ADT Inc.ADT

ADT Inc. Income Taxes Disclosure

10-KFiled Mar 2, 20267 min read
INCOME TAXES
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the temporary differences between the recognition of revenue and expenses for income tax and financial reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The Company records the effect of a tax rate or law change on the Company’s deferred tax assets and liabilities in the period of enactment.
The amounts and related disclosures below are based on the continuing operations of the Company, unless otherwise noted.
Components of Income Before Taxes
Years Ended December 31,
(in thousands)202520242023
United States$830,266 $808,476 $601,370 
Foreign3,546 6,694 3,013 
Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee$833,812 $815,170 $604,383 
Components of Income Tax Benefit (Expense)(1)
Years Ended December 31,
(in thousands)202520242023
Current:
Federal$(52,668)$1,027 $(358)
State(35,746)(13,829)(57,024)
Foreign(1,156)(2,096)(923)
Current income tax benefit (expense)(89,570)(14,898)(58,305)
Deferred:
Federal(127,530)(105,711)(136,457)
State(14,505)(33,702)11,704 
Foreign(155)(170)(194)
Deferred income tax benefit (expense)(142,190)(139,583)(124,947)
Total income tax benefit (expense)
$(231,760)$(154,481)$(183,252)
___________________
(1)The components of tax benefit (expense) include both continuing and discontinued operations for all periods presented in accordance with Accounting Standards Codification (“ASC”) 740. This presentation is to reflect the Company’s tax structure and filings.
Income tax benefit (expense) is included in the Consolidated Statements of Operations as follows:
Years Ended December 31,
(in thousands)202520242023
Continuing Operations:
Federal
$(181,437)
State
(50,546)
Foreign
(1,311)
Continuing operations(1)
$(233,294)$(195,780)$(160,585)
Discontinued operations1,534 41,299 (22,667)
Total income tax benefit (expense)
$(231,760)$(154,481)$(183,252)
___________________
(1)The components of income tax benefit (expense) from continuing operations are only required for the year ended December 31, 2025 due to the Company’s adoption of ASU 2023-09 on a prospective basis.
Effective Tax Rate Reconciliations
Year Ended December 31, 2025(1)
Amount ($)Percent (%)
U.S. federal statutory tax rate
$175,101 21.0 %
State and local income taxes, net of federal income tax effects(2)
39,993 4.8 %
Foreign tax effects
1,330 0.2 %
Tax Credits
(1,452)(0.2)%
Nontaxable or nondeductible items
10,673 1.3 %
Changes in unrecognized tax benefits
6,408 0.8 %
Other adjustments
1,241 0.1 %
Income tax expense (benefit) and effective tax rate
$233,294 28.0 %
___________________
(1)The Company adopted ASU 2023-09 effective January 1, 2025, on a prospective basis, which is reflected in the table above.
(2)The following state taxes made up the majority (greater than 50%) of the tax effect in this category: California, Florida, New York, New Jersey, Illinois.
Years Ended December 31,
20242023
Statutory federal tax rate21.0 %21.0 %
State income taxes, net of federal benefits5.4 %6.1 %
Non-U.S. tax0.3 %0.2 %
Non-deductible and non-taxable charges
0.8 %1.0 %
Unrecognized tax benefits(4.0)%(1.0)%
Share-based compensation0.1 %— %
Non-deductible goodwill on dispositions— %0.7 %
Federal credits0.1 %(0.6)%
Acquisitions and dispositions1.2 %(0.9)%
Legislative changes(0.4)%0.6 %
Prior year return adjustments(0.6)%(0.6)%
Other0.1 %0.1 %
Effective tax rate24.0 %26.6 %
Income Taxes Paid (Net of Refunds Received)
Year Ended December 31,
(in thousands)2025
Federal$105,500 
State35,259 
Foreign1,409 
Total (1)
$142,168 
___________________
(1)The Company adopted ASU 2023-09, effective January 1, 2025, on a prospective basis, which is reflected in the table above.
Deferred Tax Assets and Deferred Tax Liabilities
The components of the Company's net deferred tax assets (liabilities) were as follows:
December 31,
(in thousands)20252024
Deferred tax assets:
Accrued liabilities and reserves$94,183 $94,084 
Tax loss and credit carryforwards37,579 75,927 
Disallowed interest carryforward177,546 230,048 
Deferred revenue184,415 218,639 
Other64,051 91,892 
Total deferred tax assets557,774 710,590 
Valuation allowance(12,264)(12,264)
Deferred tax assets, net of valuation allowance$545,510 $698,326 
Deferred tax liabilities:
Subscriber system assets$(707,458)$(757,046)
Intangible assets(1,063,710)(1,051,499)
Other(41,095)(56,994)
Total deferred tax liabilities(1,812,263)(1,865,539)
Net deferred tax assets (liabilities)$(1,266,753)$(1,167,213)
The valuation allowance for deferred tax assets relates to the uncertainty of the utilization of certain U.S. federal and state deferred tax assets. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, which includes its past operating results, the existence of cumulative losses in the most recent years, and its forecast of future taxable income. In estimating future taxable income, the Company develops assumptions related to the amount of future pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage its underlying businesses. The Company believes that it is more-likely-than-not that it will generate sufficient future taxable income to realize its deferred tax assets, net of valuation allowance.
The changes in the valuation allowance for deferred tax assets were as follows:
Years Ended December 31,
(in thousands)202520242023
Beginning balance $(12,264)$(12,264)$(57,715)
Income tax benefit (expense)(1)
— — 43,277 
Write-offs and other
— — 2,174 
Ending balance$(12,264)$(12,264)$(12,264)
__________________
(1)During 2023, the change is primarily related to the utilization of capital loss carryforwards against which a valuation allowance was previously recorded. The utilization is attributable to capital gains generated in connection with the Commercial Divestiture.
As of December 31, 2025, the Company has no remaining financial statement federal net operating loss (“NOL”) carryforwards.
As of December 31, 2025, the Company’s valuation allowance for deferred tax assets was primarily related to capital loss carryforwards in Canada primarily generated in connection with the sale of ADT Canada during 2019.
The Tax Cuts and Jobs Act of 2017 introduced IRC Section 163(j), which limits the deductibility of interest expense and allows for the excess to be carried forward indefinitely. As of December 31, 2025, the Company has not recorded a valuation allowance against the disallowed interest carryforward as the Company believes it has sufficient sources of future taxable income to realize the related tax benefit.
Unrecognized Tax Benefits
The Company recognizes positions taken or expected to be taken in a tax return in the consolidated financial statements when it is more-likely-than-not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit with greater than 50% likelihood of being realized upon ultimate settlement. The Company records liabilities for positions that have been taken but do not meet the more-likely-than-not recognition threshold. The Company adjusts the liabilities for unrecognized tax benefits in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a change to the estimated liabilities. The Company includes interest and penalties associated with unrecognized tax benefits as income tax expense and as a component of the recorded balance of unrecognized tax benefits, which is reflected in other liabilities, or net of related tax loss carryforwards in the Consolidated Balance Sheets. Interest and penalties associated with unrecognized tax benefits were not material to the Company's consolidated financial statements for the periods presented.
The following is a roll-forward of unrecognized tax benefits:
Years Ended December 31,
(in thousands)202520242023
Beginning balance$24,606 $48,823 $56,177 
Additions for tax positions of prior years17,715 9,933 517 
Reductions for tax positions of prior years— (5,108)— 
Additions for tax positions related to current year15,057 — — 
Reductions related to settlements(517)— — 
Reductions related to lapse of statute of limitation— (29,042)(7,871)
Ending balance$56,861 $24,606 $48,823 
Unrecognized tax benefits that would affect the effective tax rate$31,398 $24,606 $48,823 
The Company’s unrecognized tax benefits relate to tax years that are subject to audit by the taxing authorities in the U.S. federal, state and local, and foreign jurisdictions. Based on the current tax statutes and status of its income tax audits, the Company does not expect unrecognized tax benefits to change significantly in the next twelve months.
Open Tax Years by Jurisdiction
JurisdictionYears Open to Audit
Federal
2022 - 2024
State
2019 - 2024
Canada
2021 - 2024
The Company files a consolidated return for its U.S. entities and separate returns for each Canadian entity. These income tax returns are subject to audit by the taxing authorities that may culminate in proposed assessments which may ultimately result in a change to the estimated income taxes.
Federal Tax Legislation
One Big Beautiful Bill Act - The One Big Beautiful Bill Act (the “OBBBA”) was signed into law in July 2025. It includes a broad range of tax reform provisions, some of which were favorable in 2025 to cash taxes. The Company has evaluated the impact of the OBBBA on future periods and determined that the impact on cash taxes will likely be neutral.

Historical Timeline

Fiscal YearFiled
2025Mar 2, 2026Showing above
2024Feb 27, 2025
2023Feb 28, 2024
2022Feb 28, 2023
2021Mar 1, 2022
2020Feb 25, 2021
2019Mar 10, 2020
2018Mar 11, 2019

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

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