QUEST DIAGNOSTICS INCDGX
QUEST DIAGNOSTICS INC Income Taxes Disclosure
TAXES ON INCOME
The Company's pre-tax income before equity in earnings of equity method investees consisted of approximately $1.2 billion, $1.1 billion and $1.1 billion from U.S. operations and pre-tax income of $96 million, $28 million and $7 million from foreign operations for the years ended December 31, 2025, 2024 and 2023, respectively.
The components of income tax expense (benefit) for the years ended December 31, 2025, 2024 and 2023 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 171 | $ | 204 | $ | 235 | |||||||||||
| State and local | 33 | 52 | 59 | ||||||||||||||
| Foreign | 5 | 4 | 3 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 55 | 4 | (38) | ||||||||||||||
| State and local | 21 | 2 | (10) | ||||||||||||||
| Foreign | 29 | 7 | (1) | ||||||||||||||
| Total | $ | 314 | $ | 273 | $ | 248 | |||||||||||
A reconciliation of the federal statutory income tax rate to the Company's effective income tax rate for the years ended December 31, 2025, 2024 and 2023 was as follows (dollars in millions):
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||
| U.S. federal statutory tax rate | $ | 277 | 21.0 | % | $ | 247 | 21.0 | % | $ | 237 | 21.0 | % | |||||||||||||||||
| State and local income taxes, net of federal benefit (a) | 47 | 3.5 | 41 | 3.5 | 38 | 3.4 | |||||||||||||||||||||||
| Foreign tax effects | 14 | 1.0 | 3 | 0.3 | — | — | |||||||||||||||||||||||
| Effect of cross-border tax laws | 2 | 0.2 | (1) | (0.1) | (2) | (0.2) | |||||||||||||||||||||||
| Tax credits | (8) | (0.6) | (12) | (1.1) | (11) | (1.0) | |||||||||||||||||||||||
| Nontaxable or nondeductible expenses: | |||||||||||||||||||||||||||||
| Excess tax benefits on stock-based compensation arrangements | (18) | (1.3) | (9) | (0.7) | (11) | (1.0) | |||||||||||||||||||||||
| Other, net | 6 | 0.5 | 12 | 1.0 | 10 | 0.9 | |||||||||||||||||||||||
| Changes in unrecognized tax benefits | (1) | (0.1) | (2) | (0.2) | (2) | (0.2) | |||||||||||||||||||||||
| Other, net: | |||||||||||||||||||||||||||||
| Impact of noncontrolling interests | (13) | (1.0) | (13) | (1.1) | (14) | (1.2) | |||||||||||||||||||||||
| Other adjustments | 8 | 0.6 | 7 | 0.6 | 3 | 0.3 | |||||||||||||||||||||||
| Effective income tax rate | $ | 314 | 23.8 | % | $ | 273 | 23.2 | % | $ | 248 | 22.0 | % | |||||||||||||||||
(a) State taxes in California, Florida, New York, Pennsylvania, Texas, and Virginia made up the majority (greater than 50%) of the tax effect in this category.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) as of December 31, 2025 and 2024 were as follows:
| 2025 | 2024 | ||||||||||
| Non-current deferred tax assets (liabilities): | |||||||||||
| Accounts receivable reserves | $ | 18 | $ | 15 | |||||||
| Liabilities not currently deductible | 181 | 170 | |||||||||
| Stock-based compensation | 34 | 35 | |||||||||
| Basis differences in investments, joint ventures and subsidiaries | (4) | (4) | |||||||||
| Tax attribute carryforwards, net of valuation allowances and unrecognized tax position liabilities | 80 | 60 | |||||||||
| Operating lease right-of-use assets | (147) | (146) | |||||||||
| Operating lease liabilities | 161 | 161 | |||||||||
| Depreciation and amortization | (667) | (541) | |||||||||
| Total non-current deferred tax liabilities, net | $ | (344) | $ | (250) | |||||||
As of December 31, 2025 and 2024, non-current deferred tax liabilities of $354 million and $278 million, respectively, are included in other liabilities in the consolidated balance sheet. As of December 31, 2025 and 2024, non-current deferred tax assets of $10 million and $28 million, respectively, are included in other assets in the consolidated balance sheet.
As of December 31, 2025, the Company had estimated net operating loss carryforwards for federal and state income tax purposes of $4 million and $627 million, respectively, which expire at various dates through 2045. Estimated net operating loss carryforwards for foreign income tax purposes are $220 million as of December 31, 2025, some of which can be carried forward indefinitely, while others expire at various dates through 2044. As of December 31, 2025, the Company had capital loss carryforwards of $17 million, Federal Corporate Alternative Minimum Tax credits of $34 million and various state credits of $29 million, which expire at various dates through 2045. As of December 31, 2025 and 2024, deferred tax assets associated with tax attribute carryforwards of $126 million and $95 million, respectively, have each been reduced by valuation allowances of $46 million and $35 million, respectively.
Income taxes payable, including those classified as long-term in other liabilities in the consolidated balance sheet as of December 31, 2025 and 2024, were $120 million and $96 million, respectively. Prepaid income taxes were $32 million and $47 million as of December 31, 2025 and 2024, respectively, and were recorded in prepaid expenses and other current assets in the consolidated balance sheet.
Income taxes paid by jurisdiction for the years ended December 31, 2025, 2024 and 2023 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 125 | $ | 211 | $ | 246 | |||||||||||
| State and local | 41 | 42 | 49 | ||||||||||||||
| New York City (a) | 21 | ||||||||||||||||
| Foreign | 3 | 3 | 1 | ||||||||||||||
| Total income taxes paid by jurisdiction | $ | 169 | $ | 256 | $ | 317 | |||||||||||
(a) The amount of income taxes paid during the years ended December 31, 2025 and 2024 did not meet the 5% disaggregation threshold.
The total amount of unrecognized tax benefits as of and for the years ended December 31, 2025, 2024 and 2023 consisted of the following:
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance, beginning of year | $ | 124 | $ | 90 | $ | 94 | |||||||||||
| Additions: | |||||||||||||||||
| For tax positions of current year | 1 | 2 | 1 | ||||||||||||||
| For tax positions of prior years | 9 | 9 | 15 | ||||||||||||||
| Reductions: | |||||||||||||||||
| Changes in judgment | (4) | — | (6) | ||||||||||||||
| Expirations of statutes of limitations | (6) | (5) | (4) | ||||||||||||||
| Settlements | (4) | — | (10) | ||||||||||||||
| Other: | |||||||||||||||||
| Foreign deferred tax assets reduction | — | 28 | — | ||||||||||||||
| Balance, end of year | $ | 120 | $ | 124 | $ | 90 | |||||||||||
The contingent liabilities for tax positions primarily relate to uncertainties associated with the realization of tax benefits derived from the allocation of income and expense among state jurisdictions, the characterization and timing of certain tax deductions associated with business combinations, certain tax credits and the deductibility of certain expenses and settlement payments.
The total amount of unrecognized tax benefits as of December 31, 2025, that, if recognized, would affect the effective income tax rate is $102 million.
Accruals for interest expense on contingent tax liabilities are classified in income tax expense in the consolidated statements of operations. Accruals for penalties have historically been immaterial. Interest expense included in income tax expense in each of the years ended December 31, 2025, 2024 and 2023 was approximately $4 million, $7 million and $5 million, respectively. As of December 31, 2025 and 2024, the Company had approximately $28 million and $24 million, respectively, accrued, net of the benefit of a federal and state deduction, for the payment of interest on uncertain tax positions.
The recognition and measurement of certain tax benefits includes estimates and judgment by management and inherently involves subjectivity. Changes in estimates may create volatility in the Company's effective tax rate in future periods and may be due to settlements with various tax authorities (either favorable or unfavorable), the expiration of the statute of limitations on certain tax positions and obtaining new information about particular tax positions that may cause management to change its estimates.
In the regular course of business, various federal, state, local and foreign tax authorities conduct examinations of the Company's income tax filings and the Company generally remains subject to examination until the statute of limitations expires for the respective jurisdiction. The Internal Revenue Service has either completed its examinations of the Company's consolidated federal income tax returns or the statute of limitations has expired up through and including the 2021 tax year. At this time, the Company does not believe that there will be any material additional payments beyond its recorded contingent liability reserves that may be required as a result of these tax audits. As of December 31, 2025, a summary of the tax years that remain subject to examination, awaiting approval, are under appeal, or are otherwise unresolved for the Company's major jurisdictions are:
United States - federal 2022 - 2024
United States - various states 2015 - 2024About 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.