CATERPILLAR INCCAT

CATERPILLAR INC Income Taxes Disclosure

10-KFiled Feb 13, 20266 min read
Income taxes
As described in Note 1J, New accounting guidance, we have elected to prospectively adopt the guidance in ASU 2023-09. The following table is a reconciliation of the U.S. federal statutory tax rate of 21 percent to our effective tax rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09.

Reconciliation of the U.S. federal statutory tax rate to effective tax rate:

Year ended December 31,
(Millions of dollars)2025
Taxes at U.S. statutory tax rate$2,424 21.0 %
(Decreases)/increases resulting from:
Non-U.S. tax effects
Switzerland
Federal statutory tax rate difference(310)(2.7)%
State and local income taxes, net of federal160 1.4 %
Other(27)(0.2)%
Other Non-U.S. jurisdictions342 3.0 %
Other179 1.5 %
Provision (benefit) for income taxes$2,768 24.0 %
The following table is a reconciliation of the U.S. federal statutory tax rate of 21 percent to our effective tax rate for the years ended December 31, 2024 and December 31, 2023 prior to the adoption of the guidance in ASU 2023-09.

Reconciliation of the U.S. federal statutory tax rate to effective tax rate:

Years ended December 31,
(Millions of dollars)20242023
Taxes at U.S. statutory rate$2,809 21.0 %$2,740 21.0 %
(Decreases) increases resulting from:    
Non-U.S. subsidiaries taxed at other than the U.S. rate186 1.4 %129 1.0 %
U.S. tax incentives(245)(1.8)%(170)(1.3)%
Tax law change related to currency translation(224)(1.7)%— — %
Other—net103 0.8 %82 0.6 %
Provision (benefit) for income taxes$2,629 19.7 %$2,781 21.3 %
 
The provision for income taxes for 2024 included a non-cash tax benefit of $224 million due to the reversal of a deferred tax liability from a U.S. tax law change related to currency translation. Included in the line item above labeled “Non-U.S. subsidiaries taxed at other than the U.S. rate” are the effects of local and U.S. taxes related to earnings of non-U.S. subsidiaries, changes in the amount of unrecognized tax benefits associated with these earnings, losses at non-U.S. subsidiaries without local tax benefits due to valuation allowances and other permanent differences between tax and U.S. GAAP results.
The components of profit (loss) before taxes were: 
 Years ended December 31,
(Millions of dollars)202520242023
U.S.$5,407 $6,219 $6,463 
Non-U.S.6,134 7,154 6,587 
 $11,541 $13,373 $13,050 
  
The components of the provision (benefit) for income taxes were:
 Years ended December 31,
(Millions of dollars)202520242023
Current tax provision (benefit):   
U.S. Federal1
$804 $1,584 $1,627 
Non-U.S.1,390 1,531 1,592 
U.S. State and local109 135 154 
 2,303 3,250 3,373 
Deferred tax provision (benefit):   
U.S. Federal1
393 (553)(391)
Non-U.S.56 (69)(164)
U.S. State and local16 1 (37)
 465 (621)(592)
Total provision (benefit) for income taxes$2,768 $2,629 $2,781 
1 Includes U.S. taxes related to non-U.S. earnings. We account for U.S. taxes on global intangible low-taxed income as a period cost.
 
We paid net income tax and related interest of $2,206 million, $3,126 million and $2,949 million in 2025, 2024 and 2023, respectively.

In accordance with the guidance in ASU 2023-09, net income tax and related interest paid in 2025 to the following jurisdictions were:

Income tax and related interest paid (net of refunds received) to:
 December 31,
(Millions of dollars)2025
U.S. Federal$605 
U.S. State and local138 
Non-U.S.1
Switzerland500 
China264 
Brazil135 
India128 
Other436 
Net income tax and related interest paid$2,206 
1 Includes federal, state and local jurisdictions within each country.
Accounting for income taxes under U.S. GAAP requires that individual tax-paying entities of the company offset all deferred tax liabilities and assets within each particular tax jurisdiction and present them as a noncurrent deferred tax liability or asset in the Consolidated Financial Position. Amounts in different tax jurisdictions cannot be offset against each other. The amount of deferred income taxes at December 31, included on the following lines in Statement 3, were as follows:
 
 December 31,
(Millions of dollars)20252024
Assets:  
Noncurrent deferred and refundable income taxes$2,757 $3,191 
Liabilities:  
Other liabilities494 432 
Deferred income taxes—net$2,263 $2,759 
 
The components of deferred tax assets and liabilities were:
 December 31,
(Millions of dollars)20252024
Deferred income tax assets:  
Research expenditures$1,399 $1,735 
Tax carryforwards1,298 1,346 
Employee compensation and benefits607 531 
Postemployment benefits425 560 
Post sale discounts303 260 
Warranty reserves287 303 
Other—net579 622 
 4,898 5,357 
Deferred income tax liabilities:  
Capital and intangible assets, including lease basis differences(1,366)(1,270)
Outside basis differences(429)(454)
 (1,795)(1,724)
Valuation allowance for deferred tax assets(840)(874)
Deferred income taxes—net$2,263 $2,759 
 
At December 31, 2025, deferred tax assets for U.S. state and local losses and credit carryforwards of $72 million expire on or before the end of 2045 while the remaining $14 million may be carried over indefinitely. Of these U.S. state and local deferred tax assets, $52 million were reduced by valuation allowances. The deferred tax assets for U.S. federal losses and credit carryforwards of $174 million primarily expire on or before the end of 2035. Of these U.S. federal deferred tax assets, $171 million were reduced by valuation allowances. Deferred tax assets for losses and credit carryforwards of non-U.S. entities of $274 million expire on or before the end of 2045 while the remaining $764 million may be carried over indefinitely. Non-U.S. entities that have not demonstrated consistent and/or sustainable profitability to support the realization of net deferred tax assets, including certain entities in Luxembourg, have recorded valuation allowances of $617 million against tax carryforwards and other deferred tax assets.

Distributions of profits from non-U.S. subsidiaries are not expected to cause a significant incremental U.S. tax impact in the future. However, these distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not feasible primarily due to our legal entity structure and the complexity of U.S. and local tax laws.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, follows.

 
Reconciliation of unrecognized tax benefits: 1
 Years ended December 31,
(Millions of dollars)202520242023
Beginning balance$1,289 $1,223 $1,140 
Additions for tax positions related to current year68 118 94 
Additions for tax positions related to prior years35 49 42 
Reductions for tax positions related to prior years(6)(30)(19)
Reductions for settlements 2 
(29)(60)(27)
Reductions for expiration of statute of limitations(10)(11)(7)
Ending balance$1,347 $1,289 $1,223 
Amount that, if recognized, would impact the effective tax rate$1,199 $1,137 $997 

1Foreign currency impacts are included within each line as applicable.
2Includes cash payment or other reduction of assets to settle liability.

We classify interest and penalties on income taxes as a component of the provision for income taxes. We recognized a net provision for interest and penalties of $67 million, $35 million and $36 million during the years ended December 31, 2025, 2024 and 2023, respectively. The total amount of interest and penalties accrued was $268 million and $190 million as of December 31, 2025 and 2024, respectively.

We are subject to the continuous examination of our U.S. federal income tax returns by the Internal Revenue Service, and tax years 2017 to 2019 are currently under examination. In our major non-U.S. jurisdictions, tax years are typically subject to examination for three to ten years.

Historical Timeline

Fiscal YearFiled
2025Feb 13, 2026Showing above
2024Feb 14, 2025
2023Feb 16, 2024
2022Feb 15, 2023
2021Feb 16, 2022
2020Feb 17, 2021
2019Feb 19, 2020
2018Feb 14, 2019
2017Feb 15, 2018
2016Feb 15, 2017
2015Feb 16, 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.

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