v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes
Judgment and the use of estimates are required in developing the provision for income taxes and reporting of tax-related assets and liabilities. The interpretation of tax laws and associated regulations involves uncertainty as taxing authorities may interpret the laws differently.

NIPSCO’s historical business activities through the closing of the NIPSCO Minority Interest Transaction in 2023 were included in the consolidated U.S. federal and certain state income tax returns of NiSource Inc. Prior to April 13, 2023, NIPSCO was treated as a taxable division of its corporate parent, NiSource Inc. Beginning on that date, NIPSCO became a division of NIPSCO Holdings I. In connection with the NIPSCO Minority Interest Transaction, NIPSCO Holdings I retained NIPSCO’s income tax balances and 80.1% of the excess deferred income tax regulatory balances as described below. NIPSCO Holdings I’s income tax balances are based on the difference between the financial statement amount and the tax basis of its investment in NIPSCO Holdings II.

Income Tax Expense. The components of income tax expense (benefit) were as follows: 
Year Ended December 31, (in millions)
202520242023
Income Taxes
Current
Federal$(30.4)$(19.3)$— 
State(1.6)9.4 5.3 
Total Current (Benefit) Expense
(32.0)(9.9)5.3 
Deferred
Federal
Taxes before operating loss carryforwards and investment credits189.2 105.9 49.7 
Tax utilization expense of operating loss carryforwards34.2 60.4 65.1 
Investment tax credits— (0.1)(2.1)
State13.1 2.6 22.5 
Total Deferred Expense
236.5 168.8 135.2 
Deferred Investment Tax Credits
(0.7)(0.8)(1.0)
Income Taxes from Continuing Operations
$203.8 $158.1 $139.5 
We earn federal Investment Tax Credits ("ITC"s) and Production Tax Credits ("PTC"s) related to qualifying renewable energy projects. These credits are nonrefundable, can be utilized to offset income tax liabilities, and are transferable. We recognize the benefit of these credits within income tax expense (benefit) in the period the credits are generated.

During the periods ended December 31, 2025 and 2024, respectively, we elected to monetize certain transferable ITC/PTC credits through sales to unrelated third‑party taxpayers. Accordingly, the cash proceeds received from the sale of the credits are reflected as an adjustment to income tax (benefit) expense. We recognized a current tax benefit associated with the monetization of these credits of $19.3 million and $18.8 million, for the years ended December 31, 2025, and 2024, respectively. These amounts offset current tax expense in the years received and a regulatory liability was established to pass back to customers over ten years, as ordered by the regulator.

In connection with the NIPSCO Minority Interest Transaction during 2023, NiSource recognized a $63.5 million income tax benefit in additional paid in capital related to 19.9% of NIPSCO’s excess deferred income taxes attributable to Blackstone’s noncontrolling interest. This benefit does not impact NIPSCO’s regulatory books or the excess deferred taxes that will benefit customers through lower future rates in accordance with applicable regulatory orders. See Note 4, "Noncontrolling Interests," for further discussion of the NIPSCO Minority Interest Transaction.
Statutory Rate Reconciliation. The following table provides a quantitative reconciliation of the reported income tax expense (benefit) from the statutory U.S. federal income tax rate to the Company's effective tax rate for each period presented.
Year Ended December 31, (in millions)
202520242023
Book income before income taxes$1,216.4 $1,002.8 $813.9 
Tax expense (benefit) at statutory federal income tax rate
255.4 21.0 %210.6 21.0 %170.8 21.0 %
State and local income taxes, net of federal income tax effect
4.9 0.4 11.7 1.2 13.7 1.7 
Tax Credits
Investment tax credit
(32.4)(2.7)(14.5)(1.5)(2.1)(0.3)
Production tax credit
(40.5)(3.3)(5.8)(0.6)(0.3)— 
Other
(3.1)(0.3)(3.0)(0.3)(1.5)(0.2)
Regulatory Adjustments
ITC / PTC
68.2 5.6 20.0 2.0 — — 
Amortization of Excess Deferred Income Taxes
(30.2)(2.5)(31.2)(3.1)(39.2)(4.8)
AFUDC equity
(5.5)(0.4)(12.5)(1.2)(5.3)(0.7)
Changes in Valuation Allowances
8.4 0.7 — — — — 
Nontaxable or Nondeductible Items
Noncontrolling interests
(18.2)(1.5)(27.3)(2.7)— — 
Other
1.2 0.1 7.6 0.8 7.8 0.9 
Other adjustments(4.4)(0.3)2.5 0.2 (4.4)(0.5)
Income Taxes$203.8 16.8 %$158.1 15.8 %$139.5 17.1 %

For the year ended December 31, 2025, the state and local income tax reconciling item of $4.9 million represents the tax effect of income primarily in Virginia, which accounted for more than 50 percent of the company's state and local tax liability.

The increase in tax expense of $45.7 million in 2025 versus 2024 was primarily due to higher pre-tax income, the establishment of a valuation allowance on deferred tax assets related to disallowed §163(j) interest carryforwards, lower non-controlling interest and lower AFUDC equity, partially offset by lower state taxes and higher federal investment and production credits generated by Dunns Bridge II Solar and Storage facility, Cavalry Solar, Fairbanks Solar, and Gibson Solar that are offset in a regulatory liability to pass back to customers in future periods.

The increase in the ITC / PTC regulatory adjustment in 2025 versus 2024 was primarily due to the regulatory liability established for the investment and production tax credits generated in 2025, net of the $4.6 million pass back to customers of prior period federal tax credits.

The increase in tax expense of $18.6 million in 2024 versus 2023 was primarily due to higher pre-tax income, partially offset by the tax effect of non-controlling interest, and higher federal tax credits generated by the Cavalry solar and storage facility that are offset in a regulatory liability to pass back to customers in future periods.

The increase in the ITC / PTC regulatory adjustment in 2024 versus 2023 was primarily due to the regulatory liability established for the Cavalry tax credits generated in 2024.

Cash Taxes Paid Disclosure. In accordance with ASU 2023-09, the following table provides cash taxes paid for each period presented, which represents the actual cash payments made for income taxes to federal and state authorities by jurisdiction and differs from the income tax expense recognized for financial reporting purposes due to deferred taxes, credits, and other reconciling items.
Year Ended December 31, (in millions)
202520242023
Jurisdiction
Federal
$2.5 $— $— 
Pennsylvania
(0.2)3.0 4.0 
Virginia
— 1.2 5.4 
Ohio local
0.7 — — 
Other
0.3 0.1 — 
Total Cash Taxes Paid
$3.3 $4.3 $9.4 

The state component for 2025 and prior years primarily relates to Pennsylvania, Virginia and local Ohio taxes, accounting for greater than 50 percent of the total state tax payments.

Net Deferred Income Tax Liability Components. Deferred income taxes result from temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The principal components of our net deferred tax liabilities were as follows:
At December 31, (in millions)
20252024
Deferred tax liabilities
Accelerated depreciation and other property differences$1,552.0 $1,419.4 
Partnership basis differences
1,431.1 1,328.6 
Other regulatory assets210.3 210.1 
Total Deferred Tax Liabilities3,193.4 2,958.1 
Deferred tax assets
Other regulatory liabilities and deferred investment tax credits (including TCJA)185.1 170.4 
Pension and other postretirement/postemployment benefits32.0 58.8 
Net operating loss carryforwards
326.0 369.4 
Environmental liabilities10.3 12.2 
Other accrued liabilities49.6 43.4 
Disallowed §163(j) interest expense carryforward
8.4 — 
General business credits
77.3 20.5 
Other, net19.4 8.2 
Total Deferred Tax Assets708.1 682.9 
Valuation Allowance(14.8)(6.4)
Net Deferred Tax Assets693.3 676.5 
Net Deferred Tax Liabilities$2,500.1 $2,281.6 
Deferred tax assets include amounts for disallowed §163(j) interest expense carryforward; during the period, we recorded a valuation allowance on these amounts in accordance with realizability requirements, and corresponds to the unfavorable item presented in the rate reconciliation.

On April 14, 2023, the IRS issued Revenue Procedure 2023-15 which provides a safe harbor method of accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve linear property and non-linear natural gas transmission and distribution property must be capitalized as improvements or are allowable as deductions. On June 3, 2024, the IRS extended the favorable rules to a Year 2 adoption period. The Company filed a method change with its 2024 consolidated tax return filing to elect this change in tax accounting method under the cutoff method.

In connection with the NIPSCO Minority Interest Transaction, NIPSCO’s deferred taxes were removed from its GAAP books and were reconstituted as deferred taxes on the outside basis difference of NiSource’s investment in NIPSCO Holdings II. These deferred taxes are reflected as partnership basis differences above.
NiSource has the following deductible loss and credit carryforwards:

At December 31, 2025 (in millions)
Deductible Amount
Deferred Tax Asset
Valuation Allowance
Expiration Period
Federal losses
$1,192.0 $250.3 $— Indefinite
Federal investment tax credits
— 31.0 — 2043-2045
Federal production tax credits
— 23.4 — 2040-2045
Federal other credit
— 22.9 — 2029-2045
Federal disallowed interest expense carryforward
— 8.4 (8.4)Indefinite
State losses
1,867.1 75.4 (6.4)2029-2045
Total$411.4 $(14.8)
We believe it is not more likely than not that the Federal §163(j) disallowed interest expense carryforward and a portion of the benefit from certain state net operating loss carryforwards will be realized. We have recorded a valuation allowance of $8.4 million on the deferred tax asset related to the Federal §163(j) interest expense carryforward and $6.4 million related to Massachusetts Net Operating Losses reflected in table presented above.

Unrecognized Tax Benefits. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
At December, (in millions)
202520242023
Opening Balance$21.7 $21.7 $21.7 
Gross decreases - tax positions in prior period— — — 
Gross increases - current period tax positions— — — 
Ending Balance$21.7 $21.7 $21.7 
Offset for net operating loss carryforwards(21.7)(21.7)(21.7)
Balance, Less Net Operating Loss Carryforwards$— $— $— 
We are subject to income taxation in the United States and various state jurisdictions, primarily Indiana, Pennsylvania, Kentucky, Massachusetts, Maryland and Virginia.

We participate in the IRS CAP, which provides the opportunity to resolve tax matters with the IRS before filing each year's consolidated federal income tax return. As of December 31, 2025, tax years through 2023 have been audited and are closed to further assessment. NiSource has not yet received a final acceptance letter from the IRS for its 2024 return. However, no adjustments are expected.

The statute of limitations in each of the state jurisdictions in which we operate remains open between 3-4 years from the date the state income tax returns are filed. As of December 31, 2025, there were no state income tax audits in progress that would have a material impact on the consolidated financial statements.

NiSource is obligated to report adjustments resulting from IRS audits or settlements to state taxing authorities. In addition, if NiSource utilizes net operating losses or tax credits generated in years for which the statute of limitations has expired, such amounts are generally subject to examination.