Motorola Solutions, Inc.MSI
Motorola Solutions, Inc. Income Taxes Disclosure
Income Taxes
The Company adopted ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" under the retrospective transition method for the year ended December 31, 2025; as a result, amounts disclosed throughout this footnote have been revised for the years ended December 31, 2024 and December 31, 2023.
Components of Income Tax Expense
Components of earnings before income taxes are as follows:
| Years ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||
| United States | $ | 2,130 | $ | 1,741 | $ | 1,791 | |||||||||||
| Foreign | 682 | 231 | 355 | ||||||||||||||
| $ | 2,812 | $ | 1,972 | $ | 2,146 | ||||||||||||
Components of income tax expenses are as follows:
| Years ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||
| Current income tax expense | |||||||||||||||||
| United States Federal | $ | 259 | $ | 410 | $ | 253 | |||||||||||
| Foreign | 183 | 62 | 141 | ||||||||||||||
| States (U.S.) | 116 | 133 | 70 | ||||||||||||||
| Total current income tax expense | $ | 558 | $ | 605 | $ | 464 | |||||||||||
| Deferred income tax expense (benefit) | |||||||||||||||||
| United States Federal | $ | 101 | $ | (207) | $ | (24) | |||||||||||
| Foreign | 7 | 23 | (17) | ||||||||||||||
| States (U.S.) | (14) | (31) | 9 | ||||||||||||||
| Total deferred income tax expense (benefit) | $ | 94 | $ | (215) | $ | (32) | |||||||||||
| Total income tax expense | $ | 652 | $ | 390 | $ | 432 | |||||||||||
Differences between income tax expense computed at the U.S. federal statutory tax rate of 21% and income tax expense as reflected in the Consolidated Statements of Operations are as follows:
| Years ended December 31 | 2025 | 2024 | 2023 | |||||||||||||||||||||||
| U.S. Federal Statutory Tax Rate | $ | 591 | 21.0 | % | $ | 414 | 21.0 | % | $ | 450 | 21.0 | % | ||||||||||||||
State and Local Income Taxes, Net of Federal Income tax effect (1) | 80 | 2.8 | % | 81 | 4.1 | % | 62 | 2.9 | % | |||||||||||||||||
| Foreign Tax Effects | ||||||||||||||||||||||||||
| Other foreign jurisdictions | 40 | 1.4 | % | 24 | 1.2 | % | 40 | 1.9 | % | |||||||||||||||||
| Effect of Cross-Border Tax Laws | ||||||||||||||||||||||||||
| Foreign-derived intangible income | (14) | (0.5) | % | (99) | (5.0) | % | (38) | (1.8) | % | |||||||||||||||||
| Other | 6 | 0.2 | % | (1) | (0.1) | % | 7 | 0.3 | % | |||||||||||||||||
| Tax Credits | ||||||||||||||||||||||||||
| Foreign tax credit | (24) | (0.8) | % | (113) | (5.7) | % | (26) | (1.2) | % | |||||||||||||||||
| Research & development credit | (17) | (0.6) | % | (22) | (1.1) | % | (19) | (0.9) | % | |||||||||||||||||
| Changes in Valuation Allowances | — | — | % | 2 | 0.1 | % | (16) | (0.7) | % | |||||||||||||||||
| Nontaxable or Nondeductible Items | ||||||||||||||||||||||||||
| Excess tax benefits on share-based payments | (38) | (1.4) | % | (35) | (1.8) | % | (29) | (1.4) | % | |||||||||||||||||
| Extinguishment of Silver Lake convertible debt | — | — | % | 124 | 6.3 | % | — | — | % | |||||||||||||||||
| Other | 24 | 0.8 | % | 17 | 0.8 | % | 5 | 0.2 | % | |||||||||||||||||
| Changes in Unrecognized Tax Benefits | 3 | 0.1 | % | (6) | (0.3) | % | (3) | (0.1) | % | |||||||||||||||||
| Other Adjustments | 1 | — | % | 4 | 0.2 | % | (1) | (0.1) | % | |||||||||||||||||
| Effective Tax Rate | $ | 652 | 23.2 | % | $ | 390 | 19.8 | % | $ | 432 | 20.1 | % | ||||||||||||||
(1) The States that contribute to the majority (greater than 50%) of the tax effect in this category include Illinois, California, New York, Florida, New Jersey, and Pennsylvania for all years, as well as Virginia for 2025. *Percentages may not add due to rounding. | ||||||||||||||||||||||||||
The effective tax rate for 2025 was higher than the current U.S. federal statutory rate of 21% primarily due to 2025 estimated U.S. state income taxes, partially offset by the recognition of excess tax benefits on share-based compensation.
In 2021, the Organization of Economic Cooperation and Development ("OECD") introduced its Pillar Two Framework Model Rules ("Pillar 2"), that was supported by over 130 countries worldwide, which is designed to impose a 15% global minimum tax on adjusted financial results. The Company continues to monitor developments in the Pillar 2 framework, including the recent release of the Side-by-Side Package by the OECD, and to assess the potential impact of Pillar 2 on its business as the countries in which it operates continue to enact legislation implementing Pillar 2. Pillar 2 did not materially impact the Company's 2025 tax liability.
Cash payments for income and withholding taxes (net of refunds) are as follows:
| Years ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||
| United States Federal | $ | 349 | $ | 431 | $ | 335 | |||||||||||
| States (U.S.) | 109 | 130 | 92 | ||||||||||||||
| Foreign: | |||||||||||||||||
| Canada* | * | * | 83 | ||||||||||||||
| Other | 111 | 66 | 77 | ||||||||||||||
| Total | $ | 569 | $ | 627 | $ | 587 | |||||||||||
*The amount of income taxes paid during the year does not meet the 5% disaggregation threshold. | |||||||||||||||||
Deferred tax balances that were recorded within Accumulated other comprehensive loss in the Company’s Consolidated Balance Sheet, rather than Income tax expense, are the result of retirement benefit adjustments and currency translation adjustments. The adjustments were charges of $3 million for the year ended December 31, 2025, charges of $16 million for the year ended December 31, 2024, and benefits of $14 million for the year ended December 31, 2023.
The Company evaluates its permanent reinvestment assertions with respect to foreign earnings at each reporting period and generally, except for certain earnings that the Company intends to reinvest indefinitely due to the capital requirements of the foreign subsidiaries or due to local country restrictions, accrues for the U.S. federal and foreign income tax applicable to the earnings. As a result of the 2017 U.S. Tax Cuts and Jobs Act ("the Tax Act"), dividends from foreign subsidiaries are now exempt or the earnings have been previously subject to U.S. tax. As a result, the tax accrual for undistributed foreign earnings is limited primarily to foreign withholding taxes and tax on inherent capital gains that would result from distribution of foreign earnings which are not permanently reinvested, and such earnings may be distributed without an additional charge.
Undistributed foreign earnings of certain foreign subsidiaries continue to be indefinitely reinvested outside the U.S. It is impracticable to determine the exact amount of unrecognized deferred tax liabilities on such earnings; however, due to the above-mentioned changes made under the Tax Act, the Company believes that the additional U.S. or foreign income tax charge with respect to such earnings, if distributed, would be immaterial.
Gross deferred tax assets were $2.5 billion and $2.4 billion for December 31, 2025 and December 31, 2024, respectively. Deferred tax assets, net of valuation allowances, were $2.4 billion at both December 31, 2025 and December 31, 2024. Gross deferred tax liabilities were $1.8 billion and $1.2 billion at December 31, 2025 and December 31, 2024, respectively.
Significant components of deferred tax assets (liabilities) are as follows:
| December 31 | 2025 | 2024 | |||||||||
| Inventory | $ | 30 | $ | 30 | |||||||
| Accrued liabilities and allowances | 105 | 87 | |||||||||
| Employee benefits | 212 | 221 | |||||||||
| Capitalized items | (237) | 391 | |||||||||
| Tax basis differences on investments | 5 | 2 | |||||||||
| Depreciation tax basis differences on fixed assets | (62) | (31) | |||||||||
| Undistributed non-U.S. earnings | (28) | (23) | |||||||||
| Tax attribute carryforwards | 152 | 98 | |||||||||
| Business reorganization | 6 | 7 | |||||||||
| Warranty and customer liabilities | 28 | 24 | |||||||||
| Deferred revenue and costs | 457 | 420 | |||||||||
| Valuation allowances | (59) | (62) | |||||||||
| Operating lease assets | (142) | (128) | |||||||||
| Operating lease liabilities | 147 | 134 | |||||||||
| Other | 23 | 24 | |||||||||
| $ | 637 | $ | 1,194 | ||||||||
At December 31, 2025 and December 31, 2024, the Company had valuation allowances of $59 million and $62 million, respectively, against its deferred tax assets, including $40 million and $42 million, respectively, relating to deferred tax assets for non-U.S. subsidiaries. The Company’s U.S. valuation allowance decreased $1 million during 2025 primarily due to the utilization and expiration of state tax attributes. The Company's Non-U.S. valuation allowance decreased $2 million during 2025 primarily due to the expiration of tax attributes. The Company believes that the remaining deferred tax assets are more-likely-than-not to be realizable based on estimates of future taxable income and the implementation of tax planning strategies.
Tax attribute carryforwards are as follows:
| December 31, 2025 | Gross Tax Loss | Tax Effected | Expiration Period | ||||||||||||||
| United States: | |||||||||||||||||
| U.S. tax losses | $ | 245 | $ | 52 | 2026-2038 | ||||||||||||
| Foreign tax credits | — | 6 | 2028-2035 | ||||||||||||||
| General business credits | — | 1 | 2030-2036 | ||||||||||||||
| Minimum tax credits | — | 25 | Unlimited | ||||||||||||||
| State tax losses | — | 10 | 2028-2045 | ||||||||||||||
| State tax credits | — | 3 | 2026-2039 | ||||||||||||||
| Non-U.S. subsidiaries: | |||||||||||||||||
| United Kingdom tax losses | 152 | 38 | Unlimited | ||||||||||||||
| Canada tax losses | 17 | 5 | 2035-2045 | ||||||||||||||
| Canada tax credits | — | 3 | 2042-2045 | ||||||||||||||
| Other subsidiaries tax losses | 47 | 9 | Various | ||||||||||||||
| $ | 461 | $ | 152 | ||||||||||||||
The Company had unrecognized tax benefits of $44 million and $42 million at December 31, 2025 and December 31, 2024, respectively, of which approximately $42 million and $40 million, if recognized, would have affected the effective tax rate for 2025 and 2024, respectively.
A roll-forward of unrecognized tax benefits is as follows:
| (in millions) | 2025 | 2024 | |||||||||
| Balance at January 1 | $ | 42 | $ | 32 | |||||||
| Additions based on tax positions related to current year | 2 | 1 | |||||||||
| Additions for tax positions of prior years | 3 | 18 | |||||||||
| Reductions for tax positions of prior years | (1) | (1) | |||||||||
| Settlements and agreements | (1) | (5) | |||||||||
| Lapse of statute of limitations | (1) | (3) | |||||||||
| Balance at December 31 | $ | 44 | $ | 42 | |||||||
The Company recorded $41 million and $39 million of unrecognized tax benefits in Other liabilities at December 31, 2025 and December 31, 2024, respectively.
The Company has several U.S. federal, U.S. state, and non-U.S. audits pending. A summary of open tax years by major jurisdiction is presented below:
| Jurisdiction | Tax Years | ||||
| United States | 2021-2025 | ||||
| Australia | 2021-2025 | ||||
| Canada | 2021-2025 | ||||
| Germany | 2018-2025 | ||||
| India | 1997-2025 | ||||
| Ireland | 2021-2025 | ||||
| Israel | 2023-2025 | ||||
| Poland | 2020-2025 | ||||
| Malaysia | 2018-2025 | ||||
| United Kingdom | 2023-2025 | ||||
Although the final resolution of the Company’s global tax disputes is uncertain, based on current information, in the opinion of the Company’s management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or liquidity. However, an unfavorable resolution of the Company’s global tax disputes could have a material adverse effect on the Company’s results of operations in the periods, and as of the dates, on which the matters are ultimately resolved.
At December 31, 2025, the Company had $32 million accrued for interest and $23 million accrued for penalties on unrecognized tax benefits. At December 31, 2024, the Company had $30 million and $23 million accrued for interest and penalties, respectively, on unrecognized tax benefits. The Company's policy is to classify the interest and penalty as a component of interest expense and other expense, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 14, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Feb 12, 2021 | |
| 2019 | Feb 14, 2020 | |
| 2018 | Feb 15, 2019 | |
| 2017 | Feb 16, 2018 | |
| 2016 | Feb 21, 2017 | |
| 2015 | Feb 23, 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.