DOW INC.DOW
DOW INC. Income Taxes Disclosure
INCOME TAXES
The financial statements for Dow Inc. and TDCC are substantially similar, including the reporting of current and deferred tax expense (benefit), provision (credit) for income taxes, and deferred tax asset and liability balances. As a result, the following income tax discussion pertains to Dow Inc. only.
The Company's effective tax rate fluctuates based on, among other factors, where income is earned, the level of income relative to tax attributes and the level of equity earnings, since most earnings from the Company's equity method investments are taxed at the joint venture level.
| Geographic Allocation of Income and Provision (Credit) for Income Taxes | |||||||||||
| In millions | 2025 | 2024 | 2023 | ||||||||
| Income (loss) before income taxes | |||||||||||
| Domestic | $ | (1,814) | $ | 492 | $ | (602) | |||||
| Foreign | (697) | 1,108 | 1,258 | ||||||||
| Income (loss) before income taxes | $ | (2,511) | $ | 1,600 | $ | 656 | |||||
| Current tax expense (benefit) | |||||||||||
| Federal | $ | (132) | $ | (137) | $ | 249 | |||||
| State and local | 5 | 12 | 18 | ||||||||
| Foreign | 401 | 389 | 951 | ||||||||
| Total current tax expense | $ | 274 | $ | 264 | $ | 1,218 | |||||
| Deferred tax expense (benefit) | |||||||||||
| Federal | $ | (484) | $ | 218 | $ | (445) | |||||
| State and local | (7) | 51 | 3 | ||||||||
| Foreign | 150 | (134) | (780) | ||||||||
| Total deferred tax expense (benefit) | $ | (341) | $ | 135 | $ | (1,222) | |||||
| Provision (credit) for income taxes | $ | (67) | $ | 399 | $ | (4) | |||||
| Net income (loss) | $ | (2,444) | $ | 1,201 | $ | 660 | |||||
Reconciliation to U.S. Statutory Rate 1 | 2025 | |||||||
| Amounts in millions | Amount | Percent | ||||||
| U.S. federal statutory tax rate | $ | (527) | 21.0 | % | ||||
| State and local income taxes, net of federal income tax effect | 9 | (0.3) | ||||||
| Foreign tax effects | ||||||||
| Argentina | ||||||||
| Foreign currency related items | 47 | (1.9) | ||||||
| Other | (5) | 0.2 | ||||||
| Brazil | ||||||||
| Changes in valuation allowances | 107 | (4.3) | ||||||
| Statutory tax rate difference | (47) | 1.9 | ||||||
| Other | 25 | (1.0) | ||||||
| China | 27 | (1.1) | ||||||
| Germany | 31 | (1.2) | ||||||
| The Netherlands | ||||||||
| Foreign currency related items | (34) | 1.4 | ||||||
| Other | 2 | (0.1) | ||||||
| Singapore | ||||||||
| Changes in valuation allowances | 117 | (4.7) | ||||||
| Other | 8 | (0.3) | ||||||
| Switzerland | ||||||||
| Changes in valuation allowances | 95 | (3.8) | ||||||
| Statutory tax rate difference | 44 | (1.8) | ||||||
| Nondeductible interest expense | 36 | (1.4) | ||||||
| Other | 36 | (1.4) | ||||||
| Other foreign jurisdictions | 122 | (4.9) | ||||||
| Equity losses | 53 | (2.1) | ||||||
| Effect of cross-border tax laws | 60 | (2.4) | ||||||
| Tax credits | ||||||||
| General business credits | (26) | 1.0 | ||||||
Foreign tax credits 2 | (294) | 11.7 | ||||||
| Changes in valuation allowances | 37 | (1.5) | ||||||
| Nontaxable or nondeductible items | ||||||||
| Goodwill impairment | 81 | (3.2) | ||||||
| Other | 2 | (0.1) | ||||||
| Changes in unrecognized tax benefits | 108 | (4.3) | ||||||
| Other adjustments | ||||||||
| Sale of membership interests in Diamond Infrastructure Solutions | (112) | 4.5 | ||||||
| Other | (69) | 2.8 | ||||||
| Effective tax rate | $ | (67) | 2.7 | % | ||||
1.Disaggregated in accordance with ASU 2023-09, which was adopted prospectively in 2025.
2.Primarily related to a tax credit stemming from the U.S. Tax Court's decision in Varian Medical Systems Inc. v. Commissioner.
Reconciliation to U.S. Statutory Rate 1 | 2024 | 2023 | ||||||
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | ||||
| Equity earnings effect | — | 4.2 | ||||||
| Foreign income taxed at rates other than the statutory U.S. federal income tax rate | 4.6 | 8.3 | ||||||
| U.S. tax effect of foreign earnings and dividends | 3.9 | (13.0) | ||||||
| Unrecognized tax benefits | (10.2) | 33.1 | ||||||
| Changes in valuation allowances | (4.4) | 18.8 | ||||||
| Federal tax accrual adjustment | (1.0) | (21.2) | ||||||
| State and local income taxes | 5.4 | 3.0 | ||||||
Change in tax basis in foreign assets 2 | 8.3 | (54.9) | ||||||
| Foreign permanent items | (5.7) | (1.1) | ||||||
| Other - net | 3.0 | 1.2 | ||||||
| Effective tax rate | 24.9 | % | (0.6) | % | ||||
1.As presented prior to adoption of ASU 2023-09, which was adopted prospectively in 2025.
2.The 2023 impact primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.
| Deferred Tax Balances at Dec 31 | 2025 | 2024 | ||||||||||||
| In millions | Assets | Liabilities | Assets | Liabilities | ||||||||||
| Property | $ | 281 | $ | 2,485 | $ | 178 | $ | 2,550 | ||||||
| Tax loss and credit carryforwards | 1,653 | — | 1,732 | — | ||||||||||
| Postretirement benefit obligations | 880 | 215 | 949 | 187 | ||||||||||
| Other accruals and reserves | 1,997 | 382 | 1,881 | 572 | ||||||||||
| Intangibles | 2,207 | 225 | 1,972 | 261 | ||||||||||
| Inventory | 141 | 103 | 137 | 227 | ||||||||||
| Investments | 145 | 234 | 102 | 31 | ||||||||||
| Other – net | 627 | 91 | 586 | 96 | ||||||||||
| Subtotal | $ | 7,931 | $ | 3,735 | $ | 7,537 | $ | 3,924 | ||||||
| Valuation allowances | (3,049) | — | (2,748) | — | ||||||||||
| Total | $ | 4,882 | $ | 3,735 | $ | 4,789 | $ | 3,924 | ||||||
| Operating Loss and Tax Credit Carryforwards at Dec 31 | 2025 | 2024 | ||||||
| In millions | Assets | Assets | ||||||
| Operating loss carryforwards | ||||||||
| Expire within 5 years | $ | 268 | $ | 390 | ||||
| Expire after 5 years or indefinite expiration | 777 | 567 | ||||||
| Total operating loss carryforwards | $ | 1,045 | $ | 957 | ||||
| Tax credit carryforwards | ||||||||
| Expire within 5 years | $ | 118 | $ | 121 | ||||
| Expire after 5 years or indefinite expiration | 362 | 244 | ||||||
| Total tax credit carryforwards | $ | 480 | $ | 365 | ||||
| Capital loss carryforwards | ||||||||
| Expire within 5 years | $ | 128 | $ | 410 | ||||
| Total tax loss and tax credit carryforwards | $ | 1,653 | $ | 1,732 | ||||
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $5,319 million at December 31, 2025 and $7,125 million at December 31, 2024. Undistributed earnings are subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. It is not practicable to calculate the unrecognized deferred tax liability on undistributed earnings.
The following table provides a reconciliation of the Company's unrecognized tax benefits:
| Total Gross Unrecognized Tax Benefits | |||||||||||
| In millions | 2025 | 2024 | 2023 | ||||||||
| Total unrecognized tax benefits at Jan 1 | $ | 422 | $ | 513 | $ | 520 | |||||
| Decreases related to positions taken on items from prior years | (21) | (3) | (58) | ||||||||
| Increases related to positions taken on items from prior years | 4 | — | 89 | ||||||||
| Increases related to positions taken in the current year | 132 | 47 | 77 | ||||||||
| Settlement of uncertain tax positions with tax authorities | (24) | (118) | (109) | ||||||||
| Decreases due to expiration of statutes of limitations | (7) | (12) | (11) | ||||||||
| Foreign exchange loss (gain) | 3 | (5) | 5 | ||||||||
| Total unrecognized tax benefits at Dec 31 | $ | 509 | $ | 422 | $ | 513 | |||||
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 509 | $ | 422 | $ | 513 | |||||
| Total amount of interest and penalties expense (benefit) recognized in "Provision (credit) for income taxes" | $ | 13 | $ | (234) | $ | 126 | |||||
| Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 334 | $ | 327 | $ | 561 | |||||
The Company files tax returns in multiple jurisdictions. These returns are subject to examination and possible challenge by the tax authorities. Open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations. The earliest open tax years are 2004 for state income taxes and 2007 for federal income taxes in the United States and 2010 for taxes in foreign jurisdictions.
On July 4, 2025, U.S. legislation formally titled "An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” (“the Act”) and commonly referred to as the One Big Beautiful Bill Act was signed into law. The Act, among other things, extended key provisions of the 2017 Tax Cuts and Jobs Act and introduced targeted changes to the U.S. federal income tax regime. The Act has not materially impacted the Company's effective tax rate.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 3, 2026 | Showing above |
| 2024 | Feb 4, 2025 | |
| 2023 | Jan 31, 2024 | |
| 2022 | Feb 1, 2023 | |
| 2021 | Feb 4, 2022 | |
| 2019 | Feb 7, 2020 | |
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.