ONITY GROUP INC.ONIT
ONITY GROUP INC. Income Taxes Disclosure
Note 21 — Income Taxes
The components of income (loss) before income taxes were as follows:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 52.2 | $ | 29.2 | $ | (68.3) | |||||||||||
| Foreign | 10.5 | 10.0 | 10.2 | ||||||||||||||
| $ | 62.7 | $ | 39.3 | $ | (58.1) | ||||||||||||
The components of income tax expense (benefit) were as follows:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
Federal (1) | $ | (8.9) | $ | 3.3 | $ | 3.5 | |||||||||||
| State | 0.4 | 0.8 | 0.3 | ||||||||||||||
Foreign (1) | 2.3 | 1.4 | 2.2 | ||||||||||||||
Total current income tax expense (benefit) | (6.2) | 5.5 | 6.0 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 9.9 | 7.0 | (14.6) | ||||||||||||||
| State | (1.3) | 1.9 | (2.6) | ||||||||||||||
| Foreign | (0.6) | (0.3) | (0.5) | ||||||||||||||
Provision for (reversal of) valuation allowance on deferred tax assets (2) | (128.6) | (8.8) | 17.3 | ||||||||||||||
Total deferred income tax expense (benefit) | (120.6) | (0.2) | (0.4) | ||||||||||||||
Income tax expense (benefit) | $ | (126.8) | $ | 5.3 | $ | 5.6 | |||||||||||
By jurisdiction: | |||||||||||||||||
| Federal | $ | (73.4) | $ | 3.3 | $ | 3.5 | |||||||||||
| State | (55.3) | 0.8 | 0.3 | ||||||||||||||
| Foreign | 1.9 | 1.2 | 1.8 | ||||||||||||||
Income tax expense (benefit) | $ | (126.8) | $ | 5.3 | $ | 5.6 | |||||||||||
(1)2024 includes $1.1 million benefit related to interest previously presented as Other (nil in 2023).
(2)2025 includes $120.1 million reversal of valuation allowances against U.S. federal and certain state deferred tax assets based on our evaluation of the realizability of these deferred tax assets as of December 31, 2025.
The following two tables present a reconciliation of the Income tax provision at the U.S. federal statutory tax rate to our Income tax provision at our actual effective income tax rate. The table below provides the reconciliation for the year ended December 31, 2025, pursuant to our adoption of ASU 2023-09, Improvements to Income Tax Disclosures, on a prospective basis (see Note 1 — Organization, Basis of Presentation and Significant Accounting Policies):
Year Ended December 31, 2025 | ||||||||
$ | % | |||||||
| Expected income tax expense (benefit) at statutory rate | $ | 13.2 | 21 | % | ||||
State and local income taxes, net of federal benefit (1) | (43.7) | (70) | ||||||
Non-taxable or non-deductible items: | ||||||||
| Executive compensation disallowance | 2.5 | 4 | ||||||
| Other permanent differences | (0.4) | (1) | ||||||
Changes in federal valuation allowances | (85.7) | (137) | ||||||
Foreign tax effects (2) | 1.2 | 2 | ||||||
Changes in unrecognized tax benefits (3) | (12.8) | (20) | ||||||
Interest on refund claims due from tax authorities | (1.2) | (2) | ||||||
Other adjustments | 0.2 | — | ||||||
| Actual income tax expense (benefit) | $ | (126.8) | (202) | % | ||||
(1)Includes $42.9 million changes in state valuation allowances, net of federal benefit. The states and local jurisdictions that, in aggregate, represented more than 50% of the effect of state and local income taxes disclosed above were, for 2025, New Jersey, California, Florida, New York and Illinois.
(2)Mostly India.
(3)Includes $13.3 million reversal of our prior year liability for uncertain tax positions.
The table below presents a reconciliation of the Income tax provision at the U.S. federal statutory tax rate to our Income tax provision at our actual effective income tax rate for the years ended December 31, 2024 and 2023, as previously disclosed, prior to the adoption of ASU 2023-09:
| Years Ended December 31, | |||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| $ | % | $ | % | ||||||||||||||
| Expected income tax expense (benefit) at statutory rate | $ | 8.2 | 21 | % | $ | (12.2) | 21 | % | |||||||||
| Differences between expected and actual income tax expense: | |||||||||||||||||
CARES Act | 0.3 | 1 | — | — | |||||||||||||
| Provision for (reversal of) valuation allowance on deferred tax assets | (8.8) | (23) | 17.3 | (30) | |||||||||||||
| Provision for (reversal of) liability for uncertain tax positions | 1.0 | 3 | 1.1 | (2) | |||||||||||||
| Interest on refund claims due from tax authorities | (1.4) | (4) | — | — | |||||||||||||
| Other provision to return differences | 0.8 | 2 | (0.1) | — | |||||||||||||
Foreign tax differential including effectively connected income and foreign withholding taxes (1) | 0.8 | 2 | 1.2 | (2) | |||||||||||||
| State tax, after Federal tax benefit | 2.2 | 6 | (1.8) | 3 | |||||||||||||
Benefit of state net operating loss (NOL) carryback claims and amended return filings | — | — | — | — | |||||||||||||
| Executive compensation disallowance | 1.7 | 4 | 1.6 | (3) | |||||||||||||
| Excess tax benefits from share-based compensation | 0.2 | — | (1.9) | 3 | |||||||||||||
| Other permanent differences | 0.4 | 1 | — | — | |||||||||||||
| Foreign tax credit (generation) utilization | — | — | 0.1 | — | |||||||||||||
| Other | 0.1 | — | 0.3 | — | |||||||||||||
| Actual income tax expense (benefit) | $ | 5.3 | 14 | % | $ | 5.6 | (10) | % | |||||||||
(1)Onity is a global company with operations in the U.S., USVI, India and the Philippines, among other jurisdictions. In the effective tax rate reconciliation above, we first calculate income tax expense attributable to worldwide continuing operations at the U.S. statutory tax
rate. The foreign tax rate differential therefore represents the difference in tax expense between jurisdictional income taxed at the U.S. statutory rate and each respective jurisdictional statutory rate.
Net deferred tax assets were comprised of the following:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
NOL carryforwards - federal and foreign | $ | 34.1 | $ | 55.3 | |||||||
NOL carryforwards and credits - state and local | 66.7 | 75.5 | |||||||||
| Interest expense disallowance | 153.4 | 170.2 | |||||||||
| Reserve for servicing exposure | 5.3 | 6.0 | |||||||||
| Accrued legal settlements | 6.2 | 3.5 | |||||||||
| Stock-based compensation expense | 7.3 | 11.3 | |||||||||
| Accrued incentive compensation | 6.3 | 6.9 | |||||||||
| Accrued other liabilities | 4.1 | 4.4 | |||||||||
| Intangible asset amortization | 5.4 | 7.2 | |||||||||
| Foreign deferred assets | 3.9 | 3.7 | |||||||||
| Bad debt and allowance for loan losses | 6.8 | 10.4 | |||||||||
| Other | 1.5 | 2.2 | |||||||||
| 301.0 | 356.6 | ||||||||||
| Deferred tax liabilities | |||||||||||
MSR amortization | 150.4 | 170.9 | |||||||||
| Other | 0.3 | 1.5 | |||||||||
| 150.7 | 172.4 | ||||||||||
Net deferred tax assets (liabilities) before valuation allowance | 150.3 | 184.2 | |||||||||
| Valuation allowance | (26.5) | (181.0) | |||||||||
| Deferred tax assets, net | $ | 123.8 | $ | 3.2 | |||||||
As of December 31, 2025, we had net deferred tax assets before valuation allowance of $150.3 million including $145.7 million in the U.S.
Valuation Allowance
We conduct periodic evaluations of positive and negative evidence to determine whether it is more likely than not that the deferred tax assets can be realized in future periods. In evaluating our ability to realize the deferred tax assets, we considered all available positive and negative evidence, including our past operating results, forecasted future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income requires significant judgment and actual operating results in future years could differ from our current assumptions, judgments and estimates.
As of December 31, 2025, we believe that the weight of the positive evidence outweighs the negative evidence regarding the realization of our U.S. federal deferred tax assets, including cumulative income in recent years, continued profitability, and expectations regarding future profitability, resulting in the release of the corresponding valuation allowance. As of December 31, 2025, for certain U.S. state net operating losses and interest expense disallowance carryforwards, we believe the weight of the negative evidence continues to outweigh the positive evidence regarding the realization of these state deferred tax assets and as a result are not considered to be more likely than not realizable; therefore, we have maintained a valuation allowance against these assets.
As of December 31, 2024, we recorded a full valuation allowance of $179.8 million on our U.S. net deferred tax assets. These U.S. jurisdictional deferred tax assets were not considered to be more likely than not realizable based on all available positive and negative evidence, as we believe that the weight of the negative evidence outweighed the positive evidence regarding the realization of our U.S. federal deferred tax assets as of December 31, 2024.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. We will continue to evaluate our ability to realize our net deferred tax assets on a quarterly basis.
Net Operating Loss Carryforwards
At December 31, 2025, we had U.S. federal NOL carryforwards of $158.1 million, of which $60.0 million will expire beginning 2032 through 2037 and $98.1 million may be carried forward indefinitely. The related deferred tax asset is $33.2 million, against which no valuation allowance has been recorded.
The state NOL and tax credit carryforwards valued at $66.7 million will expire beginning 2026 through 2045 with $12.8 million of state NOLs and tax credits generated after 2017 never expiring. We believe that it is more likely than not that the benefit from certain U.S. state NOL carryforwards will not be realized. In recognition of this risk, we have provided a total valuation allowance of $24.4 million on the $66.7 million deferred tax assets relating to the U.S. state NOL and tax credit carryforwards. If our assumptions change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets as of December 31, 2025 will be accounted for as a reduction of income tax expense.
Additionally, $334.5 million of USVI NOLs have been carried back to offset prior period tax due in the USVI and we recognized the tax-effect of this attribute as a $12.9 million income taxes receivable, of which we received $7.1 million in 2023 from the USVI.
We also have federal interest expense disallowance carryforwards under Section 163(j) of $639.5 million at December 31, 2025, which may be carried forward indefinitely. The related deferred tax asset is $134.3 million, against which no valuation allowance has been recorded. In addition, we have state interest expense disallowance carryforwards valued at $19.1 million against which a valuation allowance of $1.2 million has been recorded.
Change of Control: Annual Limitations on Utilization of Tax Attributes
NOL carryforwards may be subject to annual limitations under Internal Revenue Code Section 382 (Section 382) (or comparable provisions of foreign or state law) in the event that certain changes in ownership were to occur. We periodically evaluate our NOL carryforwards and whether certain changes in ownership have occurred that would limit our ability to utilize a portion of our NOL and tax credit carryforwards.
Uncertain Tax Positions
Our major jurisdiction tax years that remain subject to examination are our U.S. federal tax return for the years ended December 31, 2022 through the present, our USVI corporate tax return for the years ended December 31, 2022 through the present, and our India corporate tax returns for the years ended March 31, 2012 through the present. During 2021, we concluded our audit in the USVI jurisdiction for tax years 2013 - 2016 related to the carryback of losses generated in 2015 and 2016 to tax years 2013 and 2014, respectively, without any adjustment, and in December 2022, we executed a closing agreement with the BIR that calls for payment of the income tax refunds, plus accrued interest, over a two-year period ending December 31, 2024. However, the BIR has failed to remit refunds in accordance with the agreement and we have filed a lawsuit against the USVI for the unpaid portion of the refunds due. See Note 10 — Receivables and Note 27 — Contingencies for additional information.
The following table presents the activity related to unrecognized tax benefits for uncertain tax positions (excluding accrued interest and penalties):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning balance | $ | 8.7 | $ | 8.7 | $ | 8.7 | |||||||||||
| Additions for tax positions of current year | — | — | — | ||||||||||||||
| Reductions for tax positions of prior years | — | — | — | ||||||||||||||
| Reductions for settlements | — | — | — | ||||||||||||||
| Lapses in statute of limitations | (8.7) | — | — | ||||||||||||||
Ending balance (1) | $ | — | $ | 8.7 | $ | 8.7 | |||||||||||
(1)Included in the Liability for uncertain tax positions in Other liabilities.
We recognized total interest and penalties of $(4.6) million, $1.2 million and $1.2 million as income tax expense or (benefit) in 2025, 2024 and 2023, respectively. At December 31, 2025 and 2024, accruals for interest and penalties were $0.0 million and $4.6 million, respectively, and are included in the Liability for uncertain tax positions in Other liabilities. As of December 31, 2025 and 2024, we had unrecognized tax benefits for uncertain tax positions, excluding accrued interest and penalties, of $0.0 million and $8.7 million, respectively, all of which if recognized would affect the effective tax rate.
It is reasonably possible that there could be a change in the amount of our unrecognized tax benefits within the next 12 months due to activities of the Internal Revenue Service or other taxing authorities, including proposed assessments of additional tax, possible settlement of audit issues, or the expiration of applicable statutes of limitations.
Undistributed Foreign Earnings and Non-U.S. Jurisdictions
As of December 31, 2025, we have recognized a deferred tax liability of $0.3 million for foreign subsidiary undistributed earnings. We do not consider our foreign subsidiary undistributed earnings to be indefinitely invested outside the U.S.
Income Tax Payments
The individual foreign and state jurisdictions that represented more than 5% of the $7.6 million total income tax payments net of refunds for the year ended December 31, 2025, which are disclosed in the supplemental information of the consolidated statements of cash flows, were India ($3.5 million) and the state of Pennsylvania ($0.4 million).
Global Tax Reform
The Organization for Economic Co-operation and Development’s (OECD) Inclusive Framework on Base Erosion Profit Shifting (BEPS) has introduced rules to establish a global minimum corporate tax rate of 15% for multinational enterprises with a turnover of more than €750 million, commonly referred to as the Pillar Two rules. Numerous foreign countries have enacted legislation to implement the Pillar Two rules, effective beginning in 2024, or are expected to enact similar legislation. The OECD has issued rules and administrative guidance that include safe harbor rules as part of the implementation of the Pillar Two global minimum tax. We have evaluated the impact of these rules and the adoption of Pillar Two has not had any significant impact on our consolidated financial statements in 2025 and 2024 due to qualifying for certain transitional safe harbors. We will continue to monitor the potential impact of the Pillar Two proposals and developments on our consolidated financial statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2016 | Feb 23, 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.