Leidos Holdings, Inc.LDOS
Leidos Holdings, Inc. Income Taxes Disclosure
Note 18—Income Taxes
The provision for income taxes for the periods presented included the following:
| Year Ended | ||||||||||||||||||||
| (in millions) | January 2, 2026 | January 3, 2025 | December 29, 2023 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| U.S. federal | $ | 5 | $ | 381 | $ | 212 | ||||||||||||||
| State | 53 | 84 | 68 | |||||||||||||||||
| Foreign | 21 | 22 | 23 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| U.S. federal | 341 | (77) | (75) | |||||||||||||||||
| State | 27 | (13) | (20) | |||||||||||||||||
| Foreign | — | (9) | (13) | |||||||||||||||||
| Total | $ | 447 | $ | 388 | $ | 195 | ||||||||||||||
Below is the rate reconciliation pursuant to the disclosure requirements of ASU 2023-09, which represents the reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes for the periods presented:
| Year Ended | ||||||||||||||
| (dollars in millions) | January 2, 2026 | |||||||||||||
U.S. federal statutory tax rate | $ | 401 | 21.0 | % | ||||||||||
State and local income taxes, net of federal income tax effect(1) | 39 | 1.9 | ||||||||||||
Foreign tax effects | 5 | 0.3 | ||||||||||||
Effect of cross-border tax laws | 2 | 0.1 | ||||||||||||
Tax credits: | ||||||||||||||
| Research and development tax credits | (22) | (1.2) | ||||||||||||
| Other | (1) | — | ||||||||||||
Changes in valuation allowances | 3 | 0.2 | ||||||||||||
Nontaxable or nondeductible items | (2) | (0.1) | ||||||||||||
Changes in unrecognized tax benefits | 25 | 1.3 | ||||||||||||
Other adjustments | (3) | (0.1) | ||||||||||||
Effective tax rate | $ | 447 | 23.4 | % | ||||||||||
(1) State taxes in VA and MD made up the majority (greater than 50 percent) of the tax effect in this category.
The company has elected to adopt the provisions of ASU 2023-09 on a prospective basis beginning fiscal 2025 as shown above, the rate reconciliation for the periods prior to the adoption of ASU 2023-09, were as follows:
(dollars in millions) | January 3, 2025 | December 29, 2023 | ||||||||||||
| Amount computed at the statutory federal income tax rate | $ | 344 | $ | 85 | ||||||||||
| State income taxes, net of federal tax benefit | 28 | 26 | ||||||||||||
| Goodwill | — | 104 | ||||||||||||
| Research and development credits | (25) | (19) | ||||||||||||
| Excess tax benefits from stock-based compensation | (15) | (2) | ||||||||||||
| Change in valuation allowance for deferred tax assets | 4 | 3 | ||||||||||||
| Impact of foreign operations | (5) | (13) | ||||||||||||
| Dividends paid to employee stock ownership plan | (2) | (2) | ||||||||||||
| Change in accruals for uncertain tax positions | 39 | 14 | ||||||||||||
| Other | 20 | (1) | ||||||||||||
| Total | $ | 388 | $ | 195 | ||||||||||
| Effective income tax rate | 23.7 | % | 48.4 | % | ||||||||||
The decrease to the effective tax rate for fiscal 2025 compared to fiscal 2024 was primarily due to a decrease in unrecognized tax benefits, partially offset by the impacts from cross-border taxes resulting from the H.R.1 Reconciliation Act, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The decrease in the effective tax rate for fiscal 2024 compared to fiscal 2023 was due to non tax deductible goodwill impairments unfavorably impacting fiscal 2023.
Deferred income taxes are recorded for differences in the basis of assets and liabilities for financial reporting purposes and tax reporting purposes. Deferred tax assets (liabilities) were comprised of the following:
| (in millions) | January 2, 2026 | January 3, 2025 | ||||||||||||
| Capitalized research and development | $ | 39 | $ | 370 | ||||||||||
| Operating lease liabilities | 167 | 179 | ||||||||||||
| Accrued vacation and bonuses | 72 | 85 | ||||||||||||
| Reserves | 39 | 39 | ||||||||||||
| Deferred compensation | 42 | 42 | ||||||||||||
| Credits and net operating losses carryovers | 40 | 46 | ||||||||||||
| Vesting stock awards | 34 | 30 | ||||||||||||
| Deferred revenue | 5 | 9 | ||||||||||||
| Accumulated other comprehensive loss | 3 | 6 | ||||||||||||
| Other | 28 | 30 | ||||||||||||
| Total deferred tax assets | 469 | 836 | ||||||||||||
| Valuation allowance | (34) | (31) | ||||||||||||
| Deferred tax assets, net of valuation allowance | $ | 435 | $ | 805 | ||||||||||
| Purchased intangible assets | $ | (380) | $ | (361) | ||||||||||
| Operating lease right-of-use assets | (132) | (138) | ||||||||||||
| Property, plant and equipment | (84) | (98) | ||||||||||||
| Other | (12) | (7) | ||||||||||||
| Total deferred tax liabilities | (608) | (604) | ||||||||||||
| Net deferred tax assets | $ | (173) | $ | 201 | ||||||||||
On July 4, 2025, the OBBBA implemented several corporate tax law changes, including but not limited to, (1) restoring the ability to immediately expense U.S. research and development costs; (2) allowing certain taxpayers an election to deduct the unamortized balance of U.S. research and development costs capitalized in prior years; and (3) reinstating one hundred percent bonus depreciation for eligible property. Based upon our interpretation of the law as currently enacted, income taxes payable and net deferred taxes were $265 million and $230 million, respectively, lower at fiscal 2025, than our estimates prior to the OBBBA enactment.
As of fiscal 2025, we had state net operating losses of $95 million, which we expect to utilize. The losses will begin to expire in fiscal 2034. We had foreign tax credits of $26 million that will begin to expire in fiscal 2030. We expect to utilize $3 million of the foreign tax credits. We also had foreign net operating losses of $32 million, which will not expire and expect to utilize $8 million of the foreign net operating losses.
The income tax payments, net of refunds, by jurisdiction as of January 2, 2026 were as follows:
| (in millions) | Income Tax Payments | Income Tax Refunds | Total | |||||||||||||||||
| U.S. federal | $ | 181 | $ | (2) | $ | 179 | ||||||||||||||
| U.S. state & local: | ||||||||||||||||||||
| Virginia | 32 | — | 32 | |||||||||||||||||
| Other state & local | 59 | (10) | 49 | |||||||||||||||||
| Foreign: | ||||||||||||||||||||
| Australia | 16 | (1) | 15 | |||||||||||||||||
| Other foreign | 13 | (12) | 1 | |||||||||||||||||
| Total | $ | 301 | $ | (25) | $ | 276 | ||||||||||||||
The changes in the unrecognized tax benefits were as follows:
| Year Ended | ||||||||||||||||||||
| (in millions) | January 2, 2026 | January 3, 2025 | December 29, 2023 | |||||||||||||||||
| Unrecognized tax benefits at beginning of year | $ | 173 | $ | 110 | $ | 92 | ||||||||||||||
| Additions for tax positions related to current year | 20 | 81 | 58 | |||||||||||||||||
| Additions for tax positions related to prior years | 26 | 46 | 15 | |||||||||||||||||
| Reductions for tax positions related to current year | (2) | (1) | (1) | |||||||||||||||||
| Reductions for tax positions related to prior years | (116) | (59) | (54) | |||||||||||||||||
| Settlements with taxing authorities | — | (3) | — | |||||||||||||||||
| Lapse of statute of limitations | (2) | (1) | — | |||||||||||||||||
| Unrecognized tax benefits at end of year | $ | 99 | $ | 173 | $ | 110 | ||||||||||||||
| Unrecognized tax benefits that, if recognized, would affect the effective income tax rate | $ | 90 | $ | 57 | $ | 15 | ||||||||||||||
As of fiscal 2025 and 2023, unrecognized tax benefits were included within "Other long-term liabilities" on the consolidated balance sheets. As of fiscal 2024, $17 million of unrecognized tax benefits were included within "Accounts payable and accrued liabilities," and $156 million was included within "Other long-term liabilities" on the consolidated balance sheets.
For fiscal 2025, unrecognized tax benefits decreased $92 million for tax positions related to prior years, primarily as a result of uncertainty regarding capitalized research and development costs for the tax years ended fiscal 2023 and fiscal 2024, partially offset by an increase in uncertain state tax positions. In addition, unrecognized tax benefits increased $18 million for tax positions related to the current year, primarily as a result of uncertain state tax positions.
We file income tax returns in the United States and various state and foreign jurisdictions. For the years ended fiscal 2025, 2024 and 2023, we are participating in the Internal Revenue Service (“IRS”) Compliance Assurance Process (“CAP”), a real-time audit of our consolidated federal corporate income tax returns. The IRS has completed their examination of our consolidated federal income tax returns through the year ended fiscal 2022. We believe that participation in CAP should reduce tax-related uncertainties, if any. As of fiscal 2025, we were no longer subject to state, local, or foreign examinations by the tax authorities for fiscal years ended on or before December 30, 2021, except in certain limited cases.
While we believe we have adequate accruals for uncertain tax positions, the tax authorities may determine that we owe taxes in excess of recorded accruals or the recorded accruals may be in excess of the final settlement amounts agreed to by tax authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Feb 17, 2026 | Showing above |
| 2025 | Feb 11, 2025 | |
| 2023 | Feb 13, 2024 | |
| 2022 | Feb 14, 2023 | |
| 2021 | Feb 23, 2021 | |
| 2020 | Feb 18, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 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.