PayPal Holdings, Inc.PYPL
PayPal Holdings, Inc. Income Taxes Disclosure
INCOME TAXES
The components of income before income taxes were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| United States | $ | 1,453 | $ | 946 | $ | 993 | |||||||||||
| International | 4,839 | 4,383 | 4,418 | ||||||||||||||
| Income before income taxes | $ | 6,292 | $ | 5,329 | $ | 5,411 | |||||||||||
The income tax expense was composed of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (116) | $ | 342 | $ | 1,031 | |||||||||||
| State and local | 65 | 107 | 145 | ||||||||||||||
| Foreign | 893 | 502 | 657 | ||||||||||||||
Total current portion of income tax expense | $ | 842 | $ | 951 | $ | 1,833 | |||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | 295 | $ | 278 | $ | (490) | |||||||||||
| State and local | (15) | (29) | (79) | ||||||||||||||
| Foreign | (63) | (18) | (99) | ||||||||||||||
| Total deferred portion of income tax expense (benefit) | 217 | 231 | (668) | ||||||||||||||
Income tax expense | $ | 1,059 | $ | 1,182 | $ | 1,165 | |||||||||||
The following is a reconciliation of the difference between the effective income tax rate and the federal statutory tax rate:
| Year Ended December 31, 2025 | |||||||||||
| $ Amount (in millions) | % | ||||||||||
Tax provision at the U.S. federal statutory rate | $ | 1,321 | 21.0 | % | |||||||
State and local income tax, net of federal income tax effect(1) | (22) | (0.3) | % | ||||||||
Foreign tax effects: | |||||||||||
Singapore | |||||||||||
Statutory tax rate difference between Singapore and the U.S. | (155) | (2.5) | % | ||||||||
Incentive agreement | (466) | (7.4) | % | ||||||||
Qualified domestic minimum top-up tax | 370 | 5.9 | % | ||||||||
Other | 2 | — | % | ||||||||
Other foreign jurisdictions | 14 | 0.2 | % | ||||||||
Effect of cross-border tax laws | 21 | 0.3 | % | ||||||||
Tax credits: | |||||||||||
Research and development | (99) | (1.6) | % | ||||||||
Changes in valuation allowances(2) | 312 | 5.0 | % | ||||||||
Nontaxable or nondeductible items | 47 | 0.7 | % | ||||||||
Changes in unrecognized tax benefits(3) | 225 | 3.6 | % | ||||||||
Other: | |||||||||||
Internal legal entity restructuring(2) | (518) | (8.2) | % | ||||||||
| Other rate drivers | 7 | 0.1 | % | ||||||||
Income tax expense and effective income tax rate | $ | 1,059 | 16.8 | % | |||||||
(1) The state that contributed to the majority (greater than 50%) of the tax effect in this category was California.
(2) “Internal legal entity restructuring” includes $299 million of U.S. tax attributes generated, which are not more-likely-than-not to be realized, and is offset in “Changes in valuation allowances.”
(3) PayPal made a policy election to aggregate changes in unrecognized tax benefits for all jurisdictions in this line item.
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the following is a reconciliation of the difference between the effective income tax rate and the federal statutory tax rate:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | |||||||
| Domestic income taxed at different rates | 0.1 | % | (1.5) | % | |||||||
| State taxes, net of federal benefit | 1.1 | % | 1.1 | % | |||||||
| Foreign income taxed at different rates | (4.3) | % | (5.1) | % | |||||||
| Stock-based compensation expense | 2.6 | % | 3.5 | % | |||||||
| Tax credits | 0.6 | % | (0.7) | % | |||||||
| Change in valuation allowances | 0.6 | % | — | % | |||||||
| Other | 0.5 | % | 3.2 | % | |||||||
| Effective income tax rate | 22.2 | % | 21.5 | % | |||||||
The following table presents supplemental cash flow information related to income taxes paid (net of refunds received):
| Year Ended December 31, 2025 | |||||
| (In millions) | |||||
US federal | $ | 535 | |||
US state and local: | |||||
Other | 19 | ||||
Foreign: | |||||
Singapore | 254 | ||||
| Luxembourg | 96 | ||||
Other | 195 | ||||
Total cash taxes paid, net of refunds received | $ | 1,099 | |||
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities consist of the following:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In millions) | |||||||||||
| Deferred tax assets: | |||||||||||
| Tax attribute carryforwards | $ | 911 | $ | 265 | |||||||
Accruals and allowances | 603 | 546 | |||||||||
| Lease liabilities | 168 | 194 | |||||||||
| Stock-based compensation | 83 | 93 | |||||||||
Capitalized research and development | 715 | 1,077 | |||||||||
Other items | 54 | 63 | |||||||||
| Total deferred tax assets | 2,534 | 2,238 | |||||||||
Valuation allowance(1) | (736) | (240) | |||||||||
Total deferred tax assets, net of valuation allowance | $ | 1,798 | $ | 1,998 | |||||||
| Deferred tax liabilities: | |||||||||||
| ROU lease assets | $ | (131) | $ | (153) | |||||||
Capitalized software development costs | (184) | (176) | |||||||||
| Net unrealized gains | (119) | (97) | |||||||||
Other items | (111) | (74) | |||||||||
| Total deferred tax liabilities | (545) | (500) | |||||||||
| Net deferred tax assets | $ | 1,253 | $ | 1,498 | |||||||
(1) For the year ended December 31, 2025, we had an increase in our valuation allowance of $496 million, primarily driven by an increase in our U.S. federal tax attributes generated as part of an internal legal entity restructuring, as well as an increase in our U.S. state tax attributes due to a change in our state apportionment rates, which are not more-likely-than-not to be realized.
As of December 31, 2025, our net foreign net operating loss carryforwards for income tax purposes were approximately $184 million, and certain of these amounts are subject to an annual limitation. If not utilized, a portion of these losses will begin to expire in 2026. As of December 31, 2025, our net U.S. Federal capital loss carryforward was approximately $299 million, which will expire in 2030. As of December 31, 2025, our net California research and development tax credit carryforwards for income tax purposes were approximately $141 million, which may be carried forward indefinitely. As of December 31, 2025, our Federal corporate alternative minimum tax credit carryforward was approximately $144 million, which may be carried forward indefinitely. It is more likely than not that most of these net operating loss, capital loss, and research and development tax credit carryforward deferred tax assets will not be realized and a valuation allowance has been recorded against these assets.
Repatriation of our foreign earnings for use in the U.S. is generally not expected to result in a significant amount of income taxes; as a result, the corresponding deferred tax liability we have accrued is not material.
We benefit from agreements concluded in certain jurisdictions, most significantly Singapore. The Singapore agreement is effective through 2030, results in significantly lower rates of taxation on certain classes of income and requires various thresholds of investment and employment in that jurisdiction. We review our compliance on an annual basis to ensure we continue to meet our obligations under this agreement. This agreement, after factoring in any qualified domestic minimum top-up tax in 2025 onward, resulted in tax savings of approximately $96 million, $473 million, and $441 million in 2025, 2024, and 2023, respectively. Excluding the effect of U.S. and foreign tax legislation, the benefit of this agreement on our diluted net income (loss) per share was approximately $0.10, $0.46, and $0.40 in 2025, 2024, and 2023, respectively. These results may further vary based on our overall tax profile.
On July 4, 2025, the One Big Beautiful Bill Act (the “Act”) was enacted into law in the U.S., with certain provisions of the Act effective in 2025 and other provisions becoming effective in 2026 and beyond. The provisions of the Act effective in 2025 were not material and have been reflected in our results, as applicable.
The following table reflects changes in unrecognized tax benefits for the periods presented below:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Gross amounts of unrecognized tax benefits as of the beginning of the period | $ | 2,320 | $ | 2,236 | $ | 1,877 | |||||||||||
| Increases related to prior period tax positions | 240 | 44 | 178 | ||||||||||||||
| Decreases related to prior period tax positions | (155) | (201) | (30) | ||||||||||||||
| Increases related to current period tax positions | 276 | 280 | 235 | ||||||||||||||
| Settlements | (90) | — | — | ||||||||||||||
| Statute of limitation expirations | (46) | (39) | (24) | ||||||||||||||
| Gross amounts of unrecognized tax benefits as of the end of the period | $ | 2,545 | $ | 2,320 | $ | 2,236 | |||||||||||
If the remaining balance of unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $1.7 billion.
For the years ended December 31, 2025, 2024, and 2023, we recognized net interest and penalties of $73 million, $50 million, and $151 million, respectively, related to uncertain tax positions in income tax expense. This expense is reflected in the “Changes in unrecognized tax benefits” line of our effective income tax rate schedule for 2025 and “Other” line of our effective income tax rate schedule for 2024 and 2023. The amount of interest and penalties accrued as of December 31, 2025 and 2024 was approximately $637 million and $556 million, respectively.
We are subject to taxation in the U.S. and various state and foreign jurisdictions. We are currently under examination by certain tax authorities for the 2013 to 2024 tax years. The material jurisdictions in which we are subject to examination by tax authorities for tax years after 2012 primarily include the U.S. (Federal and California), India, Singapore, and Israel. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from our open examinations.
Due to various factors, including uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, the timing of the resolution of these unrecognized tax benefits is highly uncertain. It is reasonably possible that within the next twelve months, we may receive additional tax adjustments by various tax authorities or possibly reach resolution of audits in one or more jurisdictions. These adjustments or settlements could result in changes to our unrecognized tax benefits related to positions on prior year tax filings.
In connection with our separation from eBay in 2015, we entered into various agreements that govern the relationship between the parties going forward, including a tax matters agreement. Under the tax matters agreement, eBay is generally responsible for all additional taxes (and will be entitled to all related refunds of taxes) imposed on eBay and its subsidiaries (including subsidiaries that were transferred to PayPal pursuant to the separation) arising after the separation date with respect to the taxable periods (or portions thereof) ended on or prior to July 17, 2015, except for those taxes for which PayPal reflected an unrecognized tax benefit on the separation date.
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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.