CUMMINS INCCMI

CUMMINS INC Income Taxes Disclosure

10-KFiled Feb 10, 20267 min read
NOTE 4. INCOME TAXES
The following table summarizes income before income taxes:
 Years ended December 31,
In millions202520242023
U.S. income (loss)$1,781 $2,857 $(541)
Foreign income2,182 2,046 2,167 
Income before income taxes$3,963 $4,903 $1,626 
Effective December 31, 2025, we adopted ASU 2023-09 on a prospective basis. See NOTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” for additional details on the adoption of this standard. The tables below provide the prospective disclosures required by ASU 2023-09.
Income tax expense (benefit) consisted of the following:
 Year ended December 31,
In millions2025
Current 
U.S. federal $130 
U.S. state and local18 
Foreign772 
Total current income tax expense920 
Deferred 
U.S. federal86 
U.S. state and local8 
Foreign(8)
Total deferred income tax expense86 
Income tax expense$1,006 
On July 4, 2025, the One Big Beautiful Bill Act (The Act) was signed into law, enacting significant changes to U.S. federal income tax rules affecting corporations, such as the ability to immediately deduct domestic research and development costs, restoration of elective 100 percent bonus depreciation for qualified property and changes to the international tax provisions. Implementation of The Act resulted in an increase to tax expense of $39 million in 2025, primarily due to a reduction in the foreign income deduction and changes to the research and development tax credit.
During 2025, we responded to rapidly deteriorating conditions in our electrolyzer markets and overall hydrogen market in our Accelera segment by recording $458 million in charges related to inventory write-downs, asset impairments, severance and contract termination costs. These actions resulted in an increase in the effective tax rate of 2.6 percent in 2025. See NOTE 22, “ACCELERA ACTIONS,” for additional information.
Reconciliations of the statutory U.S. federal income tax expense and tax rate to the net expense and effective tax rate were as follows:
In millionsYear ended December 31, 2025
U.S. federal statutory tax expense/rate$832 21.0 %
Domestic federal
Effect of cross-border tax laws
Foreign derived intangible income(42)(1.1)
Other15 0.4 
Tax credits
Research tax credits (69)(1.7)
Other(36)(0.9)
Nontaxable or nondeductible items1 — 
Effect of changes in tax laws or rates enacted in the current period14 0.3 
Other26 0.7 
Domestic state and local taxes, net of federal income tax effect (1)
20 0.5 
Foreign tax effects
Canada
Valuation allowance63 1.6 
Other54 1.4 
China
Withholding tax55 1.4 
Equity income or loss(49)(1.2)
Other(7)(0.2)
India50 1.3 
Netherlands
Nontaxable or nondeductible items44 1.1 
Other(8)(0.2)
United Kingdom
Tax incentives(44)(1.1)
Other16 0.4 
Other foreign jurisdictions105 2.6 
Worldwide changes in unrecognized tax benefits(34)(0.9)
Total tax expense/rate$1,006 25.4 %
(1) State and local taxes in California, Illinois, Pennsylvania, Georgia, Tennessee, Michigan, North Carolina, Wisconsin and Iowa comprise the majority of this category.
The year ended December 31, 2025 contained net favorable discrete tax items of $75 million, primarily due to $51 million of favorable adjustments for uncertain tax positions, $15 million of favorable adjustments for share-based compensation tax benefits, $7 million of favorable return to provision adjustments and $2 million of other favorable adjustments.
Income taxes paid, net of refunds received, consisted of the following:
 Year ended December 31,
In millions2025
U.S. federal$328 
U.S. state and local32 
Foreign
India182 
China184 
Other348 
Total income taxes paid$1,074 
The tables below provide the historical disclosures for the years ended December 31, 2024 and 2023. Income tax expense (benefit) under the previous standard was as follows:
 Years ended December 31,
In millions20242023
Current  
U.S. federal and state$433 $611 
Foreign611 632 
Total current income tax expense1,044 1,243 
Deferred
U.S. federal and state$(241)$(468)
Foreign32 11 
Total deferred income tax benefit(209)(457)
Income tax expense$835 $786 

A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows:
 Years ended December 31,
 20242023
Statutory U.S. federal income tax rate21.0 %21.0 %
State income tax, net of federal effect1.2 (0.4)
Differences in rates and taxability of foreign subsidiaries and joint ventures (1)
4.2 11.9 
Research tax credits(1.5)(4.7)
Foreign derived intangible income(1.3)(4.2)
Settlement Agreements, federal impact (2)
— 22.4 
Settlement Agreements, state impact (2)
— 2.1 
Non-taxable Atmus gain (3)
(6.1)— 
Other, net(0.5)0.2 
Effective tax rate17.0 %48.3 %
(1) Included the jurisdictional mix of pre-tax income and impact of actual and planned repatriation of earnings back to the U.S.
(2) See NOTE 14, "COMMITMENTS AND CONTINGENCIES," for additional information.
(3) See NOTE 21, "ATMUS DIVESTITURE," for additional information.
The year ended December 31, 2024, contained net favorable discrete tax items primarily due to the $1.3 billion non-taxable gain on the Atmus split-off. Other discrete tax items were net favorable by $59 million, primarily due to $52 million of favorable return to provision adjustments, $22 million of favorable share-based compensation tax benefits, $21 million of favorable adjustments related to audit settlements and $20 million of favorable adjustments from tax return amendments, partially offset by $50 million of unfavorable adjustments related to Accelera strategic reorganization actions and net $6 million of other unfavorable adjustments. See NOTE 21, “ATMUS DIVESTITURE,” and NOTE 22, “ACCELERA ACTIONS,” for additional information.
The year ended December 31, 2023, contained unfavorable net discrete tax items of $397 million, primarily due to $398 million in the fourth quarter related to the $2.0 billion charge from the Settlement Agreements, $22 million of unfavorable adjustments for uncertain tax positions and $3 million of net unfavorable other discrete tax items, partially offset by $21 million of favorable return to provision adjustments and $5 million of favorable share-based compensation tax benefits. See NOTE 14, “COMMITMENTS AND CONTINGENCIES,” for additional information.
At December 31, 2025, certain non-U.S. earnings are considered indefinitely reinvested in operations outside the U.S. for which deferred taxes were not provided. Determination of the related deferred tax liability, if any, is not practicable because of the complexities associated with the hypothetical calculation.
Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax assets (liabilities) were as follows:
 December 31,
In millions20252024
Deferred tax assets  
U.S. and state carryforward benefits$258 $254 
Foreign carryforward benefits784 653 
Employee benefit plans170 308 
Warranty expenses599 545 
Lease liabilities142 109 
Capitalized research and development expenditures676 805 
Accrued expenses230 207 
Other209 139 
Gross deferred tax assets3,068 3,020 
Valuation allowance(954)(872)
Total deferred tax assets2,114 2,148 
Deferred tax liabilities  
Property, plant and equipment(439)(371)
Unremitted income of foreign subsidiaries and joint ventures(175)(162)
Employee benefit plans(242)(289)
Lease assets(135)(109)
Intangible assets(342)(315)
Other(106)(172)
Total deferred tax liabilities(1,439)(1,418)
Net deferred tax assets$675 $730 
Our 2025 U.S. carryforward benefits include $258 million of state credit and net operating loss carryforward benefits that begin to expire in 2026. Our foreign carryforward benefits include $784 million of net operating loss carryforwards that begin to expire in 2026. A valuation allowance is recorded to reduce the gross deferred tax assets to an amount we believe is more likely than not to be realized. The valuation allowance at December 31, 2025 was $954 million and increased by a net $82 million. The valuation allowance at December 31, 2024 was $872 million and increased by a net $83 million. The valuation allowance at December 31, 2023 was $789 million and increased by a net $85 million. The valuation allowance is primarily attributable to the uncertainty regarding the realization of a portion of the U.S. state and foreign net operating loss and tax credit carryforward benefits.
Our Consolidated Balance Sheets contain the following tax related items:
December 31,
In millions20252024
Prepaid expenses and other current assets  
Refundable income taxes$264 $121 
Other assets
Deferred income tax assets1,063 1,119 
Long-term refundable income taxes20 47 
Other accrued expenses
Income tax payable156 244 
Other liabilities
Long-term income taxes8 5 
Deferred income tax liabilities388 389 
A reconciliation of unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023 was as follows:
December 31,
In millions202520242023
Balance at beginning of year$304 $330 $283 
Additions to tax positions due to acquisitions— — 8 
Additions to current year tax positions18 21 21 
Additions to prior years' tax positions12 9 19 
Reductions to prior years' tax positions(62)(18)(1)
Reductions for tax positions due to settlements with taxing authorities— (38)— 
Balance at end of year$272 $304 $330 
Included in the December 31, 2025, 2024 and 2023, balances are $263 million, $289 million and $314 million, respectively, related to tax positions that, if recognized, would favorably impact the effective tax rate in future periods. We also accrued interest expense related to the unrecognized tax benefits of $27 million, $31 million and $33 million as of December 31, 2025, 2024 and 2023, respectively. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.
As a result of our global operations, we file income tax returns in various jurisdictions including U.S. federal, state and foreign jurisdictions. We are routinely subject to examination by taxing authorities throughout the world, including Australia, Belgium, Brazil, Canada, China, France, India, Mexico, the U.K. and the U.S. With few exceptions, our U.S. federal, major state and foreign jurisdictions are no longer subject to income tax assessments for years before 2021.
Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although we believe that adequate provision has been made, there is the possibility that the ultimate resolution of any issues could have an adverse effect on our earnings. Conversely, if any issues are resolved favorably in the future, the related provision would be reduced, thus having a positive impact on earnings.

Historical Timeline

Fiscal YearFiled
2025Feb 10, 2026Showing above
2024Feb 11, 2025
2023Feb 12, 2024
2022Feb 14, 2023
2021Feb 8, 2022
2020Feb 10, 2021
2019Feb 11, 2020
2018Feb 11, 2019
2017Feb 14, 2018
2016Feb 13, 2017
2015Feb 12, 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.

Other Available Disclosures

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