v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income Tax Provision

The domestic and foreign components of income before income taxes were as follows:

Year Ended December 31,
202520242023
(in millions)
U.S. income before income taxes
$1,477 $1,237 $1,301 
Foreign income before income taxes
595 546 391 
Income before income taxes
$2,072 $1,783 $1,692 
The components of our provision for income taxes were as follows:

Year Ended December 31,
202520242023
(in millions)
Current:
Federal$329 $357 $586 
State99 82 136 
Foreign119 52 83 
Total current547 491 805 
Deferred:
Federal(8)(51)(250)
State(2)(15)(83)
Foreign(1)
74 (181)69 
Total deferred64 (247)(264)
Total provision for income taxes
$611 $244 $541 
____________
(1)Includes a $29 million tax benefit for the year ended December 31, 2024, from the release of valuation allowances as the Company concluded it is more likely than not to realize the benefit of certain foreign deferred tax assets.

Reconciliation of the U.S. federal statutory income tax rate to the Company's effective tax rate for the year ended December 31, 2025 in accordance with the amendments in ASU 2023-09 was as follows:

Year Ended December 31, 2025
Amount
Percent
(in millions)
Provision for income taxes at U.S. federal statutory tax rate
$435 21.0 %
State and local income taxes, net of federal income tax effect(1)
68 3.3 %
Foreign tax effects
U.K.
Tax credits(2)
(30)(1.5)%
Statutory tax rate difference between U.K. and U.S.21 1.0 %
Other(5)(0.2)%
Other foreign jurisdictions81 3.9 %
Effect of cross-border tax laws(3)
11 0.5 %
Tax credits(16)(0.8)%
Changes in valuation allowances19 0.9 %
Nontaxable or nondeductible items(5)(0.2)%
Changes in unrecognized tax benefits35 1.7 %
Other adjustments(3)(0.1)%
Total tax provision and effective tax rate
$611 29.5 %
____________
(1)State and local taxes in California, New York, New York City, Florida and Illinois made up the majority (greater than 50 percent) of the tax effect in this category.
(2)The company receives double tax relief, in the form of tax credits against its U.K. current income tax, for withholding taxes imposed by various other foreign jurisdictions.
(3)The tax effect of cross-border taxes is presented net of related foreign tax credits.
Reconciliations of the provision for income taxes at the U.S. statutory rate to the provision for income taxes for the years ended December 31, 2024 and 2023 were as follows:

Year Ended December 31,
20242023
(in millions)
Statutory U.S. federal income tax provision
$375 $355 
State income taxes, net of U.S. federal income tax benefit55 45 
Impact of foreign operations90 33 
Changes in deferred tax asset valuation allowances(24)40 
Income tax rate changes
— (9)
Provision for uncertain tax positions26 69 
Claim for increased foreign tax basis(1)
(270)— 
Excess tax benefits related to share-based compensation(22)(6)
Other, net14 14 
Provision for income taxes
$244 $541 
____________
(1)Includes tax benefit for claim for increased foreign tax basis, net of $547 million tax expense for related valuation allowance increase as of December 31, 2024.

Income Tax Payments

Income taxes paid, net of refunds received, were as follows:

Year Ended December 31, 2025
(in millions)
U.S. federal
$316 
U.S. state and local
97 
Foreign
110 
Total
$523 

Income tax payments, net of refunds received, were $492 million and $478 million for the years ended December 31, 2024 and 2023, respectively.
Deferred Income Taxes

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The tax effects of the temporary differences and carryforwards that give rise to our net deferred taxes were as follows:
December 31,
20252024
(in millions)
Deferred tax assets:
Net tax loss carryforwards and carrybacks$493 $525 
Foreign brands
742 763 
Compensation115 118 
Reserves51 57 
Operating and finance lease liabilities337 282 
Deferred income753 659 
Foreign tax credit carryforwards79 70 
Other140 127 
Total gross deferred tax assets2,710 2,601 
Less: valuation allowance(1,230)(1,200)
Deferred tax assets1,480 1,401 
Deferred tax liabilities:
U.S. brands
(1,126)(1,124)
Operating and finance lease ROU assets(264)(200)
Other(160)(81)
Deferred tax liabilities(1,550)(1,405)
Net deferred taxes$(70)$(4)

As of December 31, 2025, we had gross U.S. separate return limitation year loss carryforwards and foreign operating loss carryforwards of $2.1 billion, resulting in deferred tax assets of $493 million. Approximately $32 million of our deferred tax assets as of December 31, 2025 related to loss carryforwards that will expire between 2026 and 2045 with less than $1 million of that amount expiring in 2026. Approximately $461 million of our deferred tax assets as of December 31, 2025 related to loss carryforwards that are not subject to expiration. We believe that it is more likely than not that the benefit from certain U.S. and foreign loss carryforwards will not be realized. In recognition of this assessment, we provided valuation allowances totaling $490 million as of December 31, 2025 on the deferred tax assets relating to these loss carryforwards. As of December 31, 2025, we also had deferred tax assets for U.S. tax credit carryforwards of $79 million that will expire between 2029 and 2035, for which we have provided full valuation allowances.

Tax Uncertainties

We file income tax returns, including returns for our subsidiaries, with federal, state, local and foreign tax jurisdictions. We are under regular and recurring audit by the Internal Revenue Service ("IRS") and other taxing authorities on open tax positions. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution. Changes may result from the conclusion of ongoing audits, appeals or litigation in federal, state, local and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. As of December 31, 2025, the Company's federal income tax returns remain subject to examination by the IRS for tax years from 2011 through 2025. Various income tax returns filed with state, local and foreign jurisdictions remain subject to examination by the applicable taxing authorities.
Reconciliations of the beginning and ending amounts of unrecognized tax benefits were as follows:

Year Ended December 31,
202520242023
(in millions)
Balance at beginning of year$849 $555 $337 
Additions for tax positions related to prior years2 288 268 
Additions for tax positions related to the current year— 19 4 
Reductions for tax positions related to prior years(53)(4)(2)
Settlements— (1)(48)
Lapse of statute of limitations(2)(4)(4)
Currency translation adjustment4 (4)— 
Balance at end of year$800 $849 $555 
We recognize interest and penalties accrued related to uncertain tax positions in income tax benefit (expense) in our consolidated statement of operations. During the years ended December 31, 2025, 2024 and 2023, we recognized income tax expense related to interest and penalties of $47 million, $35 million and $72 million, respectively. As of December 31, 2025 and 2024, we had accrued approximately $232 million and $182 million, respectively, for interest and penalties related to our unrecognized tax benefits in our consolidated balance sheets. Included in the balances of unrecognized tax benefits as of December 31, 2025 and 2024 were $600 million and $597 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate.