v3.25.4
Income taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
Income before income taxes included the following (in millions):
Years ended December 31,
202520242023
Domestic$8,220 $4,040 $4,047 
Foreign756 569 3,808 
Total income before income taxes$8,976 $4,609 $7,855 
The provision for income taxes included the following (in millions):
Years ended December 31,
202520242023
Current provision:
Federal$959 $965 $1,524 
State35 33 43 
Foreign971 759 786 
Total current provision1,965 1,757 2,353 
Deferred benefit:
Federal(465)(860)(1,124)
State7 (18)(25)
Foreign(242)(360)(66)
Total deferred benefit(700)(1,238)(1,215)
Total provision for income taxes$1,265 $519 $1,138 
Deferred income taxes reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax credit carryforwards and the tax effects of NOL carryforwards. As of December 31, 2022, we elected to establish deferred taxes with respect to the U.S. tax on the earnings of our foreign subsidiaries for the reversal of temporary items in future years. Significant components of our deferred tax assets and liabilities were as follows (in millions):
December 31,
20252024
Deferred income tax assets:
NOL and credit carryforwards$1,368 $1,352 
Accrued expenses890 693 
Capitalized research and development expenses1,655 1,762 
Investments— 1 
Expenses capitalized for tax218 200 
Earnings of foreign subsidiaries2,305 1,496 
Stock-based compensation138 130 
Other349 361 
Total deferred income tax assets6,923 5,995 
Valuation allowance(1,299)(1,019)
Net deferred income tax assets5,624 4,976 
Deferred income tax liabilities:
Acquired intangible assets(2,065)(2,573)
Debt(260)(264)
Fixed assets(192)(143)
Fair value of acquired inventory
(28)(114)
Investments
(422)— 
Other(271)(244)
Total deferred income tax liabilities(3,238)(3,338)
Total deferred income taxes, net$2,386 $1,638 
The Company has determined that unremitted foreign earnings are not considered indefinitely reinvested to the extent foreign earnings can be distributed without a significant tax cost.
Valuation allowances are provided to reduce the amounts of our deferred tax assets to an amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts.
The valuation allowance increased in 2025, primarily driven by the Company’s expectation that certain foreign amortization deductions are expected to expire unutilized.
As of December 31, 2025, we had $109 million of federal tax credit carryforwards available to reduce future federal income taxes and have provided a $31 million valuation allowance on those federal tax credit carryforwards. The federal tax credit carryforwards expire between 2032 and 2041. We had $1.3 billion of state tax credit carryforwards available to reduce future state income taxes and have provided a valuation allowance for $1.2 billion of those state tax credit carryforwards. We had $148 million of tax credit carryforwards related to our foreign jurisdictions available to offset future foreign income taxes for which we have provided a $123 million valuation allowance.
As of December 31, 2025, we had $34 million of federal NOL carryforwards available to reduce future federal income taxes and have provided no valuation allowance on those federal NOL carryforwards. Additionally, $12 million of those federal NOL carryforwards have no expiration; the remainder begin to expire between 2027 and 2033. We had $971 million of state NOL carryforwards available to reduce future state income taxes and have provided a valuation allowance for $836 million of those state NOL carryforwards. We had $1.4 billion of foreign NOL carryforwards available to reduce future foreign income
taxes and have provided a valuation allowance for $239 million of those foreign NOL carryforwards. For the foreign NOLs with no valuation allowance provided, $120 million have no expiration; and the remainder will expire between 2026 and 2034.
The reconciliations of the total gross amounts of UTBs were as follows (in millions):
Years ended December 31,
202520242023
Beginning balance$4,184 $4,012 $3,770 
Additions based on tax positions related to the current year190 188 196 
Additions based on tax positions related to prior years14 9 56 
Reductions for tax positions of prior years(13)(12)— 
Reductions for expiration of statute of limitations— (9)(4)
Settlements (4)(4)(6)
Ending balance$4,371 $4,184 $4,012 
Substantially all of the UTBs as of December 31, 2025, if recognized, would affect our effective tax rate. As a result, we remeasured our UTBs accordingly.
Interest and penalties related to UTBs are included in our provision for income taxes. During the years ended December 31, 2025, 2024 and 2023, we recognized $264 million, $282 million and $287 million, respectively, of interest and penalties through the income tax provision in the Consolidated Statements of Income. The decrease in interest expense for the year ended December 31, 2025, was primarily due to lower interest rates in 2025 compared to those in 2024. As of December 31, 2025 and 2024, accrued interest and penalties associated with UTBs were $1.9 billion and $1.6 billion, respectively.
The reconciliations between the federal statutory tax rate applied to income before income taxes and our effective tax rate for 2025 were as follows (in millions, except percentages):
Year ended December 31, 2025
Tax Effect
Effective Tax Rate
Federal statutory tax rate
$1,885 21.0 %
Foreign tax effects:
Ireland:
Tax rate differential
316 3.5 %
Valuation allowance
119 1.3 %
Other
22 0.2 %
Puerto Rico:
Tax rate differential
469 5.2 %
Act 52 - withholding tax
456 5.1 %
Act 52 - income tax
(968)(10.8)%
Singapore:
Tax incentive grant
(122)(1.4)%
Pillar Two minimum tax147 1.6 %
Other
(29)(0.3)%
Other foreign jurisdictions
199 2.2 %
Effect of cross-border tax laws:
U.S. tax on foreign subsidiaries (net of credits and deferred taxes)
(545)(6.0)%
Foreign-derived intangible income
(222)(2.5)%
Other
(18)(0.2)%
Tax credits:
Credit on foreign taxes imposed on U.S. income
(456)(5.0)%
Research and development tax credits
(272)(3.0)%
Other adjustments
86 1.0 %
Changes in unrecognized tax benefits (primarily interest)
198 2.2 %
Effective tax rate
$1,265 14.1 %
The reconciliations between the federal statutory tax rate applied to income before income taxes and our effective tax rate for 2024 and 2023 were as follows:
Years ended December 31,
20242023
Federal statutory tax rate21.0 %21.0 %
Foreign earnings(5.8)%(5.1)%
Foreign-derived intangible income(3.0)%(1.3)%
Credits, Puerto Rico excise tax— %0.3 %
Interest on uncertain tax positions4.2 %2.6 %
Credits, primarily federal R&D(5.4)%(3.5)%
Other, net0.3 %0.5 %
Effective tax rate11.3 %14.5 %
The effective tax rates for the years ended December 31, 2025, 2024 and 2023, differ from the federal statutory rate primarily due to impacts of the jurisdictional mix of income and expenses. Substantially all of the benefit to our effective tax rate from foreign earnings results from locations in which the Company has significant manufacturing operations, including Singapore, Ireland and Puerto Rico, a territory of the United States that is treated as a foreign jurisdiction for U.S. tax purposes. Our operations in Puerto Rico are subject to tax incentive grants through 2050 and the Company’s operations in Singapore are
subject to a tax incentive grant through 2036. Effective January 1, 2024, selected individual countries, including the United Kingdom and EU member countries, have enacted the global minimum tax agreement. Additional countries, including Singapore, enacted the minimum tax agreement effective January 1, 2025. Singapore’s enactment of the agreement applies irrespective of the Company’s incentive grant. Due to the currently enacted scope of the agreement, the Company and its subsidiaries are now subject to a 15% minimum tax rate on adjusted financial statement income. Our foreign earnings are also subject to U.S. tax at a reduced rate of 10.5%.
Income taxes paid (net of refunds received) included the following (in millions):
Year ended December 31, 2025
U.S. payments (federal and state)$3,390 
Puerto Rico payments610 
Other foreign payments300 
Total income taxes paid (net of refunds received)$4,300 
Income taxes paid (net of refunds received) during the years ended December 31, 2024 and 2023, were $2.9 billion and $3.4 billion, respectively.
On July 4, 2025, OB3 was enacted in the United States. OB3 has various provisions, including the permanent extension of certain expiring provisions of the 2017 Tax Act, and modifications to the international tax framework. The legislation has multiple effective dates, with certain provisions effective in 2026 and beyond. The impact of these changes was recorded in 2025.
One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely examined by tax authorities in those jurisdictions. Significant disputes can arise and have arisen with tax authorities involving issues regarding the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and relevant facts. Tax authorities, including the IRS, are becoming more aggressive and are particularly focused on such matters.
In 2017, we received an RAR and a modified RAR from the IRS for the years 2010–2012, proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. We disagreed with the proposed adjustments and calculations, and in 2021, filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for the years 2010–2012. The Notices seek to increase our U.S. taxable income for the years 2010–2012 by an amount that would result in additional federal tax of approximately $3.6 billion plus interest. Any additional tax that could be imposed for the years 2010–2012 would be reduced by up to approximately $900 million of repatriation tax previously accrued and paid on our foreign earnings.
In 2020, we received an RAR and a modified RAR from the IRS for the years 2013–2015, also proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico similar to those proposed for the years 2010–2012. We disagreed with the proposed adjustments and calculations, and in 2022, filed a petition in the U.S. Tax Court to contest a Notice for the years 2013–2015. The Notice seeks to increase our U.S. taxable income for the years 2013–2015 by an amount that would result in additional federal tax of approximately $5.1 billion, plus interest, and asserts penalties of approximately $2.0 billion. Any additional tax that could be imposed for the years 2013–2015 would be reduced by up to approximately $2.2 billion of repatriation tax previously accrued and paid on our foreign earnings.
We firmly believe that the IRS positions set forth in the 2010–2012 and 2013–2015 Notices are without merit. We continue to contest the 2010–2012 and 2013–2015 Notices through the judicial process. The two cases were consolidated in the U.S. Tax Court in 2022. The trial began on November 4, 2024 and concluded on January 17, 2025. The parties filed opening post-trial briefs on June 13, 2025, and the Court held oral argument on July 16, 2025. The parties filed post-trial reply briefs on October 10, 2025. The Company expects a decision from the U.S. Tax Court no earlier than the second half of 2026.
We are currently under examination by the IRS for the years 2016–2018 with respect to issues similar to those for the 2010 through 2015 period. We expect that the IRS will begin its audit of 2019-2022 in the first half of 2026, and we believe that it may seek to continue to audit similar issues related to the allocation of income between the United States and our foreign jurisdictions. In addition, we are under examination by a number of state and foreign tax jurisdictions.
Final resolution of these complex matters is not likely within the next 12 months. We continue to believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law, application of the tax law to our facts
and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes and uncertain resolution of these matters, the ultimate outcome of any tax matters may result in payments substantially greater than amounts accrued and could have a material adverse impact on our consolidated financial statements.
We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2009.