non-deductible acquired IPR&D(3)
442 1.7 %
Other(121)(0.5)%
Other adjustments(4)
306 1.2 %
Income taxes$5,091 19.8 %
(1) Unrecognized tax benefits related to the current year are presented on a net basis in the category where the tax position is presented.
(2) The effect of cross-border tax laws includes the tax effects of both the cross-border tax and the related foreign tax credit allowed.
(3) Non-deductible acquired IPR&D was primarily related to the acquisitions of Scorpion and SiteOne in 2025. See Note 4 for additional information related to acquisitions.
(4) Other adjustments include individually immaterial amounts for effects of changes in tax laws or rates enacted in the current period, changes in unrecognized tax benefits related to prior years, state and local income tax, and changes in valuation allowances.
Our effective tax rate was 19.8 percent in 2025 compared with an effective tax rate of 16.5 percent in 2024, primarily driven by unfavorable impacts related to the jurisdictional mix of earnings and U.S. tax law changes (OBBBA) in 2025. The effective tax rates for both periods were unfavorably impacted by non-deductible acquired IPR&D charges, with a larger impact occurring in 2024.
In July 2025, the OBBBA, which implemented certain U.S. tax law changes, was enacted into law. The OBBBA modified and made permanent several provisions of the Tax Cuts and Jobs Act, including reductions in scheduled increases for the rate of taxation of foreign income, immediate deductibility of U.S. research and development expenses, and reinstatement of 100 percent bonus depreciation for capital assets.
Following is a reconciliation of the consolidated income tax expense applying the U.S. federal statutory rate to income before income taxes to the reported consolidated income tax expense for 2024 and 2023:
20242023
Income tax at the U.S. federal statutory tax rate$2,663 $1,377 
Non-deductible acquired IPR&D(1)
566 677 
Foreign-derived intangible income
(307)(237)
International operations, including Puerto Rico(2)
(302)(187)
General business credits(291)(258)
Other(239)(58)
Income taxes$2,090 $1,314 
(1) Non-deductible acquired IPR&D was primarily related to the acquisitions of Morphic in 2024, and DICE, Versanis, and Emergence in 2023. See Note 4 for additional information related to acquisitions.
(2) Includes the impact of GILTI tax and other U.S. taxation of foreign income.
Domestic and Puerto Rican companies contributed approximately 54 percent, 20 percent, and 14 percent for the years ended December 31, 2025, 2024, and 2023, respectively, to consolidated income before income taxes.
Significant components of our deferred tax assets and liabilities as of December 31 were as follows:
20252024
Deferred tax assets:
Capitalized research and development$4,518 $4,599 
Sales rebates and discounts2,779 1,776 
Correlative tax adjustments2,392 1,604 
Purchases of intangible assets1,721 1,781 
Tax loss and other tax carryforwards
911 587 
Inventories
711 — 
Tax credit carryforwards649 577 
Compensation and benefits556 565 
Foreign tax redeterminations367 335 
Other1,004 599 
Total gross deferred tax assets15,608 12,423 
Valuation allowances(1,223)(964)
Total deferred tax assets14,385 11,459 
Deferred tax liabilities:
Earnings of foreign subsidiaries(1,291)(773)
Intangibles(1,258)(1,176)
Property and equipment(907)(558)
Prepaid employee benefits(707)(611)
Other
(381)(414)
Total deferred tax liabilities(4,544)(3,532)
Deferred tax assets, net
$9,841 $7,927 
The deferred tax asset and related valuation allowance amounts for U.S. federal, international, and state net operating losses and tax credits shown above have been reduced for differences between financial reporting and tax return filings.
At December 31, 2025, based on filed tax returns we have tax credit carryforwards and carrybacks of $1.4 billion available to reduce future income taxes; $253 million will expire if unused. The remaining portion of the tax credit carryforwards are fully reserved and primarily related to state tax credits of $899 million.
At December 31, 2025, based on filed tax returns we have net operating losses and other carryforwards for U.S. federal and international tax purposes of $2.9 billion available to reduce future income taxes; $1.6 billion will never expire. The remaining portion of the U.S. federal and international net operating losses and other carryforwards are substantially reserved. Deferred tax assets related to state net operating losses and other carryforwards of $357 million are fully reserved as of December 31, 2025.
Substantially all of the unremitted earnings of our foreign subsidiaries are considered not to be indefinitely reinvested for continued use in our foreign operations. At December 31, 2025 and 2024, we accrued an immaterial amount of U.S. federal tax, foreign withholding taxes, and state income tax that would be owed upon future distributions of unremitted earnings of our foreign subsidiaries that are not indefinitely reinvested. For the amount considered to be indefinitely reinvested, it is not practicable to determine the amount of the related deferred income tax liability due to the complexities in the tax laws and assumptions we would have to make.
Following is a reconciliation of the beginning and ending amount of gross unrecognized tax benefits:
202520242023
Beginning balance at January 1$3,976 $3,395 $2,987 
Additions based on tax positions related to the current year1,020 694 364 
Other adjustments(1)
86 (113)44 
Ending balance at December 31$5,082 $3,976 $3,395 
(1) Other adjustments include individually immaterial changes related to prior-year positions, settlements, lapses of statutes of limitation, and foreign currency translation impacts.
The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $3.2 billion and $2.6 billion at December 31, 2025 and 2024, respectively.
We file U.S. federal, foreign, and various state and local income tax returns. We are no longer subject to U.S. federal income tax examination for years before 2016. In most major foreign and state jurisdictions, we are no longer subject to income tax examination for years before 2015.
The U.S. examination of tax years 2019-2021 remains ongoing. For tax years 2016-2018, we are pursuing competent authority assistance through the Mutual Agreement Procedure (MAP) process for the pricing of certain intercompany transactions. The resolution of both examination periods will likely extend beyond the next 12 months.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense and were not material for the years ended December 31, 2025, 2024, and 2023. Our accrued interest and penalties related to unrecognized tax benefits were $798 million and $594 million at December 31, 2025 and 2024, respectively.