BREAD FINANCIAL HOLDINGS, INC.BFH
BREAD FINANCIAL HOLDINGS, INC. Income Taxes Disclosure
INCOME TAXES
We file income tax returns in U.S. federal, state, local and foreign jurisdictions, as applicable. Provisions for current income tax liabilities are calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings also include deferred income tax provisions and provisions for uncertain tax positions.
Differences between the audited Consolidated Financial Statements and tax bases of assets and liabilities give rise to deferred tax assets and liabilities, which measure the future tax effects of items recognized in the audited Consolidated Financial Statements. Changes in deferred income tax assets and liabilities associated with components of Stockholders’ equity are charged or credited directly to Stockholders’ equity. Otherwise, changes in deferred income tax assets and liabilities are included as a component of Provision for income taxes. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates is charged or credited to Provision for income taxes in the period of enactment.
Deferred tax assets require certain estimates and judgments in order to determine whether it is more likely than not that all or a portion of the benefit of a deferred tax asset will not be realized. In evaluating our deferred tax assets on a quarterly basis as new facts and circumstances emerge, we analyze and estimate the impact of future taxable income, reversing temporary differences and available tax planning strategies. Uncertainties can lead to changes in the ultimate realization of deferred tax assets. A liability for unrecognized tax benefits, representing the difference between a tax position taken or expected to be taken in a tax return and the benefit recognized in the audited Consolidated Financial Statements, inherently requires estimates and judgments. A tax position is recognized only when it is more likely than not to be sustained, based purely on its technical merits after examination by the relevant taxing authority, and the amount recognized is the benefit we believe is more likely than not to be realized upon ultimate settlement. We evaluate our tax positions as new facts and circumstances become available, making adjustments to unrecognized tax benefits as appropriate. Uncertainties can mean the tax benefits ultimately realized differ from amounts previously recognized, with any differences recorded in Provision for income taxes, along with amounts for estimated interest and penalties.
The components of our Income from continuing operations before income taxes and Provision for income taxes included in the Consolidated Statements of Income were as follows for the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||
| (Millions) | |||||||||||||||||
| Components of Income from continuing operations before income taxes | |||||||||||||||||
| Domestic | $ | 608 | $ | 375 | $ | 964 | |||||||||||
| Foreign | 7 | 6 | 4 | ||||||||||||||
| Total Income from continuing operations before income taxes | $ | 615 | $ | 381 | $ | 968 | |||||||||||
| Components of Provision for income taxes | |||||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 36 | $ | 156 | $ | 261 | |||||||||||
| State and local | (34) | 29 | 37 | ||||||||||||||
| Foreign | 2 | 2 | 1 | ||||||||||||||
| Total current income tax expense | 4 | 187 | 299 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 98 | (73) | (65) | ||||||||||||||
| State and local | (7) | (10) | (2) | ||||||||||||||
| Foreign | (1) | (2) | (1) | ||||||||||||||
| Total deferred income tax expense (benefit) | 90 | (85) | (68) | ||||||||||||||
| Total Provision for income taxes | $ | 94 | $ | 102 | $ | 231 | |||||||||||
The following table presents Income taxes paid, net of refunds for the year ended December 31:
| 2025 | |||||
| (Millions) | |||||
| Federal | $ | 33 | |||
| State and local | 18 | ||||
| Foreign | 2 | ||||
Total income taxes paid during the year, net of refunds (1) | $ | 53 | |||
______________________________
(1) During the year ended December 31, 2025 Income taxes paid, net of refunds, for the State of California were $4 million, which exceeded 5% of our Total income taxes paid, net of refunds.
In accordance with the applicable accounting guidance in effect for the year ended December 31, 2025, the following table reconciles the U.S. Federal statutory tax amount and rate to our actual effective income tax amount and rate for the year ended December 31:
| 2025 | ||||||||
| Amount | Percent | |||||||
| (Millions) | ||||||||
| Income from continuing operations, before income taxes | $ | 615 | ||||||
| U.S. Federal statutory tax | 129 | 21.0 | % | |||||
State and local income taxes, net of federal income tax effect (1) | 5 | 0.8 | % | |||||
| Tax credits | (3) | (0.5) | % | |||||
| Non-deductible expenses | 5 | 0.9 | % | |||||
| Changes in unrecognized tax benefits | (39) | (6.5) | % | |||||
| Other adjustments | (3) | (0.5) | % | |||||
| Effective income tax | $ | 94 | 15.2 | % | ||||
______________________________
(1) In 2025, state taxes in New York and Utah made up the majority (greater than 50 percent) of the tax effect in this category.
In accordance with the applicable accounting guidance in effect for the years ended December 31, 2024 and 2023, the following table reconciles the U.S. Federal statutory tax amount to our recorded Provision for income taxes for the years ended December 31:
| 2024 | 2023 | ||||||||||
| (Millions) | |||||||||||
| Expected expense at statutory rate | $ | 80 | $ | 203 | |||||||
| Increase (decrease) in income taxes resulting from: | |||||||||||
| State and local income taxes, net of federal income tax effect | 15 | 27 | |||||||||
| Non-deductible expenses | 29 | 8 | |||||||||
| Valuation allowance | (1) | (5) | |||||||||
| Audit resolutions | (20) | — | |||||||||
| Other | (1) | (2) | |||||||||
| Total | $ | 102 | $ | 231 | |||||||
For the tax year ended December 31, 2025, the decrease in the State and local income taxes, net of federal income tax effect is primarily related to a tax law change in the State of California.
For the year ended December 31, 2024, the increase in the non-deductible expenses from prior periods is primarily related to the non-deductible portion of our repurchased Convertible Notes transactions. We also utilized a portion of our capital loss, and therefore released the associated portion of valuation allowance against it. In addition, our tax expense decreased by approximately $20 million as a result of favorable audit resolutions.
For the year ended December 31, 2023, we utilized a portion of our capital loss, and therefore released the associated portion of the valuation allowance against it.
The following table provides the significant components of Deferred tax assets and liabilities as of December 31:
| 2025 | 2024 | ||||||||||
| (Millions) | |||||||||||
| Deferred tax assets | |||||||||||
| Deferred revenue | $ | 14 | $ | 12 | |||||||
| Allowance for credit losses | 513 | 534 | |||||||||
| Net operating loss carryforwards and other carryforwards | 47 | 48 | |||||||||
| Operating lease liabilities | 19 | 29 | |||||||||
| Research & development expenses | 23 | 53 | |||||||||
| Accrued expenses and other | 80 | 87 | |||||||||
| Total deferred tax assets | 696 | 763 | |||||||||
| Valuation allowance | (20) | (19) | |||||||||
| Deferred tax assets, net of valuation allowance | 676 | 744 | |||||||||
| Deferred tax liabilities | |||||||||||
| Deferred income | $ | 2 | $ | 2 | |||||||
| Depreciation | 30 | — | |||||||||
| Right of use assets | 13 | 19 | |||||||||
| Intangible assets | 15 | 15 | |||||||||
| Total deferred tax liabilities | 60 | 36 | |||||||||
| Net deferred tax assets | $ | 616 | $ | 708 | |||||||
| Amounts recognized on the Consolidated Balance Sheets: | |||||||||||
| Other assets | $ | 616 | $ | 708 | |||||||
As of December 31, 2025, included in our U.S. tax returns are approximately $107 million of U.S. federal net operating loss carryovers (NOLs) and federal capital losses of approximately $48 million to offset capital gains. With the exception of NOLs generated after December 31, 2017, these attributes expire at various times through the year 2034. As of December 31, 2025, we have state NOLs of approximately $237 million available to offset future state taxable income, as well as state capital losses of approximately $15 million to offset capital gains. With the exception of some state NOLs generated after December 31, 2017, these NOLs and capital losses will expire at various times through the year 2043. As of December 31, 2025, we have tax credits in foreign jurisdictions of approximately $4 million available to offset future tax liabilities. These credits expire at various times through the year 2041.
In 2024 we recorded a tax expense of approximately $7 million in Additional paid-in capital related to the tax impact of the repurchased Convertible Notes, specifically, the write-off of the associated deferred tax asset.
We use the portfolio approach relating to the release of stranded tax effects recorded in Accumulated other comprehensive loss.
The following table presents changes in unrecognized tax benefits:
| (Millions) | |||||
| Balance as of December 31, 2022 | $ | 242 | |||
| Increases related to prior years’ tax positions | 1 | ||||
| Decreases related to prior years’ tax positions | (11) | ||||
| Increases related to current year tax positions | 13 | ||||
| Settlements during the period | (10) | ||||
| Lapses of applicable statutes of limitations | (20) | ||||
| Balance as of December 31, 2023 | $ | 215 | |||
| Increases related to prior years’ tax positions | 1 | ||||
| Decreases related to prior years’ tax positions | (40) | ||||
| Increases related to current year tax positions | 9 | ||||
| Settlements during the period | (21) | ||||
| Lapses of applicable statutes of limitations | (10) | ||||
| Balance as of December 31, 2024 | $ | 154 | |||
| Increases related to prior years’ tax positions | 1 | ||||
| Decreases related to prior years’ tax positions | (27) | ||||
| Increases related to current year tax positions | 4 | ||||
| Lapses of applicable statutes of limitations | (10) | ||||
| Balance as of December 31, 2025 | $ | 122 | |||
We recognize potential accrued interest and penalties related to unrecognized tax benefits in Provision for income taxes. We have potential cumulative interest and penalties with respect to unrecognized tax benefits of approximately $62 million, $86 million and $84 million as of December 31, 2025, 2024 and 2023, respectively. For those same years we recorded a benefit of approximately $19 million and expenses of $2 million and $9 million, respectively, in Provision for income taxes for potential interest and penalties for unrecognized tax benefits.
As of December 31, 2025, 2024 and 2023, we had unrecognized tax benefits of approximately $155 million, $200 million and $226 million, respectively, that, if recognized, would impact the effective tax rate.
With few exceptions, U.S. federal income tax returns are no longer subject to examination for years before 2022, and state and local income tax and foreign income tax returns are no longer subject to examination for years before 2021.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2020 | Feb 26, 2021 | |
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.