MASCO CORP /DE/MAS

MASCO CORP /DE/ Income Taxes Disclosure

10-KFiled Feb 10, 20265 min read
P. INCOME TAXES
Components of income taxes on income before income taxes and the components of deferred tax assets and liabilities were as follows, in millions:

 202520242023
Income before income taxes:
U.S. $889 $881 $968 
Foreign246 280 270 
$1,135 $1,161 $1,238 
Income tax expense:
Currently payable:
U.S. Federal$123 $153 $189 
State and local17 26 47 
Foreign74 80 74 
Deferred:
U.S. Federal51 14 — 
State and local8 9 (39)
Foreign4 5 7 
$277 $287 $278 
Deferred tax assets at December 31:
Receivables$9 $8 
Inventories16 13 
Other assets, including stock-based compensation7 8 
Accrued liabilities43 48 
Noncurrent operating lease liabilities46 44 
Other long-term liabilities46 49 
Capitalized research expenditures— 48 
Net operating loss carryforward52 57 
Tax credit carryforward7 8 
226 283 
Valuation allowance(27)(27)
199 256 
Deferred tax liabilities at December 31:
Property and equipment83 77 
Operating lease right-of-use assets49 45 
Intangibles79 80 
Investment in foreign subsidiaries16 14 
Other17 16 
244 232 
Net deferred tax (liability) asset at December 31$(45)$24 
The net deferred tax (liability) asset consisted of net deferred tax assets (included in other assets) of $50 million and $62 million, and net deferred tax liabilities (included in other liabilities) of $95 million and $38 million, at December 31, 2025 and 2024, respectively.
P. INCOME TAXES (Continued)

In the fourth quarter of 2023, we recognized a $29 million state income tax benefit, net of federal expense, due to a legal restructuring of certain U.S. businesses that occurred in early 2024 which allowed for the utilization of certain loss carryforwards that were not previously recognized.
We continue to maintain a valuation allowance of $27 million on certain state and foreign deferred tax assets as of both December 31, 2025 and 2024 due primarily to cumulative losses in those jurisdictions and net operating losses that are expected to expire unused.
Our capital allocation strategy includes reinvesting in our business, maintaining an investment grade credit rating, maintaining a relevant dividend and deploying excess free cash flow to share repurchases or acquisitions. In order to provide greater flexibility in the execution of our capital allocation strategy, we may repatriate earnings from certain foreign subsidiaries. Our deferred tax balance on investment in foreign subsidiaries reflects the impact of all taxable temporary differences, including those related to substantially all undistributed foreign earnings, except those that are legally restricted, and consists primarily of foreign withholding taxes.
Of the $59 million and $65 million deferred tax assets related to the net operating loss and tax credit carryforwards at December 31, 2025 and 2024, respectively, $40 million and $46 million, respectively, will expire between 2026 and 2045, if unused, and $19 million for both periods have no expiration.
A reconciliation of income tax expense at the U.S. Federal statutory tax rate to the income tax expense on income before income taxes was as follows, in millions:
Year Ended December 31,
 202520242023
Income tax expense at U.S. Federal statutory tax rate$238 21.0 %$244 21.0 %$260 21.0 %
State and local tax effects, net of U.S. Federal tax benefit (A):
State and local taxes32 2.8 26 2.2 29 2.3 
Valuation allowance(2)(0.2)(1)(0.1)(29)(2.3)
Foreign tax effects:
Germany:
Municipal taxes15 1.4 19 1.6 17 1.3 
Other5 0.4 — — (3)(0.2)
Other foreign jurisdictions6 0.5 8 0.7 10 0.8 
Effect of cross-border tax laws(1)(0.1)(4)(0.3)(4)(0.3)
Tax credits(7)(0.6)(8)(0.7)(8)(0.6)
Nontaxable or nondeductible items:
Stock-based compensation(2)(0.2)(10)(0.9)(6)(0.5)
Nondeductible expense3 0.3 9 0.8 6 0.5 
Changes in unrecognized tax benefits(10)(0.9)3 0.3 7 0.6 
Other adjustments — — 1 0.1 (1)(0.1)
Income tax expense$277 24.4 %$287 24.7 %$278 22.5 %
(A)The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, New Jersey, Illinois, and New York for 2025; California, New York, New Jersey, Texas, and Michigan for 2024; and California, Florida, Maryland, Georgia, Oregon, and Tennessee for 2023.
P. INCOME TAXES (Concluded)
Income taxes paid by jurisdiction, exceeding 5% of the total income taxes paid by year, were as follows, in millions:
Year Ended December 31,
 202520242023
U.S. Federal$110 $160 $194 
State and local27 26 36 
Foreign:
Germany:
Corporate income tax31 24 34 
Schiltach municipal tax15 
Other10 17 23 
China15 
Other foreign jurisdictions28 33 41 
Total$236 $260 $328 
A reconciliation of the beginning and ending liability for uncertain tax positions is as follows, in millions:
 20252024
Balance at January 1$85 $84 
Current year tax positions:
Additions14 14 
Reductions(4)(1)
Prior year tax positions:
Additions— 1 
Reductions(1)— 
Lapse of applicable statutes of limitation(21)(13)
Balance at December 31$73 $85 
Liability for interest and penalties15 16 
Balance at December 31, including interest and penalties$88 $101 
If recognized, $58 million and $67 million of the liability for uncertain tax positions at December 31, 2025 and 2024, respectively, net of any U.S. Federal tax benefit, would impact our effective tax rate.
Interest and penalties recognized in income tax expense were insignificant in years ended December 31, 2025, 2024 and 2023.
Of the $88 million and $101 million total liability for uncertain tax positions (including related interest and penalties) at December 31, 2025 and 2024, respectively, $84 million and $97 million are recorded in other liabilities, respectively, and $4 million in both periods is recorded as a net offset to other assets.
We file income tax returns in the U.S. Federal jurisdiction, and various local, state and foreign jurisdictions. We continue to participate in the Compliance Assurance Process ("CAP"). CAP is a real-time audit of the U.S. Federal income tax return that allows the Internal Revenue Service ("IRS"), working in conjunction with us, to determine tax return compliance with the U.S. Federal tax law prior to filing the return. This program provides us with greater certainty about our tax liability for a given year within months, rather than years, of filing our annual tax return and greatly reduces the need for recording a liability for U.S. Federal uncertain tax positions. The IRS has completed their examination of our consolidated U.S. Federal tax returns through 2024. With few exceptions, we are no longer subject to state or foreign income tax examinations on filed returns for years before 2021.

Historical Timeline

Fiscal YearFiled
2025Feb 10, 2026Showing above
2024Feb 11, 2025
2023Feb 8, 2024
2022Feb 9, 2023
2021Feb 8, 2022
2020Feb 9, 2021
2019Feb 11, 2020
2018Feb 7, 2019
2017Feb 8, 2018
2016Feb 9, 2017
2015Feb 12, 2016

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.

Other Available Disclosures

RevenueEarnings Per ShareFair ValuePP&EGoodwill & IntangiblesLeasesSegmentsDebtCommitmentsStock CompensationNew StandardsPay vs Performance