v3.26.1
INCOME TAXES
 12 Months Ended
May 31, 2026
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company’s income tax provision was prepared using the separate return method. The separate return method applies the accounting guidance for income taxes to the stand-alone financial statements of each member of the consolidated group as if the group members were a separate taxpayer.
The components of income before income taxes for the years ended May 31 are as follows (in millions):
202620252024
Domestic $829 $1,735 $1,995 
Foreign 55 67 84 
Total income before income taxes $884 $1,802 $2,079 
The components of the provision for income taxes for the years ended May 31 were as follows (in millions):
202620252024
Current provision
Domestic:
Federal $235 $363 $453 
State and local 66 89 106 
Foreign 18 21 22 
Total current provision319 473 581 
Deferred benefit:
Domestic:
Federal (75)(15)(65)
State and local (12)(1)(10)
Foreign (3)(1)(1)
Total deferred benefit(90)(17)(76)
Total provision for income taxes$229 $456 $505 
As discussed in Note 3, Recent Accounting Guidance, the Company prospectively adopted ASU 2023-09 effective for the fiscal year ended May 31, 2026. ASU 2023-09 requires disaggregation of information in the effective income tax rate reconciliation and income taxes paid disclosures.
A reconciliation between the effective income tax rate and the U.S. statutory rate (in accordance with the new guidance) for May 31, 2026 (in millions) is as follows:
2026
Taxes computed at federal statutory rate$186 21.0 %
State and local income taxes, net of federal benefit (1)
42 4.8 %
Foreign tax effects9 1.0 %
Tax credits(6)(0.7)%
Changes in valuation allowance4 0.5 %
Other, net(6)(0.7)%
Income Tax Expense$229 25.9 %
(1)State taxes in California, Florida, Georgia, Illinois, Indiana, Iowa, Michigan, New Jersey, and Pennsylvania made up the majority (greater than 50%) of the tax effect of this category.
A reconciliation between the effective income tax rate and the U.S. statutory rate (as previously reported in accordance with guidance prior to the adoption of the new accounting standard) for May 31, 2025, and 2024 (in millions) is as follows:
20252024
Taxes computed at federal statutory rate $378 $438 
Increases (decreases) in income tax from:
Prior period adjustments 3 (10)
State and local income taxes, net of federal benefit 69 75 
Foreign operations 7 6 
Tax credits (4)(6)
Valuation allowance 3 2 
Provision for income taxes $456 $505 
Effective income tax rate 25.3%24.3%
The Company’s effective income tax rate for the years ended May 31, 2026, 2025, and 2024, varied from the statutory tax rate primarily due to the impact of U.S. state and local income taxes.
We regularly assess the need for cash in the United States, as well as in our foreign subsidiaries, and will occasionally repatriate back to the United States excess earnings above working capital needs that can be repatriated with an immaterial tax cost. We assert all
other historical earnings in our foreign subsidiaries are permanently reinvested and therefore no deferred taxes or withholding taxes have been provided. Determination of the amount of unrecognized deferred income tax liability related to any remaining undistributed foreign earnings and additional outside basis differences is not practicable.
The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):
20262025
Deferred tax
asset 		Deferred tax
liabilities 		Deferred
tax asset 		Deferred tax
liabilities
Property, equipment, leases and intangibles $503 $(825)$375 $(758)
Employee benefits 84 — 52 — 
Self-insurance accruals 16 — 111 — 
Other 30 (22)20 (33)
Net operating loss/credit carryforwards 12 — 8 — 
Valuation allowances (12)— (8)— 
$633 $(847)$558 $(791)
The net deferred tax liabilities as of May 31 have been classified in the balance sheet as follows (in millions):
20262025
Noncurrent deferred tax assets(1)
$6 $2 
Noncurrent deferred tax liabilities (220)(235)
$(214)$(233)
(1)Noncurrent deferred tax assets are included within “Other Assets” in the accompanying Consolidated Balance Sheets.
The valuation allowances primarily represent amounts reserved for foreign tax credits, which expire over varying periods starting in 2034. We establish valuation allowances if it is more likely than not that deferred income tax assets will not be realized. We believe that we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our Consolidated Balance Sheets.
The net change in the total valuation allowance for the year ended May 31, 2026, and May 31, 2025, was $4 million and $3 million, respectively, which primarily relates to foreign tax credits.
Our liabilities for uncertain tax positions are less than $1 million for 2026, 2025, and 2024 associated with positions that, if favorably resolved, would provide a benefit to our income tax expense. We classify interest related to income tax liabilities as interest expense and, if applicable, penalties are recognized as a component of income tax expense. The balance of accrued interest and penalties is immaterial for all periods presented.
It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing audits, appeals, or litigation in state, local, federal, and foreign tax jurisdictions, or from the resolution of various proceedings between U.S. and foreign tax authorities. It is reasonably possible that the amount of the benefit with respect to certain of our unrecognized tax positions will increase or decrease within the next 12 months. However, estimates of the amounts or ranges for individual matters where a material change is reasonably possible cannot be made. We believe we have recorded adequate amounts of tax reserves, including interest and penalties, for any adjustments that may occur.
Income taxes paid (net of refunds received) consisted of the following for year ended May 31 (in millions):
2026
U.S. federal$— 
Pennsylvania2 
Other U.S. state & local9 
Canada15 
Mexico2 
Other foreign1 
Total income taxes paid, net of refunds$29 
The consolidated financial statements reflect income taxes paid to U.S. states and foreign jurisdictions where the Company does not file a consolidated tax return with FedEx.