ALASKA AIR GROUP, INC.ALK
ALASKA AIR GROUP, INC. Income Taxes Disclosure
INCOME TAXES
(1) The state and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category are Alaska, California, Hawai'i, Portland/Multnomah County, New York, and Oregon.
Deferred income taxes
Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes. The Company has a net deferred tax liability, primarily due to differences in depreciation rates for federal income tax purposes and for financial reporting purposes.
Deferred tax assets and (liabilities) comprise the following:
(in millions) | 2025 | 2024 | |||||||||
| Loyalty program | $ | 611 | $ | 577 | |||||||
| Employee benefits | 208 | 240 | |||||||||
| Net operating losses | 501 | 320 | |||||||||
| Operating lease liabilities | 327 | 345 | |||||||||
| Leasehold maintenance | 16 | 31 | |||||||||
| Other - assets | 173 | 217 | |||||||||
| Deferred tax assets | 1,836 | 1,730 | |||||||||
| Excess of book basis over tax basis on fixed assets | (2,209) | (2,017) | |||||||||
| Intangibles - net | (190) | (208) | |||||||||
| Operating lease assets | (306) | (320) | |||||||||
| Other - liabilities | (89) | (79) | |||||||||
| Deferred tax liabilities | (2,794) | (2,624) | |||||||||
| Valuation allowance | (46) | (40) | |||||||||
| Net deferred tax liabilities | $ | (1,004) | $ | (934) | |||||||
The Company has gross state and local NOLs of approximately $1.7 billion, which will be carried forward. Certain state NOLs expire beginning in 2026 through 2045. The Company also has federal NOLs of approximately $2 billion, which will be carried forward and have an indefinite life.
Valuation allowances are provided to reduce deferred tax assets to an amount which will, more likely than not, be realized. The Company has determined it is more likely than not that a portion of the federal capital loss carryforward, and state NOL carryforward will not be realized and, therefore has recorded a valuation allowance of $46 million as of December 31, 2025. The Company has likewise concluded it is more likely than not that all of its federal and the remaining state deferred income tax assets will be realized and no valuation allowance has been recorded. The Company assesses valuation allowances each reporting period.
In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into U.S. law. Provisions applicable to the Company beginning in 2025 include the permanent allowance of full bonus depreciation, immediate expensing of domestic research and experimental costs, and changes to the calculation of adjusted taxable income under Section 163(j). In accordance with ASC 740, the Company recorded the effects of OBBBA in the year of enactment, resulting in an increase to the Company's net deferred tax liabilities and a decrease in income tax payable for the year ended December 31, 2025. Future provisions that have potential impact to the Company include limitations on the deductibility of executive compensation, and modifications to certain international tax rules.
Components of income tax expense (benefit)
The components of income tax expense (benefit) are as follows:
(in millions) | 2025 | 2024 | 2023 | ||||||||||||||
Current income tax (benefit) expense: | |||||||||||||||||
| Federal | $ | 2 | $ | 8 | $ | (3) | |||||||||||
| State | (5) | 13 | (4) | ||||||||||||||
| Foreign | 1 | — | — | ||||||||||||||
Total current income tax (benefit) expense | $ | (2) | $ | 21 | $ | (7) | |||||||||||
Deferred income tax expense: | |||||||||||||||||
| Federal | $ | 49 | $ | 120 | $ | 82 | |||||||||||
| State | (1) | 9 | 13 | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
Total deferred income tax expense | 48 | 129 | 95 | ||||||||||||||
Income tax expense | $ | 46 | $ | 150 | $ | 88 | |||||||||||
Income tax rate reconciliation
The Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table reconciles income tax expense calculated at the U.S. federal statutory rate of 21% to the Company's effective tax rate:
| 2025 | |||||||||||
| (in millions) | Rate | Tax | |||||||||
| US federal statutory tax rate | 21.00 | % | $ | 31 | |||||||
State and local income taxes, net of federal income tax effect(1) | (3.28) | % | (5) | ||||||||
| Foreign tax effects | 0.78 | % | 1 | ||||||||
| Tax credits | |||||||||||
| R&D credits | (4.37) | % | (6) | ||||||||
| Changes in valuation allowances | 2.67 | % | 4 | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Meals and entertainment | 2.60 | % | 4 | ||||||||
| Parking fees | 2.88 | % | 4 | ||||||||
| Stock based compensation | 6.30 | % | 9 | ||||||||
| Other nondeductible items | 1.04 | % | 2 | ||||||||
| Changes in unrecognized tax benefits | (1.95) | % | (3) | ||||||||
| Other reconciling items | |||||||||||
| 2024 stub return true-up | 1.89 | % | 3 | ||||||||
| Other - other reconciling items | 1.84 | % | 2 | ||||||||
| Effective income tax rate | 31.40 | % | $ | 46 | |||||||
The following table reconciles income tax expense calculated at the U.S. federal statutory rate of 21% to the Company's effective tax rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09.
(in millions) | 2024 | 2023 | |||||||||
Income before income tax | $ | 545 | $ | 323 | |||||||
Expected tax expense | 114 | 68 | |||||||||
| Nondeductible expenses | 24 | 14 | |||||||||
State income tax expense | 24 | 17 | |||||||||
State income sourcing | (5) | (5) | |||||||||
| Valuation allowance | 1 | (1) | |||||||||
| Tax credits | (7) | (3) | |||||||||
Uncertain tax positions | 5 | (5) | |||||||||
| Other - net | (6) | 3 | |||||||||
Actual tax expense | $ | 150 | $ | 88 | |||||||
Effective tax rate(a) | 27.50 | % | 27.10 | % | |||||||
(a) Figures in the table above are rounded to the nearest million. As a result, a manual recalculation of the effective tax rate using these rounded figures may not agree directly to the Company's actual effective tax rate shown in the table.
Income Taxes Paid
The amounts of cash taxes paid by the Company are as follows:
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Federal | $ | (5) | $ | 17 | $ | — | |||||||||||
| State | 7 | 5 | 15 | ||||||||||||||
| Foreign | 1 | — | — | ||||||||||||||
| Current income taxes paid (refunded) | $ | 3 | $ | 22 | $ | 15 | |||||||||||
Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| States | |||||||||||||||||
| California | $ | 7 | $ | 2 | (a) | ||||||||||||
| Hawai'i | (1) | 2 | (a) | ||||||||||||||
| Oregon | (a) | (a) | 14 | ||||||||||||||
| Foreign | |||||||||||||||||
| Guatemala | $ | 1 | (a) | (a) | |||||||||||||
(a) The amount of income taxes paid during the years ended December 31, 2025, 2024, and 2023 does not meet the 5% disaggregation threshold.
Uncertain tax positions
The Company has identified its federal tax return and its state tax returns in Alaska, California, and Oregon as “major” tax jurisdictions. A summary of the Company's jurisdictions and the periods that are subject to examination are as follows:
| Jurisdiction | Period | ||||
| Federal | 2022 to 2024 | ||||
| Alaska | 2022 to 2024 | ||||
| California | 2010 to 2024 | ||||
| Oregon | 2015 to 2024 | ||||
Certain tax years are subject to examination to the extent of net operating loss carryforwards.
Changes in the liability for gross unrecognized tax benefits, exclusive of related interest and penalties, during 2025, 2024 and 2023 are as follows:
(in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at January 1 | $ | 36 | $ | 25 | $ | 21 | |||||||||||
| Additions related to prior years | — | 1 | — | ||||||||||||||
| Additions related to current year activity | 2 | 5 | 9 | ||||||||||||||
| Releases due to settlements | (1) | — | (3) | ||||||||||||||
| Additions from acquisition | — | 5 | — | ||||||||||||||
| Releases due to lapse of statute of limitations | (4) | — | (2) | ||||||||||||||
| Balance at December 31 | $ | 33 | $ | 36 | $ | 25 | |||||||||||
As of December 31, 2025, the Company had $33 million of accrued tax contingencies, of which $27 million, if fully recognized, would decrease the effective tax rate. As of December 31, 2025, 2024 and 2023, the Company has accrued interest and penalties, net of federal income tax benefit, of $4 million, $4 million, and $2 million, respectively. These uncertain tax positions could change because of the Company's ongoing audits, settlement of issues, new audits, and status of other taxpayer court cases. The Company cannot predict the timing of these actions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 28, 2017 | |
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.