EVERSOURCE ENERGYES
EVERSOURCE ENERGY Income Taxes Disclosure
INCOME TAXES
The components of income tax expense are as follows:
Eversource (Millions of Dollars) | For the Years Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current Income Taxes: | |||||||||||||||||
| Federal | $ | 77.5 | $ | (23.4) | $ | 75.8 | |||||||||||
| State | 37.5 | 14.3 | 0.6 | ||||||||||||||
| Total Current | 115.0 | (9.1) | 76.4 | ||||||||||||||
| Deferred Income Taxes, Net: | |||||||||||||||||
| Federal | 63.7 | 266.3 | (0.9) | ||||||||||||||
| State | (36.4) | 169.6 | 86.3 | ||||||||||||||
| Total Deferred | 27.3 | 435.9 | 85.4 | ||||||||||||||
| Investment Tax Credits, Net | (2.0) | (2.1) | (2.1) | ||||||||||||||
| Income Tax Expense | $ | 140.3 | $ | 424.7 | $ | 159.7 | |||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Millions of Dollars) | CL&P | NSTAR Electric | PSNH | CL&P | NSTAR Electric | PSNH | CL&P | NSTAR Electric | PSNH | ||||||||||||||||||||||||||||||||||||||||||||
| Current Income Taxes: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Federal | $ | 191.1 | $ | 118.9 | $ | 57.3 | $ | 25.9 | $ | 65.9 | $ | (1.7) | $ | (10.8) | $ | 50.7 | $ | (40.0) | |||||||||||||||||||||||||||||||||||
| State | 70.9 | 37.2 | 23.5 | (6.8) | 15.2 | (5.2) | (2.3) | 7.8 | (20.0) | ||||||||||||||||||||||||||||||||||||||||||||
| Total Current | 262.0 | 156.1 | 80.8 | 19.1 | 81.1 | (6.9) | (13.1) | 58.5 | (60.0) | ||||||||||||||||||||||||||||||||||||||||||||
| Deferred Income Taxes, Net: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Federal | (66.5) | 10.0 | 3.7 | 107.9 | 63.9 | 50.8 | 130.3 | 50.1 | 81.2 | ||||||||||||||||||||||||||||||||||||||||||||
| State | (28.3) | 25.6 | 7.6 | 67.5 | 47.3 | 26.3 | 53.7 | 46.1 | 37.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Total Deferred | (94.8) | 35.6 | 11.3 | 175.4 | 111.2 | 77.1 | 184.0 | 96.2 | 119.0 | ||||||||||||||||||||||||||||||||||||||||||||
| Investment Tax Credits, Net | — | (1.7) | — | — | (1.7) | — | — | (1.7) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Expense | $ | 167.2 | $ | 190.0 | $ | 92.1 | $ | 194.5 | $ | 190.6 | $ | 70.2 | $ | 170.9 | $ | 153.0 | $ | 59.0 | |||||||||||||||||||||||||||||||||||
A reconciliation between income tax expense and the expected tax expense at the statutory rate is as follows:
| For the Year Ended December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Eversource | CL&P | NSTAR Electric | PSNH | ||||||||||||||||||||||||||||||||||||||||||||
| (Millions of Dollars) | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||||||
| Income Before Income Tax Expense | 1,840.2 | N/A | $ | 718.5 | N/A | $ | 820.7 | N/A | $ | 361.5 | N/A | ||||||||||||||||||||||||||||||||||||
| U.S. Federal Statutory Income Tax Expense at 21% | 386.4 | 21 | % | 150.9 | 21 | % | 172.3 | 21 | % | 75.9 | 21 | % | |||||||||||||||||||||||||||||||||||
| Tax Effect of Differences: | |||||||||||||||||||||||||||||||||||||||||||||||
State and Local Income Tax Effects, Net of Federal Impact (1) | 2.4 | 0.1 | 39.6 | 5.5 | 49.6 | 6.0 | 24.6 | 6.8 | |||||||||||||||||||||||||||||||||||||||
| Federal Tax Credits | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and Development Tax Credits | (22.6) | (1.2) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Changes in Valuation Allowances | (241.6) | (13.1) | (6.2) | (0.9) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Nontaxable or Nondeductible Items: | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation | (23.4) | (1.3) | 2.5 | 0.3 | (10.6) | (1.3) | (2.2) | (0.6) | |||||||||||||||||||||||||||||||||||||||
| EDIT Amortization | (50.6) | (2.7) | (17.0) | (2.4) | (21.7) | (2.6) | (8.1) | (2.2) | |||||||||||||||||||||||||||||||||||||||
| Loss on Offshore Wind | 59.5 | 3.2 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other | 30.2 | 1.6 | (2.6) | (0.4) | 0.4 | — | 1.9 | 0.5 | |||||||||||||||||||||||||||||||||||||||
| Income Tax Expense/Effective Tax Rate | $ | 140.3 | 7.6 | % | $ | 167.2 | 23.3 | % | $ | 190.0 | 23.2 | % | $ | 92.1 | 25.5 | % | |||||||||||||||||||||||||||||||
(1) State taxes in Connecticut (for CL&P), Massachusetts (for NSTAR Electric) and New Hampshire (for PSNH) made up the majority of the tax effects in this category for Eversource.
Eversource maintains a valuation allowance recorded on deferred tax assets associated with the loss recorded from the offshore wind investments. In the third quarter of 2025, as part of filing its 2024 tax return to provision process, Eversource partially reversed this valuation allowance by $294 million and also recorded a charge of $129 million as it reconciled the positions on the tax return to what was estimated as of December 31, 2024, resulting in a net benefit of $165 million to tax expense. The adjustment to the valuation allowance was required based on the reconciling of previously recorded tax losses to amounts included in applicable partnership income tax returns. Both adjustments resulted from changes in tax estimates based on information from the partnership tax returns received in the third quarter of 2025. Eversource also recognized state tax benefits and certain tax credits of $118 million as part of the 2024 tax return to provision process. These benefits totaling $283 million were recorded as a reduction to income tax expense on the statement of income in 2025. The Loss on Offshore Wind in the table above of $59.5 million reflects the federal impacts of the $129 million charge, partially offset by the tax benefit of $44 million recorded from the pre-tax increase of $284 million to the offshore wind contingent liability recorded in the third quarter of 2025.
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Millions of Dollars, except percentages) | Eversource | CL&P | NSTAR Electric | PSNH | Eversource | CL&P | NSTAR Electric | PSNH | ||||||||||||||||||||||||||||||||||||||||||
| Income/(Loss) Before Income Tax Expense | $ | 1,243.8 | $ | 707.1 | $ | 826.9 | $ | 285.1 | $ | (275.0) | $ | 689.6 | $ | 697.5 | $ | 254.7 | ||||||||||||||||||||||||||||||||||
| Statutory Federal Income Tax Expense at 21% | 261.2 | 148.5 | 173.7 | 59.9 | (57.7) | 144.9 | 146.5 | 53.5 | ||||||||||||||||||||||||||||||||||||||||||
| Tax Effect of Differences: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation | (22.6) | 0.4 | (10.9) | (1.0) | (25.8) | (5.6) | (8.8) | (1.0) | ||||||||||||||||||||||||||||||||||||||||||
| Investment Tax Credit Amortization | (2.1) | — | (1.7) | — | (2.1) | — | (1.7) | — | ||||||||||||||||||||||||||||||||||||||||||
| Other Federal Tax Credits | (67.0) | — | — | — | (42.5) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| State Income Taxes, Net of Federal Impact | 43.2 | (2.8) | 49.4 | 16.7 | (11.4) | (10.7) | 42.5 | 14.1 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends on ESOP | (5.5) | — | — | — | (5.3) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Tax Asset Valuation Allowance/Reserve Adjustments | 278.6 | 50.8 | — | — | 295.8 | 51.3 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Tax Deficiency | 2.3 | 0.8 | 0.8 | 0.3 | 0.5 | 0.2 | 0.2 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||
| EDIT Amortization | (37.0) | (9.2) | (20.0) | (6.5) | (51.5) | (10.5) | (28.4) | (6.8) | ||||||||||||||||||||||||||||||||||||||||||
| Other, Net | (26.4) | 6.0 | (0.7) | 0.8 | 59.7 | 1.3 | 2.7 | (0.9) | ||||||||||||||||||||||||||||||||||||||||||
| Income Tax Expense | $ | 424.7 | $ | 194.5 | $ | 190.6 | $ | 70.2 | $ | 159.7 | $ | 170.9 | $ | 153.0 | $ | 59.0 | ||||||||||||||||||||||||||||||||||
| Effective Tax Rate | 34.1 | % | 27.5 | % | 23.0 | % | 24.6 | % | (58.1) | % | 24.8 | % | 21.9 | % | 23.2 | % | ||||||||||||||||||||||||||||||||||
Eversource, CL&P, NSTAR Electric and PSNH file a consolidated federal income tax return and unitary, combined and separate state income tax returns. These entities are also parties to a tax allocation agreement under which taxable subsidiaries do not pay any more taxes than they would have otherwise paid had they filed a separate company tax return, and subsidiaries generating tax losses, if any, are paid for their losses when utilized.
Deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The tax effect of temporary differences is accounted for in accordance with the rate-making treatment of the applicable regulatory commissions and relevant accounting authoritative literature. The tax effects of temporary differences that give rise to the net accumulated deferred income tax obligations are as follows:
| As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| (Millions of Dollars) | Eversource | CL&P | NSTAR Electric | PSNH | Eversource | CL&P | NSTAR Electric | PSNH | |||||||||||||||||||||||||||||||||||||||
| Deferred Tax Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Employee Benefits | $ | 273.0 | $ | 37.3 | $ | 92.5 | $ | 16.1 | $ | 266.9 | $ | 33.7 | $ | 83.5 | $ | 14.5 | |||||||||||||||||||||||||||||||
| Derivative Liabilities | 205.8 | — | 205.8 | — | 19.6 | 19.6 | — | — | |||||||||||||||||||||||||||||||||||||||
| Regulatory Deferrals - Liabilities | 716.7 | 212.7 | 402.5 | 48.3 | 508.7 | 128.0 | 316.7 | 19.6 | |||||||||||||||||||||||||||||||||||||||
| Allowance for Uncollectible Accounts | 151.9 | 70.2 | 30.7 | 6.2 | 145.3 | 75.4 | 26.5 | 3.8 | |||||||||||||||||||||||||||||||||||||||
| Tax Effect - Tax Regulatory Liabilities | 696.0 | 310.7 | 201.1 | 90.5 | 720.8 | 317.6 | 214.3 | 93.2 | |||||||||||||||||||||||||||||||||||||||
| Net Operating Loss Carryforwards | 314.0 | — | — | — | 198.2 | — | — | 1.5 | |||||||||||||||||||||||||||||||||||||||
| Purchase Accounting Adjustment | 48.2 | — | — | — | 52.1 | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Equity Method Wind Investments | 760.3 | — | — | — | 1,098.6 | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other | 229.6 | 133.3 | 30.9 | 19.7 | 267.1 | 134.7 | 31.5 | 24.1 | |||||||||||||||||||||||||||||||||||||||
| Total Deferred Tax Assets | 3,395.5 | 764.2 | 963.5 | 180.8 | 3,277.3 | 709.0 | 672.5 | 156.7 | |||||||||||||||||||||||||||||||||||||||
Less: Valuation Allowance (1) | 293.4 | 104.2 | — | — | 558.2 | 104.1 | — | — | |||||||||||||||||||||||||||||||||||||||
| Net Deferred Tax Assets | $ | 3,102.1 | $ | 660.0 | $ | 963.5 | $ | 180.8 | $ | 2,719.1 | $ | 604.9 | $ | 672.5 | $ | 156.7 | |||||||||||||||||||||||||||||||
| Deferred Tax Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Accelerated Depreciation and Other Plant-Related Differences | $ | 5,880.4 | $ | 1,925.0 | $ | 1,963.2 | $ | 673.3 | $ | 5,493.3 | $ | 1,820.3 | $ | 1,845.2 | $ | 618.4 | |||||||||||||||||||||||||||||||
| Property Tax Accruals | 118.3 | 56.8 | 47.5 | 7.0 | 107.4 | 49.8 | 44.5 | 6.5 | |||||||||||||||||||||||||||||||||||||||
| Regulatory Amounts: | |||||||||||||||||||||||||||||||||||||||||||||||
| Regulatory Deferrals - Assets | 1,837.0 | 405.1 | 725.3 | 263.4 | 1,709.1 | 522.9 | 519.9 | 277.8 | |||||||||||||||||||||||||||||||||||||||
| Tax Effect - Tax Regulatory Assets | 308.5 | 199.6 | 9.6 | 10.3 | 294.5 | 194.7 | 10.0 | 9.4 | |||||||||||||||||||||||||||||||||||||||
| Goodwill-related Regulatory Asset - 1999 Merger | 62.9 | — | 54.0 | — | 67.5 | — | 58.0 | — | |||||||||||||||||||||||||||||||||||||||
| Employee Benefits | 404.1 | 60.5 | 194.7 | 31.0 | 353.0 | 51.0 | 175.4 | 23.5 | |||||||||||||||||||||||||||||||||||||||
| Derivative Assets | 24.9 | — | 24.9 | — | 3.8 | 3.8 | — | — | |||||||||||||||||||||||||||||||||||||||
| Other | 113.2 | 18.9 | 31.6 | 2.1 | 101.7 | 15.2 | 24.9 | 2.7 | |||||||||||||||||||||||||||||||||||||||
| Total Deferred Tax Liabilities | $ | 8,749.3 | $ | 2,665.9 | $ | 3,050.8 | $ | 987.1 | $ | 8,130.3 | $ | 2,657.7 | $ | 2,677.9 | $ | 938.3 | |||||||||||||||||||||||||||||||
(1) As of December 31, 2025 and 2024, the Eversource Valuation Allowance of $293.4 million and $558.2 million, includes $162.4 million and $427.0 million, respectively, related to Eversource’s share of offshore wind investments.
Income Taxes Paid: The following tables present income taxes paid, net of refunds received, disaggregated by jurisdiction. The jurisdictions presented include federal, state, and any individual jurisdictions where the amount of income taxes paid equals or exceeds five percent of the total income taxes paid during the reporting period.
Eversource (Millions of Dollars) | For the Years Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cash Paid/(Received) for Income Taxes, Net of Refunds: | |||||||||||||||||
| Federal Income Taxes | $ | (48.8) | |||||||||||||||
| State Income Taxes: | |||||||||||||||||
| Connecticut | 6.2 | ||||||||||||||||
| Massachusetts | (8.7) | ||||||||||||||||
| Other | 2.9 | ||||||||||||||||
| State Income Taxes | 0.4 | ||||||||||||||||
| Total Cash Paid/(Received) for Income Taxes, Net of Refunds | $ | (48.4) | |||||||||||||||
| Total Cash Paid/(Received) for Income Taxes (Prior to ASU 2023-09) | $ | (69.6) | $ | 39.2 | |||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Millions of Dollars) | CL&P | NSTAR Electric | PSNH | CL&P | NSTAR Electric | PSNH | CL&P | NSTAR Electric | PSNH | ||||||||||||||||||||||||||||||||||||||||||||
| Cash Paid for Income Taxes, Net of Refunds: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Federal Income Taxes | $ | 113.1 | $ | 124.5 | $ | 60.0 | |||||||||||||||||||||||||||||||||||||||||||||||
| State Income Taxes: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Connecticut | 22.4 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Massachusetts | (a) | 40.3 | (a) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| New Hampshire | — | — | 22.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 0.2 | — | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| State Income Taxes | 22.6 | 40.3 | 23.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Cash Paid for Income Taxes, Net of Refunds | $ | 135.7 | $ | 164.8 | $ | 83.0 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Cash Paid/(Received) for Income Taxes (Prior to ASU 2023-09) | $ | (47.4) | $ | 118.7 | $ | (36.0) | $ | (44.1) | $ | 31.3 | $ | (59.9) | |||||||||||||||||||||||||||||||||||||||||
(a) Did not meet the five percent threshold required for separate disclosure.
Carryforwards: The following table provides the amounts and expiration dates of state tax credit and loss carryforwards and federal tax credit and net operating loss carryforwards:
| As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Millions of Dollars) | Eversource | CL&P | NSTAR Electric | PSNH | Expiration Range | Eversource | CL&P | NSTAR Electric | PSNH | Expiration Range | |||||||||||||||||||||||||||||||||||||||||||||||||
| Federal Net Operating Loss | $ | 1,079.4 | $ | — | $ | — | $ | — | — | $ | 877.7 | $ | — | $ | — | $ | 7.1 | — | |||||||||||||||||||||||||||||||||||||||||
| Federal Tax Credit | 397.4 | 0.3 | — | — | 2044 | 404.1 | — | — | — | 2044 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Federal Charitable Contribution | 1.1 | — | — | — | 2029 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Federal Capital Loss | 1,044.6 | — | — | — | 2025 - 2029 | 2,700.0 | — | — | — | 2024 - 2029 | |||||||||||||||||||||||||||||||||||||||||||||||||
| State Net Operating Loss | 1,447.8 | — | — | — | 2040 - 2044 | 214.1 | — | — | — | 2024 - 2044 | |||||||||||||||||||||||||||||||||||||||||||||||||
| State Tax Credit | 236.7 | 153.9 | — | — | 2025 - 2030 | 238.3 | 157.7 | — | — | 2024 - 2029 | |||||||||||||||||||||||||||||||||||||||||||||||||
| State Capital Loss | 1,044.6 | — | — | — | 2025 - 2029 | 2,700.0 | — | — | — | 2024 - 2029 | |||||||||||||||||||||||||||||||||||||||||||||||||
| State Charitable Contribution | 13.2 | — | — | — | 2026 - 2029 | 15.2 | — | — | — | 2024 - 2028 | |||||||||||||||||||||||||||||||||||||||||||||||||
In 2025, the Company decreased its valuation allowance reserve for state credits by $0.2 million (increased by $0.1 million for CL&P), net of tax, and in 2024, the Company increased its valuation allowance reserve for state credits by $27.3 million ($23.5 million for CL&P), net of tax.
For 2025 and 2024, state credit and federal and state capital loss carryforwards have been partially reserved by a valuation allowance of $293.4 million and $558.2 million (net of tax), respectively.
Unrecognized Tax Benefits: A reconciliation of the activity in unrecognized tax benefits, all of which would impact the effective tax rate if recognized, is as follows:
| (Millions of Dollars) | Eversource | CL&P | |||||||||
| Balance as of January 1, 2023 | $ | 67.1 | $ | 25.5 | |||||||
| Gross Increases - Current Year | 23.4 | 4.0 | |||||||||
| Gross Increases - Prior Year | 0.1 | 0.1 | |||||||||
| Gross Decreases - Prior Year | (0.1) | — | |||||||||
| Lapse of Statute of Limitations | (9.2) | (3.8) | |||||||||
| Balance as of December 31, 2023 | 81.3 | 25.8 | |||||||||
| Gross Increases - Current Year | 14.2 | 2.9 | |||||||||
| Gross Increases - Prior Year | 11.0 | — | |||||||||
| Gross Decreases - Prior Year | (0.2) | (0.2) | |||||||||
| Lapse of Statute of Limitations | (12.6) | (6.6) | |||||||||
| Balance as of December 31, 2024 | 93.7 | 21.9 | |||||||||
| Gross Increases - Current Year | 11.9 | 3.2 | |||||||||
| Gross Increases - Prior Year | 5.9 | 1.1 | |||||||||
| Lapse of Statute of Limitations | (13.3) | (4.6) | |||||||||
| Balance as of December 31, 2025 | $ | 98.2 | $ | 21.6 | |||||||
Interest and Penalties: Interest on uncertain tax positions is recorded and generally classified as a component of Other Interest Expense on the statements of income. However, when resolution of uncertainties results in the Company receiving interest income, any related interest benefit is recorded in Other Income, Net on the statements of income. No penalties have been recorded. The amount of interest expense recognized on uncertain tax positions was $2.4 million, $1.3 million and $0.3 million for the years ended December 31, 2025, 2024, and 2023, respectively. Accrued interest payable was $4.1 million and $1.7 million as of December 31, 2025 and 2024, respectively.
Tax Positions: During 2025 and 2024, Eversource did not resolve any of its uncertain tax positions.
Open Tax Years: The following table summarizes Eversource, CL&P, NSTAR Electric, and PSNH's tax years that remain subject to examination by major tax jurisdictions as of December 31, 2025:
| Description | Tax Years | ||||
| Federal | 2022 - 2025(1) | ||||
| Connecticut | 2022 - 2025 | ||||
| Massachusetts | 2022 - 2025 | ||||
| New Hampshire | 2022 - 2025 | ||||
(1) The Company’s Corporate Income Tax Returns for 2022 through 2024 were reviewed and closed as part of the annual IRS CAP program, with the exception for partnership investments of the Company. The Company was informed of an IRS audit of one of the partnership returns for the tax year 2022 and the IRS reserves the right to audit any years thereafter. The Company recorded in the above Unrecognized Tax Benefits a reserve associated with this Partnership audit. These years remain open in relation to those audits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 26, 2018 | |
| 2016 | Feb 23, 2017 | |
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.