Fortrea Holdings Inc.FTRE
Fortrea Holdings Inc. Income Taxes Disclosure
INCOME TAXES
The sources of income before taxes, classified between domestic and foreign entities are as follows:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (641.1) | $ | (390.3) | $ | (141.4) | |||||||||||
| Foreign | (341.9) | 115.3 | 110.9 | ||||||||||||||
| Total pre-tax loss | $ | (983.0) | $ | (275.0) | $ | (30.5) | |||||||||||
Income tax expense (benefit) in the accompanying consolidated and combined statements of operations consist of the following:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 3.7 | $ | (2.3) | $ | 16.5 | |||||||||||
| State | 1.0 | 0.2 | (0.1) | ||||||||||||||
| Foreign | 29.1 | 37.7 | 23.9 | ||||||||||||||
| $ | 33.8 | $ | 35.6 | $ | 40.3 | ||||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | (8.7) | $ | (26.1) | $ | (37.4) | |||||||||||
| State | (6.3) | — | (3.5) | ||||||||||||||
| Foreign | (15.6) | (13.0) | 1.8 | ||||||||||||||
| (30.6) | (39.1) | (39.1) | |||||||||||||||
| Income tax expense (benefit) | $ | 3.2 | $ | (3.5) | $ | 1.2 | |||||||||||
Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, cash paid for income taxes, net of refunds, by jurisdiction are as follows:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. Federal | $ | — | $ | 29.0 | $ | — | |||||||||||
| U.S. State | |||||||||||||||||
| California | (1.3) | — | — | ||||||||||||||
| Other | 1.2 | 7.1 | — | ||||||||||||||
| Foreign | |||||||||||||||||
| Australia | — | — | 1.3 | ||||||||||||||
| Belgium | — | — | 1.3 | ||||||||||||||
| Brazil | 1.6 | — | 1.5 | ||||||||||||||
| Canada | — | — | 1.9 | ||||||||||||||
| China | — | 4.0 | 3.5 | ||||||||||||||
| Germany | 3.1 | — | 2.0 | ||||||||||||||
| India | 7.0 | 4.1 | 3.6 | ||||||||||||||
| Ireland | 1.0 | — | — | ||||||||||||||
| Italy | 1.0 | — | — | ||||||||||||||
| Spain | (1.6) | — | (1.2) | ||||||||||||||
| Other | 4.9 | 9.5 | 4.1 | ||||||||||||||
| $ | 16.9 | $ | 53.7 | $ | 18.0 | ||||||||||||
Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, the reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the year ended December 31, 2025 was as follows:
Year Ended December 31, 2025 | |||||||||||
| Amount | ETR% | ||||||||||
| Statutory U.S. rate | $ | (206.4) | 21.0 | % | |||||||
| Effect of cross-border tax laws | — | — | |||||||||
| Tax credits | (1.2) | 0.1 | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Goodwill impairment | 84.0 | (8.6) | |||||||||
| Other | 14.1 | (1.4) | |||||||||
| Valuation allowance | 17.8 | (1.8) | |||||||||
| Other | 14.9 | (1.5) | |||||||||
| State and local income taxes, net of U.S. Federal income tax effect | (5.4) | 0.6 | |||||||||
| Foreign tax effects | |||||||||||
| United Kingdom | |||||||||||
| Goodwill impairment | 52.6 | (5.4) | |||||||||
| Other | (4.0) | 0.4 | |||||||||
| Other foreign jurisdictions | 36.6 | (3.7) | |||||||||
| Worldwide changes in unrecognized tax benefits | 0.2 | — | |||||||||
| Grand Total | $ | 3.2 | (0.3) | % | |||||||
The majority of the tax effect of state and local income taxes, net of U.S. federal income taxes results from activity in California, Massachusetts, and New Jersey.
The reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Statutory U.S. rate | 21.0 | % | 21.0 | % | |||||||
| State and local income taxes, net of U.S. Federal income tax effect | 5.0 | 12.1 | |||||||||
| Foreign earnings taxed at rates different than the statutory U.S. rate | (1.2) | (12.6) | |||||||||
| Permanent non-deductible items | (0.1) | (1.2) | |||||||||
| Changes in valuation allowance | (18.7) | 0.2 | |||||||||
| Employee benefits | (2.2) | (5.4) | |||||||||
| Changes in enacted tax rates | — | — | |||||||||
| Net tax on U.S. international income inclusions | (1.2) | (7.1) | |||||||||
| Change in uncertain tax positions | — | (1.0) | |||||||||
| R&D credit | 0.8 | 8.6 | |||||||||
| Withholding tax | (1.1) | (4.9) | |||||||||
| BEAT | — | (13.3) | |||||||||
| Adjustment to previously capitalized expenses | (2.2) | — | |||||||||
| Other | 1.2 | (0.2) | |||||||||
| Effective rate | 1.3 | % | (3.8) | % | |||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Employee compensation and benefits | $ | 13.7 | $ | 10.4 | |||||||
| Operating lease liability | 4.1 | 5.6 | |||||||||
| Acquisition and restructuring reserves | 9.4 | 8.4 | |||||||||
| Interest expense carryforward | 62.9 | 42.9 | |||||||||
| Capitalized R&D costs | 11.9 | 22.7 | |||||||||
| Loss and credit carryforwards, net | 17.2 | 7.3 | |||||||||
| Other | 5.9 | — | |||||||||
| Total gross deferred tax assets | 125.1 | 97.3 | |||||||||
| Less: valuation allowance | (46.8) | (28.5) | |||||||||
| Deferred tax assets, net of valuation allowance | $ | 78.3 | $ | 68.8 | |||||||
| Deferred tax liabilities: | |||||||||||
| Right-of-use asset | $ | (2.6) | $ | (4.1) | |||||||
| Revenue recognition | (5.3) | (8.6) | |||||||||
| Intangible assets | (148.5) | (155.1) | |||||||||
| Outside basis difference in foreign subsidiaries | (10.2) | (3.1) | |||||||||
| Property, plant and equipment | (3.1) | (5.9) | |||||||||
| Other accruals | — | (8.5) | |||||||||
| Total gross deferred tax liabilities | (169.7) | (185.3) | |||||||||
| Net deferred tax liabilities | $ | (91.4) | $ | (116.5) | |||||||
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets (“DTAs”). We have determined that the reversal of future taxable temporary differences corresponding to our deferred tax liabilities (“DTLs”) will not provide a sufficient source of income for realization of all our DTAs. Based on this evaluation, as of December 31, 2025, a valuation allowance of $43.2 has been recorded against the DTA related to Sec. 163(j) interest expense carryforward DTA. The Company will continue to monitor this situation and record a valuation allowance for the portion of its DTAs that are not expected to be realized based on the available sources of income.
The Company has U.S. Federal Net Operating Loss (“NOL”) carryforwards of $16.9 and a gross State NOL carryforward of $217.3 with $118.4 expiring between 2034 and 2045 and $98.9 having an indefinite carryforward. As of December 31, 2025, the Company has recorded a full valuation allowance of $3.6 against the DTA for these state NOLs. The Company has pre-tax foreign net operating losses of $31.2, all of which are expected to be fully realized as they either expire between 2030 and 2045 or carryforward indefinitely.
The following table shows a reconciliation of the unrecognized income tax benefits, excluding interest and penalties, from uncertain tax positions as of December 31, 2025, 2024 and 2023:
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance as of January 1 | $ | 0.4 | $ | 0.3 | $ | 1.4 | |||||||||||
| Decreases related to positions taken on prior year items | (0.1) | (0.1) | (1.4) | ||||||||||||||
| Increases related to positions taken on current year items | 0.2 | 0.2 | 0.3 | ||||||||||||||
| Balance as of December 31 | $ | 0.5 | $ | 0.4 | $ | 0.3 | |||||||||||
It is anticipated that there will be no significant changes to the unrecognized income tax benefits within the next 12 months and therefore no significant impact on the financial position, results of operations or cash flows of the Company is expected.
The Company recognizes interest and penalties related to unrecognized income tax benefits in income tax expense. Accrued interest and penalties related to uncertain tax positions are immaterial to the financial statements for December 31, 2025, 2024 and 2023, respectively. During the years ended December 31, 2025, 2024 and 2023 the Company did not recognize any interest and penalties expense.
As of December 31, 2025, 2024 and 2023, there are $0.5, $0.4 and $0.3, respectively, of tax benefits, including interest and penalties, that, if recognized would favorably affect the effective income tax rate. The operations of the Company are subject to income tax examination by taxing authorities in the jurisdictions where Labcorp filed income tax returns previously and jurisdictions where the Company will continue to file tax returns going forward. The Company has substantially concluded all U.S. federal income tax matters for years through 2018, while it filed as part of the Labcorp consolidated group, and it is currently under IRS examination for tax years 2019 to 2022. The Company has filed its U.S. federal tax return for 2023 and 2024 as a separate taxpayer and therefore those are the only years open to examination. The Company has substantially concluded all material state and local and separate foreign income tax matters through 2017. The Company has filed its own state and most foreign tax returns for 2023 and 2024 and is subject to examination for those years in all respective jurisdictions.
The Company has recognized a deferred tax liability for withholding taxes associated with certain intercompany notes related to the Separation. The Company has also cumulatively accrued applicable withholding taxes of $10.6 on the portion of foreign earnings that are not permanently reinvested in our foreign subsidiaries, which mostly represents 2024 and 2025 earnings.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Mar 13, 2024 | |
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.