COGNIZANT TECHNOLOGY SOLUTIONS CORPCTSH
COGNIZANT TECHNOLOGY SOLUTIONS CORP Income Taxes Disclosure
Effective January 1, 2025, we adopted the new income tax disclosure standard (Income Taxes (Topic 740): Improvements to Income Tax Disclosures) on a prospective basis. Accordingly, the tables presenting our income tax provision and effective tax rate reconciliation will reflect the new standard for 2025, while the 2024 and 2023 disclosures will continue to follow the previous disclosure requirements.
Income before provision for income taxes shown below is based on the geographic location to which such income was attributed for years ended December 31:
| (in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| United States | $ | 1,189 | $ | 906 | $ | 813 | ||||||||||||||
| Foreign | 2,290 | 2,032 | 1,974 | |||||||||||||||||
| Income before provision for income taxes | $ | 3,479 | $ | 2,938 | $ | 2,787 | ||||||||||||||
The provision for income taxes consisted of the following components for the years ended December 31:
| (in millions) | 2025 | 2024 | 2023 | |||||||||||||||||||||||
| Current: | ||||||||||||||||||||||||||
Federal | $ | 216 | ||||||||||||||||||||||||
State | 139 | Federal and state | $ | 426 | $ | 522 | ||||||||||||||||||||
| Foreign | 576 | Foreign | 642 | 485 | ||||||||||||||||||||||
| Total current provision | 931 | 1,068 | 1,007 | |||||||||||||||||||||||
| Deferred: | ||||||||||||||||||||||||||
Federal | 302 | |||||||||||||||||||||||||
State | 4 | Federal and state | (229) | (354) | ||||||||||||||||||||||
| Foreign | 21 | Foreign | (126) | 15 | ||||||||||||||||||||||
Total deferred income tax (benefit) | 327 | (355) | (339) | |||||||||||||||||||||||
| Total provision for income taxes | $ | 1,258 | $ | 713 | $ | 668 | ||||||||||||||||||||
We are involved in two separate ongoing disputes with the ITD in connection with previously disclosed share repurchase transactions undertaken by CTS India in 2013 and 2016 to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $523 million and $2.8 billion, respectively.
The 2016 transaction was undertaken pursuant to a plan approved by the High Court in Chennai, India, and resulted in the payment of $135 million in Indian income taxes - an amount we believe includes all the applicable taxes owed for this transaction under Indian law. In March 2018, the ITD asserted that it is owed an additional 33 billion Indian rupees ($367 million at the December 31, 2025 exchange rate) on the 2016 transaction. We deposited 5 billion Indian rupees, representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. Additionally, certain time deposits of CTS India were placed under lien in favor of the ITD, representing the remainder of the disputed tax amount.
In April 2020, we received a formal assessment from the ITD on the 2016 transaction, which is consistent with the ITD's previous assertions. Our appeal was ruled on unfavorably by the CITA in March 2022 and by the ITAT in September 2023. We filed an appeal against the order of the ITAT with the High Court. On January 8, 2024, the SCI ruled that, in order to proceed with the appeal, we must deposit 30 billion Indian rupees, representing the time deposits of CTS India under lien, on the condition that, if CTS India prevails at the High Court, the amount deposited will be returned to CTS India, along with interest accrued, within four weeks of the judgment. We made the required deposit in January 2024 and, in April 2024, the case commenced before the High Court.
As of December 31, 2025 and 2024, the deposit with the ITD was $384 million and $403 million, respectively at December 31, 2025 and 2024 exchange rates, respectively presented in "Other noncurrent assets". As of December 31, 2023, the deposits related to the ITD dispute were comprised of $355 million in deposits under lien presented in "Long-term investments" and $60 million on deposit with the ITD presented in "Other noncurrent assets". Of the $355 million in deposits under lien, $96 million were held in time deposits with a maturity of less than 30 days qualifying as cash equivalent instruments and thus were considered restricted cash equivalents as of December 31, 2023.
The dispute in relation to the 2013 share repurchase transaction is also in litigation. At this time, the ITD has not made specific demands with regards to the 2013 transaction.
We continue to believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions and we continue to defend our positions with respect to both matters. Accordingly, we have not recorded any reserves for these matters as of December 31, 2025.
The reconciliation between the U.S. federal statutory rate and our effective income tax rate were as follows for the years ended December 31:
| (in millions) | 2025 | % | ||||||||||||
Tax expense, at U.S. federal statutory rate | $ | 731 | 21.0 | |||||||||||
State and local income taxes (net of federal benefit)1 | 113 | 3.2 | ||||||||||||
Foreign tax effects | ||||||||||||||
| United Kingdom | ||||||||||||||
| Statutory tax rate difference | 49 | 1.4 | ||||||||||||
| India | 86 | 2.5 | ||||||||||||
Other foreign jurisdictions | 17 | 0.5 | ||||||||||||
Effect of changes in tax laws or rates enacted in the current period2 | 336 | 9.7 | ||||||||||||
| Effect of cross- border tax laws | ||||||||||||||
Foreign‑derived intangible income (FDII) | (55) | (1.6) | ||||||||||||
Tax credits | (8) | (0.2) | ||||||||||||
Changes in valuation allowances | (2) | — | ||||||||||||
Nontaxable or nondeductible items | (3) | (0.1) | ||||||||||||
Changes in unrecognized tax benefits | (6) | (0.2) | ||||||||||||
Tax expense, at effective tax rate | $ | 1,258 | 36.2 | |||||||||||
(1)State taxes in New York (including local taxes in New York City) and Connecticut made up the majority (greater than 50 percent) of the tax effect in this category.
(2)In July 2025, the OBBBA was enacted in the United States, which, among other provisions, repealed the requirement to capitalize U.S. R&E costs. As a result, we do not believe it is more likely than not that we will realize our deferred tax asset of $390 million related to R&E costs capitalized outside the United States. Of this $390 million, $336 million related to federal income tax while the remaining $54 million related to state and local income tax. These amounts would have otherwise been available to offset certain future U.S. taxes on our non-U.S. earnings, which, as a result of this repeal, we no longer project to be applicable to us. Therefore, in the third quarter of 2025, we recorded a one-time, non-cash income tax expense of $390 million.
| (Dollars in millions) | 2024 | % | 2023 | % | ||||||||||||||||||||||
| Tax expense, at U.S. federal statutory rate | $ | 617 | 21.0 | $ | 585 | 21.0 | ||||||||||||||||||||
State and local income taxes, net of federal benefit | 74 | 2.5 | 55 | 2.0 | ||||||||||||||||||||||
| Rate differential on foreign earnings | 104 | 3.5 | 95 | 3.4 | ||||||||||||||||||||||
| Recognition of benefits related to uncertain tax positions | (15) | (0.5) | (33) | (1.2) | ||||||||||||||||||||||
| Credits and other incentives | (57) | (1.9) | (37) | (1.3) | ||||||||||||||||||||||
| Other | (10) | (0.3) | 3 | 0.1 | ||||||||||||||||||||||
| Total provision for income taxes | $ | 713 | 24.3 | $ | 668 | 24.0 | ||||||||||||||||||||
Income taxes paid, net of refunds for the year ended December 31, 2025 were as follows:
| (in millions) | Amount | |||||||
Income Taxes Paid | ||||||||
U.S. federal | $ | 272 | ||||||
U.S. state & local | 140 | |||||||
| Foreign | ||||||||
| UK | 246 | |||||||
| India | 226 | |||||||
Other jurisdictions | 101 | |||||||
| Cash paid during the period for income taxes | $ | 985 | ||||||
The significant components of deferred income tax assets and liabilities recorded on the consolidated statements of financial position were as follows as of December 31:
| (in millions) | 2025 | 2024 | ||||||||||||
| Deferred income tax assets: | ||||||||||||||
| Net operating losses | $ | 45 | $ | 50 | ||||||||||
| Revenue recognition (including intercompany revenue) | 422 | 51 | ||||||||||||
| Compensation and benefits | 204 | 164 | ||||||||||||
| Credit carryforwards | 18 | 11 | ||||||||||||
Expenses not currently deductible | 848 | 1,189 | ||||||||||||
| 1,537 | 1,465 | |||||||||||||
| Less: valuation allowance | (427) | (48) | ||||||||||||
| Deferred income tax assets, net | 1,110 | 1,417 | ||||||||||||
| Deferred income tax liabilities: | ||||||||||||||
| Depreciation and amortization | 295 | 298 | ||||||||||||
| Deferred costs | 16 | 25 | ||||||||||||
| Deferred income tax liabilities | 311 | 323 | ||||||||||||
| Net deferred income tax assets | $ | 799 | $ | 1,094 | ||||||||||
At December 31, 2025, we had foreign and U.S. net operating loss carryforwards of approximately $119 million and $75 million, respectively. We have recorded valuation allowances on certain net operating loss carryforwards.
We conduct business globally and file income tax returns in the United States, including federal and state, as well as various foreign jurisdictions. Tax years that remain subject to examination by the IRS are 2019 and onward, and years that remain subject to examination by state authorities vary by state. Years under examination by foreign tax authorities are 2003 and onward. In addition, transactions between our affiliated entities are arranged in accordance with applicable transfer pricing laws, regulations and relevant guidelines. As a result, and due to the interpretive nature of certain aspects of these laws and guidelines, we have pending applications for APAs before the taxing authorities in some of our most significant jurisdictions.
Changes in unrecognized income tax benefits were as follows for the years ended December 31:
| (in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Balance, beginning of year | $ | 319 | $ | 260 | $ | 269 | ||||||||||||||
| Additions based on tax positions related to the current year | 37 | 15 | 31 | |||||||||||||||||
| Additions for tax positions of prior years | 147 | 65 | 22 | |||||||||||||||||
| Reductions for tax positions due to lapse of statutes of limitations | (5) | (15) | (15) | |||||||||||||||||
Reductions for tax positions related to prior years | (3) | (6) | (33) | |||||||||||||||||
| Settlements | (8) | — | (14) | |||||||||||||||||
| Balance, end of year | $ | 487 | $ | 319 | $ | 260 | ||||||||||||||
The total amount of accrued net interest and penalties was $51 million and $35 million as of December 31, 2025 and 2024, respectively, and related to U.S. and foreign tax matters. The total amount of net interest and penalties recorded in the provision for income taxes in each of 2025, 2024 and 2023 was immaterial.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 12, 2025 | |
| 2023 | Feb 14, 2024 | |
| 2022 | Feb 15, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Feb 12, 2021 | |
| 2019 | Feb 14, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 25, 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.