PACCAR INC Income Taxes Disclosure

The Company’s tax rate is based on income and statutory tax rates in the various jurisdictions in which the Company operates. Tax law requires certain items to be included in or excluded from the Company’s tax returns, and in some cases to be recognized in different times than the items reflected in the Company’s financial statements. As a result, the Company’s annual tax rate reflected in its financial statements is different than that reported in its tax returns. Some of these differences are permanent, such as expenses that are not deductible in the Company’s tax return, and some differences reverse over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. The Company establishes valuation allowances for its deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Tax benefits recognized for net operating loss (NOL) carryforwards were $9.5, $8.3 and $118.2 for the years ended 2025, 2024 and 2023, respectively.

The states that contribute to the majority of the effect of the domestic state income tax expense include California, Minnesota, Tennessee, Georgia, Wisconsin and Maryland.

At December 31, 2025, the Company had NOL carryforwards totaling $441.0, consisting of $357.0 attributable to foreign subsidiaries and $84.0 related to U.S. state jurisdictions. The related NOL deferred tax asset was $116.6, against which a $5.9 valuation allowance has been recorded. The NOL carryforwards have varying expirations periods ranging from three years to indefinite, including $313.9 of foreign subsidiaries’ NOLs that do not expire. Some NOLs are subject to certain limitations under applicable laws. The Company evaluates the realizability of its NOL carryforwards on a regular basis, considering both historical results and projected future results.

In July 2025, the One Big Beautiful Bill Act (OBBBA) was enacted in the United States. Key provisions of OBBBA include reinstating a 100% deduction of qualifying research and development costs beginning in 2025, as well as a deduction for previously capitalized research and development costs, and 100% bonus depreciation for qualified property. The Company recognized the income tax timing effects of OBBBA in its 2025 financial statements, including a reduction of $365.8 in deferred tax assets as of December 31, 2025. Also from the OBBBA adoption, the Company became subject to corporate alternative minimum tax (CAMT) and recorded $42.3 of CAMT credit carryforwards at December 31, 2025. These tax credit carryforwards do not expire and are expected to be used to offset future federal income tax liabilities and, accordingly, did not impact the Company’s effective tax rate for 2025.

As of December 31, 2025, the Company intends to indefinitely reinvest its foreign earnings and cash unless such repatriation results in no or minimal tax costs. For the earnings the Company intends to indefinitely reinvest, no deferred tax liabilities for foreign withholding or other taxes have been recorded.

The Company had $27.9, $38.9 and $31.2 of unrecognized tax benefits, all of which would impact the effective tax rate, if recognized, as of December 31, 2025, 2024 and 2023, respectively.

The Company recognized a $.3 net benefit in 2025, and interest expense of $1.1 and $.8 in 2024 and 2023, respectively. Accrued interest expense and penalties were $2.4, $2.7 and $1.7 as of December 31, 2025, 2024 and 2023, respectively. Interest and penalties are classified as Income taxes in the Consolidated Statements of Income.

The Company believes it is reasonably possible that approximately $8.5 of unrecognized tax benefits, primarily related to research and development tax credits, may be resolved within the next 12 months. As of December 31, 2025, the statute of limitations has lapsed for U.S. federal income tax purposes for all years prior to 2022. The Company’s open years for tax examinations in other major jurisdictions include 2011 through 2025.