v3.25.4
Income taxes
 12 Months Ended
Dec. 28, 2025
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
The provision for taxes on income on continuing operations consists of:
(Dollars in Millions)202520242023
Currently payable:
U.S. taxes$1,1632,2002,705
International taxes3,0762,6043,090
Total currently payable4,2394,8045,795
Deferred:
U.S. taxes2,008(2,539)(3,440)
International taxes(470)356(619)
Total deferred1,538(2,183)(4,059)
Provision for taxes on income$5,7772,6211,736
Below is a tabular rate reconciliation of the U.S. statutory income tax rate of 21% to the Company's effective income tax rate for the fiscal year 2025, pursuant to the new disclosure requirements of ASU 2023-09 (See Note 1 of the Consolidated Financial Statements):
(Dollars in Millions)2025
U.S. $15,254
International17,327
Earnings before taxes on income:32,581
Tax rates:
U.S. federal statutory rate6,84221.0%
State & local taxes:(1)
1620.5 
Foreign tax effects:(861)(2.7)
Ireland
Statutory tax rate difference between Ireland & U.S.(473)(1.5)
Other(11)(0.0)
Switzerland
Statutory tax rate difference between Switzerland & U.S.(607)(1.9)
Other2830.9 
All Other Jurisdictions(53)(0.2)
Effects of changes in tax laws or rates enacted in the current period: 1,0033.1 
OBBBA Deferred NCTI Remeasurement1,0033.1 
Effects of cross border tax laws:1,6014.9 
NCTI(2)
9993.1 
Subpart F5221.6 
Other800.2 
Tax credits: (2,455)(7.6)
NCTI foreign tax credits(2)
(1,324)(4.1)
Subpart F foreign tax credits(656)(2.0)
All other tax credits(475)(1.5)
Changes in valuation allowances:1360.4 
Nontaxable or nondeductible items:550.2 
Changes in unrecognized tax benefits:(111)(0.3)
Other adjustments:(595)(1.8)
Net tax benefit on ordinary losses(595)(1.8)
Effective Rate$5,77717.7 %
(1)Majority of state taxes are in the following states AL, CA, FL, IL, IN, KY, MA, MI, NJ, NY, PA, TN, VA, WI
(2)NCTI includes $(0.6) billion of accrued benefits as the Company has elected to account for NCTI under the deferred method. (See Note 1 to the Consolidated Financial Statements)
The fiscal year 2025 effective tax rate increased by 2.0% as compared to fiscal year 2024 effective tax rate.
The increase in the worldwide effective tax rate is primarily due to the United States enacting OBBBA (see Note 1). As a result, the Company remeasured its deferred tax balances related to NCTI for the changes in the tax rate and recorded a one-time re-measurement cost of approximately $1.0 billion which is reflected in the effective tax rate table under effects of changes in tax laws or rates enacted in the current period.
The Company’s 2025 effective tax rate was also unfavorably impacted by more income in higher tax jurisdictions, specifically in the U.S. In fiscal year 2025, the Company reversed previously accrued reserves of approximately $7.0 billion for the Talc settlement proposal versus a charge of $5.1 billion recorded in fiscal 2024 for the Talc settlement proposal. Both were recorded at an effective rate for U.S. federal and state tax of approximately 22% (for further information see Note 19 to the Consolidated Financial Statements).
The Company’s 2025 effective tax rate was favorably impacted by a tax benefit as a result of ordinary losses attributed to certain international subsidiaries which is reflected in the other adjustments category in the effective tax rate table and favorable changes in unrecognized tax benefit positions due to expiration of statute of limitations.
The below comparison table is a rate reconciliation of the U.S. statutory rate of 21% to the Company's effective tax rate for fiscal years 2024 and 2023:
(Dollars in Millions)20242023
U.S. $(458)(2,033)
International17,14517,095 
Earnings before taxes on income:$16,68715,062 
Tax rates:
U.S. statutory rate21.0 %21.0 
International operations(1)
(5.2)(8.1)
U.S. tax settlements1.0 (3.0)
U.S. taxes on international income(2)
(2.6)(0.3)
U.S. state taxes1.5 1.0 
Tax benefits on share-based compensation(0.6)(0.8)
All other0.6 1.7 
Effective Rate15.7 %11.5 
(1)International operations reflect the impacts of operations in jurisdictions with statutory tax rates different than the U.S., particularly Ireland, Switzerland, and Belgium, which is a favorable impact on the effective tax rate as compared with the U.S. statutory rate.
(2)Includes the net impact of the GILTI tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code as well as related foreign tax credits.
The fiscal year 2024 effective tax rate increased 4.2% as compared to the fiscal year 2023 effective tax rate. The primary drivers of this change are discussed below.
In fiscal year 2024, The Company had more income in higher tax jurisdictions compared to fiscal year 2023, primarily in the U.S. where the Company recorded a charge of approximately $5.1 billion in the fiscal year of 2024 versus approximately $7.0 billion in the fiscal year of 2023, both for the talc matters in the United States. Both charges were recorded at an effective U.S. tax rate of approximately 22% (for further information see Note 19 to the Consolidated Financial Statements).
Additionally in the fiscal year 2024, the effective tax rate was unfavorably impacted by legislative changes that went into effect for Pillar Two in some of the Company's foreign jurisdictions which are reflected in International operations on the Company’s effective tax rate reconciliation. Also in fiscal year 2024, the Company generated incremental U.S. foreign tax credits related to income sourced and taxed outside the United States and is reflected in U.S. taxes on international income on the Company’s effective tax rate reconciliation. In 2024, the Company finalized multi-year transfer pricing agreements with the U.S. Internal Revenue Service (IRS) and certain other foreign jurisdictions. The U.S portion of the agreements were partially offset by the related tax adjustments in the foreign jurisdictions which are reflected in U.S tax settlements and International operations, respectively, on the Company’s effective rate reconciliation.
Temporary differences and carryforwards at the end of fiscal years 2025 and 2024 were as follows:
2025 Deferred Tax2024 Deferred Tax
(Dollars in Millions)AssetLiabilityAssetLiability
Employee related obligations$54372
Stock based compensation651717
Depreciation of property, plant and equipment(929)(833)
Goodwill and intangibles(6,154)(3,261)
R&D capitalized for tax4,7524,398
Reserves & liabilities2,4334,444
Inventory related378371
Net operating loss & tax credit carryforwards3,5612,658
Undistributed foreign earnings1,718(2,969)2,668(1,492)
NCTI (Net CFC Tested Income)(2,495)(1,589)
Miscellaneous international620852
Miscellaneous U.S. 300346
Total deferred income taxes14,467(12,547)16,826(7,175)
Valuation allowances(1,837)(1,638)
Total deferred income taxes net of valuation allowances$12,630(12,547)15,188(7,175)
The Company has wholly-owned international subsidiaries that have cumulative losses that result in deferred tax assets. The Company believes that it is more likely than not that these subsidiaries will generate future taxable income sufficient to partially utilize these deferred tax assets. Net operating loss carryforwards for certain international subsidiaries that do not have an indefinite carryforward period will begin to expire in 2026.
Valuation allowances have been recorded against deferred tax assets that are not more likely than not to be realized. The following table summarizes the activity related to valuation allowances for continuing operations:
(Dollars in Millions)20252024
Beginning of year$1,6381,149
Provision129451
Utilization(70)—
Foreign currency translation90(46)
Net acquisitions / (dispositions/liquidations)5084
End of year$1,837$1,638
The following table summarizes income taxes paid net of tax refunds:
(Dollars in Millions)202520242023
U.S. Federal(1)
$3,5773,8154,722
U.S. State and Local taxes169341236
Total U.S.3,7464,1564,958
Total Foreign(2)
2,7932,5583,616
Total income taxes paid net of tax refunds$6,5396,7148,574
(1)Includes TCJA foreign undistributed earnings payments of $2.5 billion, $2.0 billion and $1.5 billion in fiscal years 2025, 2024 and 2023, respectively
(2)Included in foreign income taxes paid net of refunds are payments made in 2025 to Ireland for $0.6 billion and Switzerland for $0.5 billion
The following table summarizes the activity related to unrecognized tax benefits for continuing operations:
(Dollars in Millions)202520242023
Beginning of year$2,0202,4853,716
Increases related to current year tax positions87176239
Increases related to prior period tax positions925129244
Decreases related to prior period tax positions(160)(147)(781)
Settlements(10)(583)(880)
Lapse of statute of limitations(200)(40)(53)
End of year$2,6622,0202,485
As of December 28, 2025 the Company had approximately $2.7 billion of unrecognized tax benefits. The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress with a number of tax authorities. With respect to the United States, the Internal Revenue Service has completed its audit for the tax years through 2016 and has commenced the audit for tax years 2017 through 2020.
In other major jurisdictions where the Company conducts business, the years that remain open to tax audit go back to the year 2014. The Company believes it is possible that tax audits may be completed over the next twelve months by taxing authorities in some jurisdictions outside of the United States.
The Company classifies liabilities for unrecognized tax benefits and related interest and penalties as long-term liabilities. Interest income and expense along with penalties related to unrecognized tax benefits are presented in the provision for income taxes. The Company recognized net after tax interest expense of $64 million, $217 million and $99 million in fiscal years 2025, 2024 and 2023, respectively. The total amount of accrued interest was $336 million and $274 million in fiscal years 2025 and 2024, respectively.