Qnity Electronics, Inc.Q
Qnity Electronics, Inc. Income Taxes Disclosure
INCOME TAXES
The Company operated as part of DuPont until completion of the spin off on November 1, 2025. Therefore, prior to that date, Qnity did not file separate tax returns in the U.S. federal, certain state and local, and certain foreign tax jurisdictions, as Qnity was included in the tax grouping of DuPont and its affiliate entities within the respective jurisdictions. The Company will file a separate tax return in these jurisdictions for the remainder of fiscal year 2025. The Company expects to file income tax returns on a standalone basis in most other foreign jurisdictions in which it operates for the full fiscal year 2025. Provision for income taxes included in these Consolidated Financial Statements have been calculated using the separate return basis, as if Qnity filed separate tax returns for the entirety of each of the periods presented. Prior to the spin off, the Company’s operations were calculated on a carve-out basis. Qnity’s Provision for income taxes as presented in the Consolidated Financial Statements may not be indicative of the income taxes that Qnity will generate in the future.
| Geographic Allocation of Income (Loss) and Provision for Income Taxes | 2025 | 2024 | 2023 | ||||||||
| (In millions) For the years ended December 31, | |||||||||||
| Income (loss) before income taxes | |||||||||||
| Domestic | $ | (222) | $ | (161) | $ | (171) | |||||
| Foreign | 1,184 | 1,062 | 803 | ||||||||
| Income before income taxes | $ | 962 | $ | 901 | $ | 632 | |||||
| Current tax expense | |||||||||||
| Federal | $ | 12 | $ | 14 | $ | 6 | |||||
| State and local | 4 | 4 | 2 | ||||||||
| Foreign | 296 | 240 | 170 | ||||||||
| Total current tax expense | $ | 312 | $ | 258 | $ | 178 | |||||
| Deferred tax benefit | |||||||||||
| Federal | $ | (61) | $ | (58) | $ | (55) | |||||
| State and local | (8) | (5) | (6) | ||||||||
| Foreign | (10) | (18) | (18) | ||||||||
| Total deferred tax benefit | $ | (79) | $ | (81) | $ | (79) | |||||
| Provision for income taxes | 233 | 177 | 99 | ||||||||
| Net income | $ | 729 | $ | 724 | $ | 533 | |||||
| Reconciliation to U.S. Statutory Rate | 2025 | |||||||
| (In millions) For the year ended December 31, | Amount | Rate | ||||||
| U.S. Federal Statutory Tax Rate | $ | 202 | 21.0 | % | ||||
State and Local Income Taxes, Net of Federal Income Tax Effect1 | (4) | (0.4) | ||||||
| Foreign Tax Effects | ||||||||
| China | ||||||||
| Statutory tax rate difference between China and United States | 11 | 1.1 | ||||||
| Investment based benefits | (13) | (1.3) | ||||||
| Withholding tax | 17 | 1.7 | ||||||
| Other | (1) | (0.1) | ||||||
| Japan | ||||||||
| Statutory tax rate difference between Japan and United States | 12 | 1.2 | ||||||
| Other | (1) | (0.1) | ||||||
| Singapore | ||||||||
| Statutory tax rate difference between Singapore and United States | (15) | (1.5) | ||||||
| Investment based benefits | (49) | (5.0) | ||||||
| Qualified domestic minimum top up tax | 41 | 4.2 | ||||||
| Other | 1 | 0.1 | ||||||
| Other Foreign Jurisdictions | 3 | 0.3 | ||||||
| Effects of Cross-Border Tax Laws | (3) | (0.3) | ||||||
| Tax Credits | (8) | (0.8) | ||||||
| Changes in Valuation Allowances | 3 | 0.3 | ||||||
| Nontaxable or Nondeductible Items | 8 | 0.8 | ||||||
| Changes in Unrecognized Tax Benefits | 33 | 3.4 | ||||||
| Other Adjustments | (4) | (0.4) | ||||||
| Effective Tax Rate | $ | 233 | 24.2 | % | ||||
1.State taxes in California and Massachusetts made up the majority (greater than 50 percent) of the tax effect in this category.
| Reconciliation to U.S. Statutory Rate | 2024 | 2023 | ||||||
| For the years ended December 31, | ||||||||
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | ||||
| Equity earning effect | (0.3) | (0.1) | ||||||
Foreign income taxed at rates other than the statutory U.S. federal income tax rate2 | (0.3) | (2.0) | ||||||
| U.S. tax effect of foreign earnings and dividends | 0.2 | 0.2 | ||||||
| Unrecognized tax benefits | 0.4 | (0.6) | ||||||
| State and local income taxes, net of federal income tax effect | (0.1) | (0.5) | ||||||
| Change in valuation allowance | 0.3 | — | ||||||
| Tax credits | (1.4) | (1.5) | ||||||
| Foreign-derived intangible income (FDII) | (0.2) | — | ||||||
| Other - net | — | (0.8) | ||||||
| Effective tax rate | 19.6 | % | 15.7 | % | ||||
2. Includes an expense of $36 million in connection with the settlement of an international tax audit for the year ended December 31, 2024.
Cash paid for income taxes (net of refunds) 1 | 2025 | ||||
| (In millions) For the year ended December 31, | |||||
| Federal | $ | — | |||
| State and local | — | ||||
| Foreign | |||||
| Japan | 19 | ||||
| South Korea | 18 | ||||
| China | 33 | ||||
| Taiwan | 13 | ||||
| Czech Republic | 5 | ||||
| Other foreign | 6 | ||||
| Total foreign | 94 | ||||
Total cash paid for income taxes (net of refunds)1 | $ | 94 | |||
1.Cash taxes represent the amount reported by Qnity for the first ten months, under the carve-out basis of presentation as part of the DuPont consolidated group, and the amount for the last two months as a separate taxpayer.
| Deferred Tax Balances at December 31, | 2025 | 2024 | ||||||
| (In millions) | ||||||||
| Deferred tax assets: | ||||||||
| Lease liability | $ | 113 | $ | 28 | ||||
| Research and development | 110 | 127 | ||||||
| Tax losses and credit carryforwards | 63 | 77 | ||||||
| Goodwill | 35 | 9 | ||||||
| Pension and postretirement benefit obligations | 24 | 25 | ||||||
| Inventory | 11 | 7 | ||||||
| Other accruals and reserves | 10 | 10 | ||||||
| Other - net | 10 | 8 | ||||||
| Gross deferred tax assets | $ | 376 | $ | 291 | ||||
Valuation allowances 1 | (72) | (43) | ||||||
| Total deferred tax assets | $ | 304 | $ | 248 | ||||
| Deferred tax liabilities: | ||||||||
| Intangibles | (207) | (239) | ||||||
| Property | (120) | (111) | ||||||
| Operating lease assets | (112) | (27) | ||||||
| Investments | (93) | (88) | ||||||
| Total deferred tax liabilities | $ | (532) | $ | (465) | ||||
| Total net deferred tax liability | $ | (228) | $ | (217) | ||||
1.Primarily related to recorded tax benefits and the non-realizability of tax losses and credit carryforwards from operations in the United States, Europe, and Asia Pacific.
| Operating Loss and Tax Credit Carryforwards | Deferred Tax Asset | |||||||
| (In millions) As of December 31, | 2025 | 2024 | ||||||
| Operating loss carryforwards | ||||||||
| Expire within 5 years | $ | 10 | $ | 4 | ||||
| Expire after 5 years or indefinite expiration | 31 | 45 | ||||||
| Total operating loss carryforwards | $ | 41 | $ | 49 | ||||
| Tax credit carryforwards | ||||||||
| Expire within 5 years | $ | — | $ | 1 | ||||
| Expire after 5 years or indefinite expiration | 22 | 27 | ||||||
| Total tax credit carryforwards | $ | 22 | $ | 28 | ||||
| Total Operating Loss and Tax Credit Carryforwards | $ | 63 | $ | 77 | ||||
| Total Gross Unrecognized Tax Benefits | 2025 | 2024 | 2023 | ||||||||
| (In millions), For the years ended December 31, | |||||||||||
| Total unrecognized tax benefits at January 1, | $ | 45 | $ | 44 | $ | 52 | |||||
| Decreases related to positions taken on items from prior years | — | (1) | (2) | ||||||||
| Increases related to positions taken on items from prior years | 11 | — | — | ||||||||
| Increases related to positions taken in the current year | 20 | 2 | 2 | ||||||||
| Settlement of uncertain tax positions with tax authorities | — | — | (8) | ||||||||
| Increases through equity due to spin-off | 21 | — | — | ||||||||
Total unrecognized tax benefits at December 31, | $ | 97 | $ | 45 | $ | 44 | |||||
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 90 | $ | 45 | $ | 44 | |||||
| Total amount of interest and penalties (benefit) recognized in "Provision for (benefit from) income taxes" | $ | 4 | $ | 4 | $ | 3 | |||||
| Total accrual for interest and penalties associated with unrecognized tax benefits | $ | 16 | $ | 11 | $ | 7 | |||||
Qnity files tax returns in the various national, state and local income taxing jurisdictions in which it operates, either as a separate taxpayer or as a member of DuPont’s consolidated income tax return in periods prior to the spin off. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by Qnity. As a result, there is an uncertainty in income taxes recognized in Qnity’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material impact on Qnity’s results of operations.
Tax years that remain subject to examination for Qnity’s major tax jurisdictions are shown below:
Tax Years Subject to Examination by Major Tax Jurisdiction at December 31, 2025 | Earliest Open Year | ||||
| Jurisdiction | |||||
| China | 2014 | ||||
| Japan | 2018 | ||||
| Korea | 2020 | ||||
| Singapore | 2019 | ||||
| Taiwan | 2019 | ||||
| United Kingdom | 2021 | ||||
| United States: | |||||
| Federal income tax | 2012 | ||||
| State and local income tax | 2011 | ||||
The Company has not recorded deferred tax liabilities with respect to undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested. In addition to the U.S. federal tax imposed by the Tax Cuts and Jobs Act (the “Act”) on all accumulated unrepatriated earnings through December 31, 2017, the Act introduced additional U.S. federal tax on foreign earnings, effective as of January 1, 2018. The undistributed foreign earnings at December 31, 2025 may still be subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. It is not practicable to calculate the unrecognized deferred tax liability on undistributed foreign earnings due to the complexity of the hypothetical calculation.
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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.