CARRIER GLOBAL CorpCARR
CARRIER GLOBAL Corp Income Taxes Disclosure
INCOME TAXES
Income Before Income Taxes
The sources of Income from operations before income taxes are as follows:
| (In millions) | 2025 | 2024 | 2023 | ||||||||||||||
| United States | $ | 1,536 | $ | 1,948 | $ | 1,398 | |||||||||||
| Foreign | 262 | 326 | 601 | ||||||||||||||
| Total | $ | 1,798 | $ | 2,274 | $ | 1,999 | |||||||||||
Provision for Income Taxes
The income tax expense (benefit) consisted of the following components:
| (In millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| United States: | |||||||||||||||||
| Federal | $ | 218 | $ | 920 | $ | 361 | |||||||||||
| State | 86 | 120 | 110 | ||||||||||||||
| Foreign | 337 | 374 | 293 | ||||||||||||||
| 641 | 1,414 | 764 | |||||||||||||||
| Future: | |||||||||||||||||
| United States: | |||||||||||||||||
| Federal | (28) | (90) | (135) | ||||||||||||||
| State | (10) | (13) | (28) | ||||||||||||||
| Foreign | (363) | (249) | (80) | ||||||||||||||
| (401) | (352) | (243) | |||||||||||||||
| Income tax expense | $ | 240 | $ | 1,062 | $ | 521 | |||||||||||
Reconciliation of Effective Income Tax Rate
Upon adoption of ASU 2023-09, the reconciliation of taxes at the statutory U.S. federal income tax rate to the Company's effective income tax rate is as follows:
(In millions) | 2025 | |||||||
| Statutory U.S. federal income tax rate | $ | 377 | 21.0 | % | ||||
| State income tax, net of federal income tax effect | 60 | 3.4 | ||||||
| Foreign tax effects: | ||||||||
| Canada | ||||||||
| Statutory tax rate difference | (3) | (0.2) | ||||||
| Local tax, net of national income tax effect | 9 | 0.5 | ||||||
| All Other | 3 | 0.2 | ||||||
| China | ||||||||
| Statutory tax rate difference | 4 | 0.2 | ||||||
| Changes in valuation allowance | 19 | 1.1 | ||||||
| All Other | 6 | 0.3 | ||||||
| France | ||||||||
| Statutory tax rate difference | 9 | 0.5 | ||||||
| Changes in valuation allowance | (1) | (0.1) | ||||||
| Germany | ||||||||
| Statutory tax rate difference | 58 | 3.2 | ||||||
| Local tax, net of national income tax effect | (78) | (4.3) | ||||||
| Enactment of new tax laws | (130) | (7.2) | ||||||
| All Other | (9) | (0.5) | ||||||
| Ireland | ||||||||
| Statutory tax rate difference | (13) | (0.7) | ||||||
| All Other | 7 | 0.4 | ||||||
| Mexico | ||||||||
| Statutory tax rate difference | 10 | 0.5 | ||||||
| All Other | 12 | 0.7 | ||||||
| Other foreign jurisdictions | (1) | (0.1) | ||||||
| Effect of cross-border tax laws: | ||||||||
| U.S. tax on outside basis | (64) | (3.6) | ||||||
| Net CFC tested income | 14 | 0.8 | ||||||
| U.S. tax on deemed dividends | (6) | (0.4) | ||||||
| Foreign tax credits | (21) | (1.2) | ||||||
| Tax credits: | ||||||||
| R&D tax credits | (13) | (0.7) | ||||||
| Other tax credits | (17) | (0.9) | ||||||
| Changes in valuation allowances | 65 | 3.6 | ||||||
| Nontaxable or nondeductible items: | ||||||||
| Equity income from joint ventures | (21) | (1.2) | ||||||
| Stock options | (11) | (0.6) | ||||||
| Other | 12 | 0.7 | ||||||
| Changes in unrecognized tax benefits | 4 | 0.2 | ||||||
| All Other | ||||||||
| Re-organization tax benefit | (43) | (2.4) | ||||||
| Other | 2 | 0.2 | ||||||
| Effective income tax rate | $ | 240 | 13.4 | % | ||||
The most significant jurisdictions that comprise the U.S. state income tax, net of federal income tax benefit are Florida, California, New Jersey, Illinois, Georgia, Pennsylvania, New York, and Texas.
The differences between the effective income tax rate and the statutory U.S. federal income tax rate, prior to adoption of ASU 2023-09, are as follows:
| 2024 | 2023 | ||||||||||
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| State income tax | 2.4 | 2.4 | |||||||||
| Taxes on international activities | (0.2) | 4.9 | |||||||||
| CCR divestiture impact | (2.0) | — | |||||||||
| VCS reorganization impact | 28.6 | — | |||||||||
| Other | (3.1) | (2.2) | |||||||||
| Effective income tax rate | 46.7 | % | 26.1 | % | |||||||
The effective tax rate for the year ended December 31, 2025, was lower than the Company's statutory U.S. federal income tax rate. The decrease was primarily driven by a net tax benefit of $64 million from changes to the German effective rate and a statutory reduction to the German corporate tax rate enacted during the year, a tax benefit of $49 million from the re-organization of a Japanese subsidiary and a $16 million tax benefit generated by the purchase of investment tax credits from a third-party.
The effective tax rate for the year ended December 31, 2024, was higher than the Company's statutory U.S. federal income tax rate. The increase was primarily driven by a net tax charge of $650 million related to a re-organization of the VCS Business and a non-deductible loss of $86 million on the mark-to-market valuation of the Company's window forward contracts associated with the expected cash outflows of the Euro-denominated purchase price of the VCS Business, partially offset by the lower effective tax rate on the $318 million gain on the sale of CCR and $44 million of foreign tax credits generated and utilized in the current year.
The effective tax rate for the year ended December 31, 2023, was higher than the Company's statutory U.S. federal income tax rate. The increase was primarily driven by a net tax charge of $27 million relating to the re-organization and disentanglement of the CCR businesses in advance of the planned divestiture. In addition, the effective tax rate was impacted by the recognition of a deferred tax liability for withholding tax of $19 million on repatriated foreign earnings, non-deductible divestiture-related costs and a non-deductible loss of $96 million on the mark-to-market valuation of the Company's window forward contracts associated with the expected cash outflows of the Euro-denominated purchase price of the VCS Business.
Deferred Tax Assets and Liabilities
Future income taxes represent the tax effects of transactions, which are reported in different periods for tax and GAAP purposes. These amounts consist of the tax effects of differences between tax and GAAP that are expected to be reversed in the future and tax carryforwards. Future income tax benefits and obligations within the same tax paying component of a particular jurisdiction are offset for presentation in the Consolidated Balance Sheet.
The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and obligations as of December 31, 2025 and 2024, are as follows:
| (In millions) | 2025 | 2024 | |||||||||
| Future income tax benefits: | |||||||||||
| Insurance and employee benefits | $ | 114 | $ | 142 | |||||||
| Other assets basis differences | 519 | 576 | |||||||||
| Other liabilities basis differences | 773 | 674 | |||||||||
| Tax loss carryforwards | 256 | 178 | |||||||||
| Tax credit carryforwards | 1,411 | 1,404 | |||||||||
| Valuation allowances | (1,539) | (1,442) | |||||||||
| Future income tax benefits | $ | 1,534 | $ | 1,532 | |||||||
| Future income tax obligations: | |||||||||||
| Goodwill and intangible assets | $ | (1,663) | $ | (1,769) | |||||||
| Other asset basis differences | (374) | (381) | |||||||||
| Future income tax obligations | $ | (2,037) | $ | (2,150) | |||||||
Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards and certain foreign temporary differences to reduce future income tax benefits to expected realizable amounts.
Changes to valuation allowances consisted of the following:
| (In millions) | ||||||||
| Balance as of January 1, 2023 | $ | 83 | ||||||
| Additions charged to income tax expense | 27 | |||||||
| Reduction credited to income tax expense | (22) | |||||||
| Other adjustments | 1,303 | |||||||
| Reclassified to held for sale | (19) | |||||||
| Balance at December 31, 2023 | $ | 1,372 | ||||||
| Additions charged to income tax expense | 46 | |||||||
| Reduction credited to income tax expense | (41) | |||||||
| Other adjustments | 65 | |||||||
| Balance at December 31, 2024 | $ | 1,442 | ||||||
| Additions charged to income tax expense | 110 | |||||||
| Reduction credited to income tax expense | (4) | |||||||
| Other adjustments | (9) | |||||||
| Balance as of December 31, 2025 | $ | 1,539 | ||||||
Tax Credit and Loss Carryforwards
As of December 31, 2025, tax credit carryforwards and tax loss carryforwards were as follows:
| (In millions) | Tax Loss Carryforwards | Tax Credit Carryforwards | |||||||||
| Expiration period: | |||||||||||
| 2026-2030 | $ | 1,179 | $ | 18 | |||||||
| 2031-2035 | 10 | 1,391 | |||||||||
| 2036-2045 | 222 | — | |||||||||
| Indefinite | 410 | 2 | |||||||||
| Total | $ | 1,821 | $ | 1,411 | |||||||
The Company assesses the realizability of its deferred tax assets on a quarterly basis through an analysis of potential sources of future taxable income, including prior year taxable income available to absorb a carryback of tax losses, reversals of existing taxable temporary differences, tax planning strategies and forecasts of taxable income. The Company considers all negative and positive evidence, including the weight of the evidence, to determine if valuation allowances against deferred tax assets are required. The Company maintains valuation allowances against certain deferred tax assets.
In conjunction with the announced portfolio transformation, the Company is implementing changes to its corporate structure, including a re-organization of a subsidiary in Switzerland. As operations in the Swiss subsidiary expand within the next 12 months, it is possible that there may be sufficient positive evidence to release a portion of the $1.4 billion valuation allowance applied against a tax credit in Switzerland. A partial release of this valuation allowance would result in a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective earnings in Switzerland.
Unrecognized Tax Benefits
As of December 31, 2025, the Company had unrecognized tax benefits of $322 million, all of which, if recognized, would impact its effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and related interest expense is as follows:
| (In millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at beginning of period | $ | 365 | $ | 382 | $ | 291 | |||||||||||
| Additions for tax positions related to the current year | 10 | 34 | 37 | ||||||||||||||
Additions for tax positions of prior years (1) | 12 | 30 | 81 | ||||||||||||||
| Reductions for tax positions of prior years | (3) | (7) | — | ||||||||||||||
| Settlements | (29) | (68) | (27) | ||||||||||||||
Reclassified to other accounts (2) | (33) | (6) | — | ||||||||||||||
| Balance at end of period | $ | 322 | $ | 365 | $ | 382 | |||||||||||
| Gross interest expense related to unrecognized tax benefits | $ | 18 | $ | 19 | $ | 18 | |||||||||||
| Total accrued interest balance at end of period | $ | 71 | $ | 57 | $ | 64 | |||||||||||
(1) Includes $73 million during the year ended December 31, 2023, related to acquisitions.
(2) Includes $33 million during the year ended December 31, 2025, related to held for sale.
The Company conducts business globally and, as a result, the Company and its subsidiaries file income tax returns in the U.S. federal, various state and foreign jurisdictions. In certain jurisdictions, the Company's operations were included in UTC's combined tax returns for the periods through the date of the Separation and Distribution. The IRS finalized the examination of UTC's tax year 2020 resulting in the recognition of a tax benefit of $6 million in the second quarter of 2025. The U.S. Federal statute of limitations for Carrier's tax year 2021 expired during the three months ended December 31, 2025 resulting in a recognized tax benefit of $5 million. The IRS is examining Carrier's tax year 2022 with the examination progressing slowly due to IRS turnover and the U.S. government shutdown. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including the U.S., Australia, Belgium, Canada, China, France, Germany, India, Italy, Malaysia, Poland, Singapore, Spain, and the United Kingdom. The Company is no longer subject to U.S. federal income tax examination for years prior to 2022 and, with few exceptions, is no longer subject to U.S. state and local and foreign income tax examinations for tax years before 2013.
In the ordinary course of business, there is inherent uncertainty in quantifying the Company's income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. The Company believes that it is reasonably possible that a net decrease in unrecognized tax benefits of $10 million to $95 million may occur within 12 months as a result of additional uncertain tax positions, the revaluation of uncertain tax positions arising from examinations, appeals, court decisions or the closure of tax statutes.
As a result of the Tax Cuts and Jobs Act ("TCJA"), the Company no longer intends to reinvest certain undistributed earnings of its international subsidiaries including some earnings which have been previously taxed in the U.S. As such, the Company has recorded tax liabilities associated with the future remittance of these earnings. For the remainder of the Company's undistributed international earnings, unless it becomes tax effective to repatriate, the Company intends to continue to permanently reinvest these earnings. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts. The One Big Beautiful Bill Act subjects the Company to a tax on net CFC tested income, which the Company accounts for as a period cost.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 5, 2026 | Showing above |
| 2024 | Feb 11, 2025 | |
| 2023 | Feb 6, 2024 | |
| 2022 | Feb 7, 2023 | |
| 2021 | Feb 8, 2022 | |
| 2020 | Feb 9, 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.