CONSUMERS ENERGY COCMS-PB

CONSUMERS ENERGY CO Income Taxes Disclosure

10-KFiled Feb 10, 20268 min read
Income Taxes
CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return as well as a Michigan Corporate Income Tax return for the unitary business group and various other state unitary group combined income tax returns. Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.
Presented in the following table is the difference between actual income tax expense on continuing operations and income tax expense computed by applying the statutory U.S. federal income tax rate:
In Millions, Except Tax Rate
AmountPercentAmountPercentAmountPercent
Years Ended December 31202520242023
CMS Energy, including Consumers
Income from continuing operations before income taxes$1,248 $1,123 $954 
Income tax expense at statutory rate262 21.0 %236 21.0 %200 21.0 %
Increase (decrease) in income taxes from:   
State and local income taxes, net of federal income tax effect1
77 6.2 58 5.1 40 4.2 
Tax credits
Renewable energy tax credits(68)(5.4)(71)(6.4)(55)(5.8)
Other(6)(0.5)(6)(0.5)(7)(0.7)
Nontaxable or nondeductible items3 0.2 4 0.4 3 0.3 
Changes in unrecognized tax benefits9 0.7 2 0.2 (11)(1.2)
Other adjustments
TCJA excess deferred taxes(42)(3.4)(43)(3.8)(40)(4.2)
Deferred tax adjustment2
— — (16)(1.4)— — 
Taxes attributable to noncontrolling interests15 1.2 12 1.1 17 1.8 
Other, net(4)(0.3)— — — — 
Income tax expense$246 $176 $147 
Effective tax rate19.7 %15.7 %15.4 %
In Millions, Except Tax Rate
AmountPercentAmountPercentAmountPercent
Years Ended December 31202520242023
Consumers
Income from continuing operations before income taxes$1,417 $1,209 $1,028 
Income tax expense at statutory rate298 21.0 %254 21.0 %216 21.0 %
Increase (decrease) in income taxes from:   
State and local income taxes, net of federal income tax effect1
80 5.7 60 5.0 47 4.6 
Tax credits
Renewable energy tax credits(46)(3.2)(51)(4.2)(43)(4.2)
Other(6)(0.4)(6)(0.5)(7)(0.7)
Nontaxable or nondeductible items3 0.2 3 0.2 3 0.3 
Changes in unrecognized tax benefits9 0.6 1 0.1 (12)(1.2)
Other adjustments
TCJA excess deferred taxes
(42)(3.0)(43)(3.6)(40)(3.9)
Deferred tax adjustment2
— — (16)(1.3)— — 
Other, net(8)(0.6)(2)(0.2)(3)(0.2)
Income tax expense$288 $200 $161 
Effective tax rate20.3 %16.5 %15.7 %
1In June 2025, state deferred tax balances were increased by $12 million to reflect a change in Illinois tax policy that establishes nexus for Consumers. The policy change is effective for tax years beginning January 1, 2026. During 2023, CMS Energy initiated a plan to divest immaterial business activities in a non-Michigan jurisdiction and will no longer have a taxable presence within that jurisdiction. As a result of these actions, CMS Energy reversed a $13 million non-Michigan reserve, all of which was recognized at Consumers.
2During 2024, Consumers recognized a $16 million tax benefit resulting from the expiration of the statute of limitations associated with audit points for the 2018 and 2019 tax years.
State Income Tax Claim: In February 2025, CMS Energy received an adverse ruling from the Michigan Tax Tribunal in regards to the methodology of state apportionment for Consumers’ electricity sales to MISO. In March 2025, CMS Energy filed an appeal with the Michigan Court of Appeals and a hearing was held in February 2026. CMS Energy and Consumers have evaluated and concluded their uncertain tax positions associated with this matter to be sufficient as of December 31, 2025. While CMS Energy and Consumers expect the appeal to prevail, if it were to fail, the companies would be required to revise the estimated value of their state deferred tax liabilities, which could result in a material impact to their results of operations.
Tax Legislation: CMS Energy and Consumers are subject to changing tax laws. In July 2025, President Trump signed into law the OBBBA. The legislation allows for the immediate expensing of domestic research and development costs and includes changes to clean energy tax credits enacted by the Inflation Reduction Act of 2022. While the OBBBA restores, and makes permanent, the 100‑percent
bonus depreciation deduction, it also retains a provision that allows utilities to take a full deduction of interest expense in lieu of 100‑percent bonus depreciation. CMS Energy and Consumers evaluated the provisions of the OBBBA and concluded that the legislation is not expected to have a material impact on their respective financial statements. This conclusion is subject to change as additional guidance or interpretations become available.
Renewable Energy Tax Credits: Under the Inflation Reduction Act of 2022, renewable energy tax credits produced after 2022 are eligible to be transferred to third parties. These sales are accounted for under ASC 740 with the discount from the sale of the tax credits included as a component of income tax expense. Renewable energy tax credits that have been generated and sold are presented as accounts receivable on CMS Energy’s and Consumers’ consolidated balance sheets until proceeds from the sale are received. Proceeds from the sale of tax credits are presented as operating activities on their consolidated statements of cash flows, consistent with the presentation of cash taxes paid.
During 2025, CMS Energy sold renewable energy tax credits generated in 2025 and received proceeds of $36 million, all of which was recognized at Consumers. CMS Energy also received proceeds of $13 million during 2025 from the 2024 sale of renewable energy tax credits, all of which was recognized at Consumers. CMS Energy will receive an additional $32 million in 2026 from the renewable energy tax credits generated and sold in 2025, of which $10 million will be recognized at Consumers.
Presented in the following table are the significant components of income tax expense on continuing operations:
In Millions
Years Ended December 31202520242023
CMS Energy, including Consumers
Current income taxes
Federal$34 $34 $5 
State and local9 — 1 
$43 $34 $6 
Deferred income taxes
Federal107 70 107 
State and local100 76 38 
$207 $146 $145 
Deferred income tax credit(4)(4)(4)
Tax expense$246 $176 $147 
Consumers
Current income taxes
Federal$207 $78 $3 
State and local33 7 2 
$240 $85 $5 
Deferred income taxes
Federal(27)51 117 
State and local79 68 43 
$52 $119 $160 
Deferred income tax credit(4)(4)(4)
Tax expense$288 $200 $161 
Presented in the following table are income taxes paid:
In Millions
Years Ended December 31202520242023
CMS Energy, including Consumers
Federal $28 $27 $15 
State 1 1 — 
Total$29 $28 $15 
Consumers
Federal $189 $57 $23 
State 21 — 8 
Total$210 $57 $31 
CMS Energy and Consumers are domiciled in the U.S. and are not subject to taxes in any foreign jurisdiction. State income taxes paid (net of refunds) are primarily attributable to the state of Michigan.
Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized:
In Millions
December 3120252024
CMS Energy, including Consumers
Deferred income tax assets
Net regulatory tax liability$294 $307 
Tax loss and credit carryforwards139 258 
Reserves and accruals16 27 
Total deferred income tax assets$449 $592 
Valuation allowance(2)(1)
Total deferred income tax assets, net of valuation allowance$447 $591 
Deferred income tax liabilities
Plant, property, and equipment$(2,833)$(2,682)
Employee benefits(558)(507)
Gas inventory(24)(38)
Securitized costs(137)(167)
Other(147)(122)
Total deferred income tax liabilities$(3,699)$(3,516)
Total net deferred income tax liabilities$(3,252)$(2,925)
Consumers
Deferred income tax assets
Net regulatory tax liability$294 $307 
Tax loss and credit carryforwards18 37 
Reserves and accruals13 24 
Total deferred income tax assets$325 $368 
Deferred income tax liabilities
Plant, property, and equipment$(2,808)$(2,658)
Employee benefits(534)(489)
Gas inventory(24)(38)
Securitized costs(137)(167)
Other(23)(69)
Total deferred income tax liabilities$(3,526)$(3,421)
Total net deferred income tax liabilities$(3,201)$(3,053)
Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts on CMS Energy’s and Consumers’ consolidated financial statements.
Presented in the following table are the tax loss and credit carryforwards at December 31, 2025:
In Millions
Tax AttributeExpiration
CMS Energy, including Consumers
Michigan net operating loss carryforwards$15 2030 – 2033
Arkansas net operating loss carryforwards2 2033 - 2035
Local net operating loss carryforwards2 2025 – 2040
General business credits1
120 2038 – 2045
Total tax attributes$139 
Consumers
Michigan net operating loss carryforwards$10 2030 – 2033
General business credits1
8 2038 – 2045
Total tax attributes$18 
1General business credits comprise research and development tax credits and renewable energy tax credits that are not expected to be transferred to third parties.
CMS Energy has provided a valuation allowance of $2 million for state and local tax loss carryforwards. CMS Energy and Consumers expect to utilize fully their tax loss and credit carryforwards for which no valuation allowance has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within one year.
Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits:
In Millions
Years Ended December 31202520242023
CMS Energy, including Consumers
Balance at beginning of period$24 $26 $28 
Additions for current-year tax positions2 1 1 
Additions for prior-year tax positions7 2 — 
Reductions for lapse of statute of limitations(4)(5)(3)
Balance at end of period$29 $24 $26 
Consumers
Balance at beginning of period$32 $36 $36 
Additions for current-year tax positions1 6 1 
Additions for prior-year tax positions7 1 2 
Reductions for lapse of statute of limitations(4)(11)(3)
Balance at end of period$36 $32 $36 
If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years. One uncertain tax benefit relates to the methodology of state apportionment for Consumers’ electricity sales to MISO. CMS Energy has filed an appeal on an adverse ruling received from the Michigan Tax Tribunal on this methodology and a hearing was held in February 2026.
CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS Energy, including Consumers, recognized immaterial interest and penalties for each of the years ended December 31, 2025, 2024, and 2023.
The amount of income taxes paid is subject to ongoing audits by federal, state, local, and foreign tax authorities, which can result in proposed assessments. CMS Energy’s federal income tax returns for 2022 and subsequent years remain subject to examination by the IRS. CMS Energy’s Michigan Corporate Income Tax returns for 2013 through 2016 and 2021 and subsequent years remain subject to examination by the State of Michigan. CMS Energy’s and Consumers’ estimate of the potential outcome for any uncertain tax issue is highly judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 2025 were adequate for all years.

Historical Timeline

Fiscal YearFiled
2025Feb 10, 2026Showing above
2024Feb 11, 2025
2023Feb 8, 2024
2022Feb 9, 2023
2021Feb 10, 2022
2020Feb 11, 2021
2019Feb 6, 2020
2018Feb 5, 2019
2017Feb 14, 2018
2016Feb 7, 2017
2015Feb 11, 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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