Frontdoor, Inc. Income Taxes Disclosure
Note 6. Income Taxes
For the years ended December 31, 2025, 2024 and 2023, we had $2 million, $3 million and $5 million of unrecognized tax benefits, respectively, all of which would impact the effective tax rate if recognized.
The table below summarizes the changes in gross unrecognized tax benefits:
(In millions) |
|
|
|
||
Balance as of December 31, 2023 |
|
$ |
|
5 |
|
Decreases in tax positions for current year |
|
|
|
(2 |
) |
Balance as of December 31, 2024 |
|
|
|
3 |
|
Decreases in tax positions for current year |
|
|
|
(1 |
) |
Balance as of December 31, 2025 |
|
$ |
|
2 |
|
Interest and penalties accrued on the liability for unrecognized tax benefits and recognized as income tax expense are less than $1 million as of December 31, 2025.
We are subject to taxation in the United States, various states and foreign jurisdictions. Due to expired statutes, the majority of our U.S. federal, state and local income tax returns for the years prior to 2022 are no longer subject to examination by tax authorities. Substantially all of our income before income taxes for the years ended December 31, 2025, 2024 and 2023 was generated in the United States.
The reconciliation of income tax computed at the U.S. federal statutory tax rate to our effective income tax rate for the year ended December 31, 2025 is as follows:
|
|
Year Ended |
|||||||||
. federal statutory tax |
|
$ |
|
71 |
|
|
|
21.0 |
|
|
% |
, net of federal income tax effects(1) |
|
|
|
11 |
|
|
|
3.3 |
|
|
|
Tax credits |
|
|
|
(1 |
) |
|
|
(0.2 |
) |
|
|
Nontaxable or nondeductible items |
|
|
|
2 |
|
|
|
0.6 |
|
|
|
Changes in valuation allowances |
|
|
|
1 |
|
|
|
0.2 |
|
|
|
Total tax provision and effective tax rate |
|
$ |
|
84 |
|
|
|
24.7 |
|
|
% |
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the reconciliation of income tax computed at the U.S. federal statutory tax rate to our effective income tax rate is as follows:
|
|
Year Ended |
||||||||
|
|
2024 |
|
2023 |
||||||
Tax at U.S. federal statutory rate |
|
|
21.0 |
|
% |
|
|
21.0 |
|
% |
State and local income taxes, net of U.S. federal benefit |
|
|
2.6 |
|
|
|
|
2.4 |
|
|
Other permanent items |
|
|
0.8 |
|
|
|
|
0.9 |
|
|
Stock-based compensation |
|
|
0.3 |
|
|
|
|
1.2 |
|
|
Goodwill impairment |
|
|
— |
|
|
|
|
— |
|
|
Tax credits |
|
|
(0.7 |
) |
|
|
|
(0.7 |
) |
|
Uncertain tax positions |
|
|
— |
|
|
|
|
0.2 |
|
|
Effective rate |
|
|
24.1 |
|
% |
|
|
25.0 |
|
% |
Income tax expense is as follows:
|
|
Year Ended |
|
||||||||||||
(In millions) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
||||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
$ |
|
63 |
|
|
$ |
|
63 |
|
|
$ |
|
60 |
|
State and local |
|
|
|
11 |
|
|
|
|
10 |
|
|
|
|
10 |
|
Total current income taxes |
|
|
|
74 |
|
|
|
|
74 |
|
|
|
|
70 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
|
|
7 |
|
|
|
|
— |
|
|
|
|
(11 |
) |
State and local |
|
|
|
2 |
|
|
|
|
— |
|
|
|
|
(3 |
) |
Total deferred income taxes |
|
|
|
9 |
|
|
|
|
— |
|
|
|
|
(13 |
) |
Provision for income taxes |
|
$ |
|
84 |
|
|
$ |
|
74 |
|
|
$ |
|
57 |
|
Significant components of our deferred tax balances are as follows:
|
|
As of |
|
|||||||
(In millions) |
|
2025 |
|
|
2024 |
|
||||
Long-term deferred tax assets (liabilities): |
|
|
|
|
|
|
|
|
||
Intangible assets |
|
$ |
|
(106 |
) |
|
$ |
|
(115 |
) |
Unearned revenue |
|
|
|
40 |
|
|
|
|
38 |
|
Property and equipment |
|
|
|
(5 |
) |
|
|
|
9 |
|
Deferred customer acquisition costs |
|
|
|
(5 |
) |
|
|
|
(3 |
) |
Other assets |
|
|
|
(4 |
) |
|
|
|
(5 |
) |
Accrued salaries and wages |
|
|
|
9 |
|
|
|
|
7 |
|
Accrued liabilities |
|
|
|
1 |
|
|
|
|
2 |
|
Other long-term liabilities |
|
|
|
6 |
|
|
|
|
6 |
|
Operating lease liabilities |
|
|
|
5 |
|
|
|
|
6 |
|
Deferred interest expense |
|
|
|
5 |
|
|
|
|
5 |
|
Tax credits and loss carryforwards |
|
|
|
3 |
|
|
|
|
3 |
|
Valuation allowance |
|
|
|
(3 |
) |
|
|
|
(2 |
) |
Net long-term deferred tax liabilities |
|
$ |
|
(53 |
) |
|
$ |
|
(49 |
) |
On July 4, 2025, the One Big Beautiful Bill Act (the “Bill”) was enacted into U.S. law. Certain provisions are applicable to the Company beginning in 2025, while other provisions will be implemented in future periods. As a result of the Bill, we recognized an increase in our net deferred tax liability and a decrease to our income tax payable resulting from the restoration of full expensing of U.S. research and experimentation expenditures and reinstating the 100% bonus depreciation for eligible assets. We do not expect any current or ongoing material impact to our effective tax rate as a result of the Bill.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 28, 2019 | |
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.