American Water Works Company, Inc.AWK
American Water Works Company, Inc. Income Taxes Disclosure
Note 14: Income Taxes
Presented in the table below are the components of income tax expense for the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current income taxes: | |||||||||||||||||
| State | $ | 25 | $ | 16 | $ | 16 | |||||||||||
| Federal | 151 | 136 | 28 | ||||||||||||||
| Total current income taxes | $ | 176 | $ | 152 | $ | 44 | |||||||||||
| Deferred income taxes: | |||||||||||||||||
| State | $ | 36 | $ | 53 | $ | 44 | |||||||||||
| Federal | 100 | 104 | 165 | ||||||||||||||
| Amortization of deferred investment tax credits | (1) | (1) | (1) | ||||||||||||||
| Total deferred income taxes | 135 | 156 | 208 | ||||||||||||||
| Provision for income taxes | $ | 311 | $ | 308 | $ | 252 | |||||||||||
Presented in the table below is a reconciliation between the statutory federal tax rate and the Company’s effective tax rate for the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| U.S. federal statutory tax rate | $ | 299 | 21.0 | % | $ | 285 | 21.0 | % | $ | 251 | 21.0 | % | |||||||||||||||||||||||
| State and local income taxes, net of federal income tax effect (a) | 48 | 3.4 | % | 54 | 4.0 | % | 48 | 4.0 | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | 5 | 0.4 | % | 5 | 0.3 | % | 4 | 0.3 | % | ||||||||||||||||||||||||||
| Change in unrecognized tax benefits | (8) | (0.6) | % | 2 | 0.2 | % | 3 | 0.2 | % | ||||||||||||||||||||||||||
| Other adjustments: | |||||||||||||||||||||||||||||||||||
| Excess accumulated deferred income taxes | (39) | (2.8) | % | (37) | (2.7) | % | (51) | (4.2) | % | ||||||||||||||||||||||||||
| Other | 6 | 0.5 | % | (1) | (0.1) | % | (3) | (0.2) | % | ||||||||||||||||||||||||||
| Effective tax rate | $ | 311 | 21.9 | % | $ | 308 | 22.7 | % | $ | 252 | 21.1 | % | |||||||||||||||||||||||
(a)The states that made up the majority (greater than 50 percent) of the tax effect in this category were: (i) for 2025, Pennsylvania and Illinois, (ii) for 2024, Pennsylvania and California, and (iii) for 2023, Pennsylvania and Illinois.
Presented in the table below is the disaggregation of income taxes paid (refunds received), net of refunds received of $29 million, $5 million and $30 million in 2025, 2024 and 2023, respectively, for the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 185 | $ | — | $ | 12 | |||||||||||
| State | 5 | (5) | (12) | ||||||||||||||
| Total | $ | 190 | $ | (5) | $ | — | |||||||||||
Income taxes paid (net of refunds received) exceeded 5% of total income taxes paid (net of refunds received) in the following states for the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||
| State: | |||||||||||||||||
| Iowa | * | $ | (1) | * | |||||||||||||
| Kentucky | * | $ | (2) | * | |||||||||||||
| Massachusetts | * | * | $ | (2) | |||||||||||||
| New Jersey | * | * | $ | (23) | |||||||||||||
| Pennsylvania | * | $ | (1) | $ | 13 | ||||||||||||
| Tennessee | * | * | $ | 1 | |||||||||||||
(*)Jurisdiction below the threshold for the period presented.
Presented in the table below are the components of the net deferred tax liability as of December 31:
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Advances and contributions | $ | 519 | $ | 493 | |||||||
| Tax losses and credits | 215 | 128 | |||||||||
| Regulatory income tax assets | 161 | 181 | |||||||||
| Pension and other postretirement benefits | 31 | 64 | |||||||||
| Other | 166 | 163 | |||||||||
| Total deferred tax assets | 1,092 | 1,029 | |||||||||
| Valuation allowance | (9) | (8) | |||||||||
| Total deferred tax assets, net of allowance | $ | 1,083 | $ | 1,021 | |||||||
| Deferred tax liabilities: | |||||||||||
| Property, plant and equipment | $ | 4,021 | $ | 3,553 | |||||||
| Deferred pension and other postretirement benefits | 75 | 86 | |||||||||
| Other | 157 | 244 | |||||||||
| Total deferred tax liabilities | 4,253 | 3,883 | |||||||||
| Total deferred tax liabilities, net of deferred tax assets | $ | (3,170) | $ | (2,862) | |||||||
As of December 31, 2025 and 2024, the Company had state net operating loss (“NOL”) carryforwards of $246 million and $251 million, respectively, a portion of which are offset by a valuation allowance as the Company does not believe these NOLs are more likely than not to be realized. The state NOL carryforwards generally expire in 2026 through 2045, however, certain states have adopted the federal provisions allowing for an unlimited carryforward period.
On July 4, 2025, the One Big Beautiful Bill Act (the “OBBB”) was signed into law. The OBBB includes several corporate tax-related provisions. Key changes include the permanent extension of certain provisions from the Tax Cuts and Jobs Act of 2017, such as 100% bonus depreciation and Section 163(j) interest limitation exception for regulated utilities, as well as the immediate expensing of domestic research and development costs, and the introduction of a new charitable contribution floor for corporations. The OBBB has not had a material impact on the Company’s Consolidated Financial Statements. The Company will continue to monitor the implementation and any related guidance.
The Inflation Reduction Act of 2022 (the “IRA”) contains a 15% Corporate Alternative Minimum Tax (“CAMT”) provision on applicable corporations. To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income (“AFSI”) for the three consecutive years preceding the tax year must exceed $1.0 billion. An applicable corporation must make several adjustments to net income when determining AFSI. A corporation paying CAMT is eligible for a future tax credit, which can be carried forward indefinitely and utilized when regular tax exceeds CAMT. Based on current guidance, the Company is an applicable corporation subject to CAMT beginning in 2024. The Company included the CAMT liability in its 2024 extension payment on April 15, 2025. As of December 31, 2025 and 2024, the Company had CAMT credit carryforwards of $200 million and $111 million, respectively. The deferred tax asset related to the CAMT credit carryforward will be realized to the extent the Company's deferred tax liabilities exceed the CAMT credit carryforward. The Company's deferred tax liabilities are expected to exceed the minimum tax credit carryforward for the foreseeable future, and therefore, no valuation allowance is required.
On June 2, 2025, the Internal Revenue Service (“IRS”) and the U.S. Treasury issued Notice 2025-27, allowing corporate taxpayers to exclude amounts attributable to the CAMT liability, without penalty, from estimated tax payments with respect to a taxable year that begins after December 31, 2024, and before January 1, 2026. The Company plans to include the CAMT liability in its 2025 extension payment on April 15, 2026. The Company will continue to assess the impacts of the IRA as the U.S. Treasury and the IRS provide further guidance.
The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local or non-U.S. income tax examinations by tax authorities for taxable years ended December 31, 2020 and prior.
Presented in the table below are the changes in gross liability, excluding interest and penalties, for unrecognized tax benefits:
| Amount | |||||
| Balance as of January 1, 2023 | $ | 158 | |||
| Increases in current period tax positions | 27 | ||||
| Decreases in prior period measurement of tax positions | (37) | ||||
| Balance as of December 31, 2023 | $ | 148 | |||
| Increases in current period tax positions | 34 | ||||
| Increases in prior period measurement of tax positions | 21 | ||||
| Balance as of December 31, 2024 | $ | 203 | |||
| Increases in current period tax positions | 31 | ||||
| Decreases in prior period measurement of tax positions | (118) | ||||
| Balance as of December 31, 2025 | $ | 116 | |||
If the Company sustains all of its positions as of December 31, 2025, excluding interest and penalties, there would be no impact on the Company’s effective tax rate. The Company had an immaterial amount of interest and penalties related to its tax positions as of December 31, 2025 and 2024.
Presented in the table below are the changes in the valuation allowance:
| Amount | |||||
| Balance as of January 1, 2023 | $ | 11 | |||
| Increases in valuation allowance | — | ||||
| Balance as of December 31, 2023 | $ | 11 | |||
| Decreases in valuation allowance | (3) | ||||
| Balance as of December 31, 2024 | $ | 8 | |||
| Increases in valuation allowance | 1 | ||||
| Balance as of December 31, 2025 | $ | 9 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 14, 2024 | |
| 2022 | Feb 15, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 18, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 20, 2018 | |
| 2016 | Feb 21, 2017 | |
| 2015 | Feb 25, 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.