INCOME TAXES |
6 Months Ended |
|---|---|
Jun. 30, 2026 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | INCOME TAXES During the periods presented in the unaudited interim Consolidated Financial Statements prior to the Separation, Qnity did not file separate tax returns in the U.S. for federal, certain state and local tax purposes, nor in foreign tax jurisdictions, as Qnity was included in the tax grouping of DuPont and its affiliate entities within the respective jurisdictions. The provision for income taxes included in these unaudited interim Consolidated Financial Statements has been calculated using the separate return basis, as if Qnity filed separate tax returns. Each year, the Company files hundreds of tax returns in the various national, state, and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. The Company has ongoing federal, state, and international income tax audits in various jurisdictions and evaluates uncertain tax positions that may be challenged by local tax authorities. As a result, there is an uncertainty in income taxes recognized in the Company’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's interim results of operations. The Company's effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to attributes. The tax provision for the second quarter ended June 30, 2026 resulted in an effective tax rate of 31.7% on pretax income of $199 million, compared with an effective tax rate of 22.4% on pretax income of $255 million for the second quarter ended June 30, 2025. The increase in the effective tax rate in the second quarter of 2026 relates to taxes related to prior year uncertain tax positions for which the Company is indemnified, a non-deductible indemnification accrual recorded for the State of North Carolina litigation, a limitation on the deductibility of interest expense, and higher tax costs on the remittance of foreign earnings, partially offset by a reduction in foreign tax costs. The tax provision for the six months ended June 30, 2026 resulted in an effective tax rate of 28.5% on pre-tax income of $417 million, compared with an effective tax rate of 20.8%, on pre-tax income of $501 million for the six months ended June 30, 2025. The increase in the effective tax rate in 2026 relates to a limitation on the deductibility of interest expense, taxes related to prior year uncertain tax positions for which we are indemnified, higher tax costs on the remittance of foreign earnings, and a non-deductible indemnification accrual recorded for the State of North Carolina litigation, partially offset by a reduction in foreign tax costs. On July 4, 2025, the One Big Beautiful Bill Act (“the Act”) was enacted. The Act includes a broad range of tax reform provisions, including modifications and enhancements to the domestic and international provisions of the Tax Cuts and Jobs Act. Among other changes, the Act allows for immediate expensing of domestic research and development expenditures, revises provisions around foreign-sourced earnings and revises the corporate interest limitation rules. The legislation has multiple effective dates, with certain provisions having become effective in fiscal 2025 and the majority becoming effective in fiscal 2026. The Company has considered the impact of the enacted provisions in its consolidated tax provision as of June 30, 2026. The legislation did not have a material impact on our income tax expense or effective tax rate for this quarter. The Company continues to evaluate the broader effects of the legislation as further guidance is issued.
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