Arthur J. Gallagher & Co.AJG
Arthur J. Gallagher & Co. Income Taxes Disclosure
Income Taxes
We and our principal domestic subsidiaries are included in a consolidated U.S. federal income tax return. Our international subsidiaries file various income tax returns in their jurisdictions. Significant components of earnings before income taxes and the provision for income taxes are as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Earnings before income taxes: | |||||||||||||||||
| United States | $ | 1,211 | $ | 972 | $ | 605 | |||||||||||
| Foreign, principally Australia, Canada, New Zealand and the U.K. | 660 | 903 | 580 | ||||||||||||||
| Total earnings before income taxes | $ | 1,871 | $ | 1,875 | $ | 1,185 | |||||||||||
| Provision for income taxes: | |||||||||||||||||
| Federal: | |||||||||||||||||
| Current | $ | 39 | $ | 38 | $ | (22) | |||||||||||
| Deferred | 94 | 112 | 113 | ||||||||||||||
| 133 | 150 | 91 | |||||||||||||||
| State and local: | |||||||||||||||||
| Current | 42 | 53 | (15) | ||||||||||||||
| Deferred | (8) | (1) | 43 | ||||||||||||||
| 34 | 52 | 28 | |||||||||||||||
| Foreign: | |||||||||||||||||
| Current | 224 | 194 | 213 | ||||||||||||||
| Deferred | (23) | 8 | (113) | ||||||||||||||
| 201 | 202 | 100 | |||||||||||||||
| Provision for income taxes | $ | 368 | $ | 404 | $ | 219 | |||||||||||
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires a company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 also requires the company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions
We have adopted ASU 2023-09 using a prospective transition method. A reconciliation of the provision for income taxes with the U.S. federal statutory income tax rate is as follows (in millions, except percentages):
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| Amount | % of Pretax Earnings | ||||||||||
| U.S. federal statutory income tax | $ | 393 | 21.0 | % | |||||||
| Domestic federal: | |||||||||||
Tax credits | (19) | (1.0) | |||||||||
| Non taxable / nondeductible items | |||||||||||
Excess tax benefits on share-based payments | (77) | (4.1) | |||||||||
| Nondeductible executive compensation (IRC 162(m)) | 24 | 1.3 | |||||||||
| Other | 5 | 0.3 | |||||||||
| Cross-border tax laws | |||||||||||
| Income (loss) from branches / disregarded entities (1) | (57) | (3.1) | |||||||||
| Other | 16 | 0.9 | |||||||||
| Changes in valuation allowance (2) | 41 | 2.2 | |||||||||
| Other (2) | (51) | (2.7) | |||||||||
| Domestic state and local income taxes, net of federal benefits * | 25 | 1.3 | |||||||||
| Foreign tax effects: | |||||||||||
| U.K.: | |||||||||||
| Nontaxable / nondeductible items | |||||||||||
| Earnout liability adjustments | 22 | 1.2 | |||||||||
| Other | 37 | 2.0 | |||||||||
| Other foreign jurisdiction (3) | 1 | 0.1 | |||||||||
| Changes in unrecognized tax benefits | 8 | 0.4 | |||||||||
| Provision for income taxes | $ | 368 | 19.7 | % | |||||||
(1)Includes foreign tax credit benefits of $33 million.
(2)In 2025, we completed the sale of the Pronto Group that resulted in a $40 million U.S. federal capital loss. A valuation allowance was recorded against the related deferred tax asset; therefore, no income tax benefit was recognized, and deferred tax assets associated with the transaction were written off.
(3)We have determined that none of the remaining foreign jurisdictions for which there are foreign tax effects reconciling items meet the 5% threshold in any of the years presented.
* In 2025, state and local income taxes in California, New York, Pennsylvania, Florida and New Jersey comprised the majority of the state and local income taxes, net of federal effect category.
The following is a reconciliation of the U.S. federal statutory income tax rate to our effective rate for the years 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 (in millions, except percentages):
| Year Ended December 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Amount | % of Pretax Earnings | Amount | % of Pretax Earnings | ||||||||||||||||||||
| Federal statutory rate | $ | 394 | 21.0 | % | $ | 249 | 21.0 | % | |||||||||||||||
| State income taxes - net of federal benefit | 61 | 3.3 | 50 | 4.2 | |||||||||||||||||||
| Differences related to non U.S. operations | (14) | (0.7) | (21) | (1.7) | |||||||||||||||||||
| Alternative energy and other tax credits | (9) | (0.5) | (8) | (0.7) | |||||||||||||||||||
| Other permanent differences | 43 | 2.3 | 27 | 2.3 | |||||||||||||||||||
| Stock-based compensation | (89) | (4.7) | (76) | (6.4) | |||||||||||||||||||
| Changes in unrecognized tax benefits | 7 | 0.4 | 12 | 1.0 | |||||||||||||||||||
| Change in valuation allowance | 10 | 0.5 | 4 | 0.3 | |||||||||||||||||||
| Change in tax rates | 1 | — | (18) | (1.5) | |||||||||||||||||||
| Provision for income taxes | $ | 404 | 21.6 | % | $ | 219 | 18.5 | % | |||||||||||||||
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in millions):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Gross unrecognized tax benefits at January 1 | $ | 25 | $ | 25 | |||||||
| Increases in tax positions for current year | 5 | 1 | |||||||||
| Settlements | — | (3) | |||||||||
| Lapse in statute of limitations | (1) | (5) | |||||||||
| Increases in tax positions for prior years | 1 | 17 | |||||||||
| Decreases in tax positions for prior years | — | (10) | |||||||||
| Gross unrecognized tax benefits at December 31 | $ | 30 | $ | 25 | |||||||
The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $30 million and $25 million at December 31, 2025 and 2024, respectively. We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes. At December 31, 2025 and 2024, we had accrued interest and penalties related to unrecognized tax benefits of $14 million and $10 million, respectively.
We file income tax returns in the U.S. and in various state, local and foreign jurisdictions. We are routinely examined by tax authorities in these jurisdictions. At December 31, 2025, our corporate returns had been examined by the IRS or the statute had lapsed through calendar year 2021. The IRS is currently examining the Company's U.S. federal income tax return for the tax year ended December 31, 2022. The examination remains ongoing. In addition, from 2021 forward, various state and foreign jurisdictions remain open.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in millions):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Tax credit carryforwards | $ | 713 | $ | 772 | |||||||
| Accrued and unfunded compensation and employee benefits | 494 | 356 | |||||||||
| Amortizable intangible assets | 560 | 177 | |||||||||
| Compensation expense related to equity plans | 113 | 97 | |||||||||
| Accrued liabilities | 176 | 126 | |||||||||
| Depreciable fixed assets | — | 22 | |||||||||
| Net operating loss carryforwards | 270 | 163 | |||||||||
| Capital loss carryforwards | 56 | 8 | |||||||||
| Interest expense limitation | 174 | 2 | |||||||||
| Lease liabilities | 166 | 106 | |||||||||
| Revenue recognition | — | 5 | |||||||||
| Other | 7 | 3 | |||||||||
| Total deferred tax assets | 2,729 | 1,837 | |||||||||
| Valuation allowance for deferred tax assets | (264) | (177) | |||||||||
| Deferred tax assets | 2,465 | 1,660 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Nondeductible amortizable intangible assets | 2,372 | 647 | |||||||||
| Accrued pension liability | 2 | 9 | |||||||||
| Depreciable fixed assets | 22 | — | |||||||||
| Right-of-use assets | 154 | 97 | |||||||||
| Hedging instruments | 34 | 36 | |||||||||
| Other prepaid items | 30 | 16 | |||||||||
| Revenue recognition | 124 | — | |||||||||
| Other | 4 | 2 | |||||||||
| Total deferred tax liabilities | 2,742 | 807 | |||||||||
| Net deferred tax (liabilities) assets | $ | (277) | $ | 853 | |||||||
At December 31, 2025 and 2024, $319 million and $106 million, respectively, of deferred tax liabilities have been included in noncurrent liabilities in the accompanying consolidated balance sheet. General business and other tax credits of $674 million begin to expire, if not utilized, in 2032 and state credits, net of federal benefit, of $40 million, begin to expire, if not utilized in 2026. Net operating loss carryforwards of $270 million, related to federal, state and foreign begin to expire, if not utilized in 2026. We expect the historically favorable trend in earnings before income taxes to continue in the foreseeable future. Valuation allowances have been established for certain foreign intangible assets (including nondeductible amortization and earnout payable expenses) and various state net operating loss carryforwards that may not be utilized in the future.
At December 31, 2025, foreign earnings in all jurisdictions are considered indefinitely reinvested offshore.
Current U.S. tax law requires U.S. shareholders to include in income certain “global intangible low-taxed income” (which we refer to as GILTI) beginning in 2018. Our policy is to include the GILTI income in the future period when the tax arises and we recorded income tax expense on such income in 2025, 2024 and 2023. Current U.S. tax law includes the U.S. Base Erosion and Anti-Abuse Tax (which we refer to as BEAT) beginning in 2018. Based on our analysis, we determined that our base erosion payments do not exceed the threshold for applicability for the years in 2025, 2024 and 2023, and we do
not currently anticipate any significant long-term impact from the BEAT in our provision for income taxes in future periods.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 9, 2024 | |
| 2022 | Feb 10, 2023 | |
| 2021 | Feb 18, 2022 | |
| 2020 | Feb 8, 2021 | |
| 2019 | Feb 7, 2020 | |
| 2018 | Feb 8, 2019 | |
| 2017 | Feb 12, 2018 | |
| 2016 | Feb 13, 2017 | |
| 2015 | Feb 10, 2016 | |
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.