Phillips 66PSX
Phillips 66 Income Taxes Disclosure
Income Taxes
Income tax expense of $47 million for the year ended December 31, 2025 and income tax benefits of $14 million and $113 million for the years ended December 31, 2024 and 2023, respectively, are reflected in “Capital in Excess of Par” on the consolidated statement of changes in equity.
Components of income tax expense (benefit) were:
| Millions of Dollars | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Federal | |||||||||||||||||
| Current | $ | 390 | 662 | 661 | |||||||||||||
| Deferred | 114 | (282) | 830 | ||||||||||||||
| Foreign | |||||||||||||||||
| Current | 261 | 78 | 394 | ||||||||||||||
| Deferred | 57 | 95 | (23) | ||||||||||||||
| State and local | |||||||||||||||||
| Current | 63 | 11 | 335 | ||||||||||||||
| Deferred | 7 | (64) | 33 | ||||||||||||||
| $ | 892 | 500 | 2,230 | ||||||||||||||
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (IRA) that includes, among other provisions, changes to the U.S. corporate income tax system, including provisions that allow a company to purchase transferable tax credits. In 2024 and 2023, we executed agreements to purchase eligible tax credits for a total of $485 million and $262 million, respectively. In 2024 and 2023, we paid $551 million and $196 million to our counterparties, respectively. These tax credits were used to offset estimated tax payments in 2024 and 2023.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:
| Millions of Dollars | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred Tax Liabilities | |||||||||||
| Properties, plants and equipment, and intangibles | $ | 3,743 | 3,493 | ||||||||
| Investment in joint ventures* | 1,094 | 1,864 | |||||||||
| Investment in subsidiaries** | 3,188 | 2,511 | |||||||||
| Other | 342 | 318 | |||||||||
| Total deferred tax liabilities | 8,367 | 8,186 | |||||||||
| Deferred Tax Assets | |||||||||||
| Benefit plan accruals | 296 | 355 | |||||||||
| Loss and credit carryforwards | 209 | 162 | |||||||||
| Asset retirement obligations and accrued environmental costs | 422 | 299 | |||||||||
| Other financial accruals and deferrals | 72 | 91 | |||||||||
| Inventory | 8 | 82 | |||||||||
| Other | 246 | 299 | |||||||||
| Total deferred tax assets | 1,253 | 1,288 | |||||||||
| Less: valuation allowance | 160 | 137 | |||||||||
| Net deferred tax assets | 1,093 | 1,151 | |||||||||
| Net deferred tax liabilities | $ | 7,274 | 7,035 | ||||||||
*2024 includes activity associated with our 50% equity interest in WRB. | |||||||||||
**Includes activity associated with our consolidated investments in Phillips 66 Partners and DCP LP. 2025 also includes activity associated with our consolidated investment in WRB, see Note 9—Investments, Loans and Long-Term Receivables for additional information. | |||||||||||
At December 31, 2025, the loss and credit carryforward deferred tax assets were primarily related to a foreign tax credit carryforward in the United States of $150 million; a state tax net operating loss carryforward of $49 million; and capital loss and net operating loss carryforwards in the United Kingdom of $10 million. State net operating loss carryforwards begin to expire in 2040. Foreign tax credit carryforwards, which have a full valuation allowance against them, begin to expire in 2029. The other loss and credit carryforwards, all of which relate to foreign operations, and have a full valuation allowance against them, have indefinite lives.
Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During the year ended December 31, 2025, our total valuation allowance balance increased by $23 million. Based on our historical taxable income, expectations for the future and available tax planning strategies, management expects the remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and the tax consequences of future taxable income.
Earnings of our foreign subsidiaries and foreign joint ventures after December 31, 2017, are generally not subject to incremental income taxes in the United States or withholding taxes in foreign countries upon repatriation. As such, we only assert that the earnings of one of our foreign subsidiaries are indefinitely reinvested. At December 31, 2025 and 2024, the unrecorded deferred tax liability related to the undistributed earnings of this foreign subsidiary was not material.
A deferred income tax liability has not been recognized on the excess of the book basis over the tax basis of an investment in a controlled foreign subsidiary that is essentially permanent in duration. Recognition of a deferred tax liability will only be required if it becomes apparent that this subsidiary will be sold or liquidated in the foreseeable future. At December 31, 2025, the temporary difference resulting from the investment book basis exceeding the tax basis was $1,766 million. Determination of the unrecognized deferred income tax liability related to this temporary difference is not practicable given the variables involved in performing such a calculation.
We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Unrecognized tax benefits reflect the difference between positions taken on income tax returns and the amounts recognized in the financial statements.
The following table is a reconciliation of the changes in our unrecognized income tax benefits balance:
| Millions of Dollars | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at January 1 | $ | 88 | 116 | 54 | |||||||||||||
| Additions for tax positions of current year | — | — | — | ||||||||||||||
| Additions for tax positions of prior years | — | — | 66 | ||||||||||||||
| Reductions for tax positions of prior years | — | (28) | (4) | ||||||||||||||
| Balance at December 31 | $ | 88 | 88 | 116 | |||||||||||||
Included in the balance of unrecognized income tax benefits at December 31, 2025, 2024 and 2023, were $87 million, $87 million and $100 million, respectively, which, if recognized, would affect our effective income tax rate.
At December 31, 2025, 2024 and 2023, accrued liabilities for interest and penalties, net of accrued income taxes, totaled $1 million, $1 million and $8 million, respectively. These accruals had no impact on our results for the year ended December 31, 2025, increased our results for the year ended December 31, 2024, by $7 million and decreased our results for the year ended December 31, 2023, by $1 million.
Audits in significant jurisdictions are generally complete as follows: United Kingdom (2022), Germany (2017) and United States (2020). Certain issues remain in dispute for audited years, and unrecognized income tax benefits for years still subject to or currently undergoing an audit are subject to change. As a consequence, the balance in unrecognized income tax benefits can be expected to fluctuate from period to period. Although it is reasonably possible such changes could be significant when compared with our total unrecognized income tax benefits, the amount of change is not estimable.
| The amounts of U.S. and foreign income before income taxes, with a reconciliation of income tax at the federal statutory rate to the recorded income tax expense (benefit), were: | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||
| United States | $ | 1,035 | 19.1 | % | 1,796 | 67.1 | 7,887 | 83.3 | |||||||||||||||||||||||||||
| Foreign | 4,385 | 80.9 | 879 | 32.9 | 1,582 | 16.7 | |||||||||||||||||||||||||||||
| $ | 5,420 | 100.0 | % | 2,675 | 100.0 | 9,469 | 100.0 | ||||||||||||||||||||||||||||
| Federal statutory income tax | 1,138 | 21.0 | 562 | 21.0 | 1,989 | 21.0 | |||||||||||||||||||||||||||||
| State income tax, net of federal income tax benefit* | 57 | 1.1 | (43) | (1.6) | 290 | 3.1 | |||||||||||||||||||||||||||||
| Foreign tax effects | |||||||||||||||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||||||||||||||
| Statutory tax rate difference between United Kingdom and United States | 59 | 1.1 | — | — | — | — | |||||||||||||||||||||||||||||
| Non-taxable gain on disposition** | (251) | (4.6) | — | — | — | — | |||||||||||||||||||||||||||||
| Other | (2) | — | — | — | — | — | |||||||||||||||||||||||||||||
| Germany | |||||||||||||||||||||||||||||||||||
| Statutory tax rate difference between Germany and United States | 308 | 5.7 | — | — | — | — | |||||||||||||||||||||||||||||
| Non-taxable gain on disposition*** | (740) | (13.7) | — | — | — | — | |||||||||||||||||||||||||||||
| Other | 12 | 0.2 | — | — | — | — | |||||||||||||||||||||||||||||
| Other foreign jurisdictions | 11 | 0.1 | (11) | (0.4) | 39 | 0.4 | |||||||||||||||||||||||||||||
| Tax law and rate changes | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Effect of cross-border tax laws | |||||||||||||||||||||||||||||||||||
| Disposition of Coop** | 220 | 4.1 | 36 | 1.4 | — | — | |||||||||||||||||||||||||||||
| Other | 59 | 1.1 | (11) | (0.4) | (43) | (0.5) | |||||||||||||||||||||||||||||
| Tax credits | (1) | — | (2) | (0.1) | (2) | — | |||||||||||||||||||||||||||||
| Changes in valuation allowances | 21 | 0.4 | 17 | 0.6 | 22 | 0.2 | |||||||||||||||||||||||||||||
| Non-taxable or non-deductible items | |||||||||||||||||||||||||||||||||||
| Discount on purchased credits | — | — | (36) | (1.3) | — | — | |||||||||||||||||||||||||||||
| Other | (7) | (0.1) | (12) | (0.5) | (74) | (0.8) | |||||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | — | — | 4 | 0.1 | 16 | 0.2 | |||||||||||||||||||||||||||||
| Other | 8 | 0.1 | (4) | (0.1) | (7) | — | |||||||||||||||||||||||||||||
| $ | 892 | 16.5 | % | 500 | 18.7 | 2,230 | 23.6 | ||||||||||||||||||||||||||||
| Note - items that do not meet the 5% threshold for disaggregation have not been separately stated. | |||||||||||||||||||||||||||||||||||
* The states that contribute to the majority (greater than 50 percent) of the tax effect in this category include Illinois, Oklahoma, New Jersey, California, and Louisiana for 2025 and 2024, and California, New Jersey, Oklahoma, and Illinois for 2023. | |||||||||||||||||||||||||||||||||||
** Related to the disposition of our ownership interest in Coop. See Note 9—Investments, Loans and Long-Term Receivables for additional information. | |||||||||||||||||||||||||||||||||||
*** Related to the disposition of 65% of our interest in Germany and Austria Marketing. See Note 9—Investments, Loans and Long-Term Receivables for additional information. | |||||||||||||||||||||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 18, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 22, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 17, 2017 | |
| 2015 | Feb 19, 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.