RESIDEO TECHNOLOGIES, INC.REZI
RESIDEO TECHNOLOGIES, INC. Income Taxes Disclosure
Income Taxes
Income tax expense is based on pretax financial accounting income. Deferred income taxes are recognized for the temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and such amounts for income tax purposes.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. It includes a broad range of tax reform provisions affecting businesses, including extending and modifying certain key Tax Cuts and Jobs Act provisions (both U.S. and non-U.S.). The tax effects of the OBBBA have been reflected in our financial results for the period ended December 31, 2025, with no material impact to the effective tax rate. We continue to assess the overall impact of potential changes as developments occur, consistent with our practice of monitoring all tax law changes.
The following is a summary of the components of income before provision for income taxes:
| Years Ended December 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| U.S. | $ | (793) | $ | (65) | $ | 76 | |||||||||||
| Non-U.S. | 336 | 286 | 237 | ||||||||||||||
| Total | $ | (457) | $ | 221 | $ | 313 | |||||||||||
The components of the provision for income taxes consisted of the following for 2025:
Year Ended December 31, | |||||
| (in millions) | 2025 | ||||
| Current: | |||||
| U.S. federal | $ | 4 | |||
| U.S. state and local | 4 | ||||
| Non-U.S. | 54 | ||||
| Total current | 62 | ||||
| Deferred: | |||||
| U.S. federal | (14) | ||||
| U.S. state and local | 3 | ||||
| Non-U.S. | 19 | ||||
| Total deferred | 8 | ||||
Total income tax expense: | |||||
| U.S. federal | (10) | ||||
| U.S. state and local | 7 | ||||
| Non-U.S. | 73 | ||||
Total income tax expense | $ | 70 | |||
The components of the provision for income taxes consisted of the following for 2024 and 2023:
Years Ended December 31, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Current: | |||||||||||
| U.S. | $ | 76 | $ | 80 | |||||||
| Non-U.S. | 60 | 51 | |||||||||
| Total current | 136 | 131 | |||||||||
| Deferred: | |||||||||||
| U.S. federal | (23) | (6) | |||||||||
| Non-U.S. | (8) | (22) | |||||||||
| Total deferred | (31) | (28) | |||||||||
| Total provision | $ | 105 | $ | 103 | |||||||
The reconciliation of income tax computed at the U.S. federal statutory tax rate to the effective income tax rate is as follows for 2025:
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| $ | % | ||||||||||
Federal statutory tax rate | $ | (96) | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect (1) | 7 | (1.5) | |||||||||
Foreign tax effects | |||||||||||
| Switzerland | |||||||||||
| Cantonal tax | 16 | (3.5) | |||||||||
| Statutory tax rate difference | (34) | 7.4 | |||||||||
Other | 2 | (0.4) | |||||||||
| Germany | |||||||||||
| Changes in valuation allowances | 6 | (1.3) | |||||||||
| Other | 3 | (0.7) | |||||||||
| Other foreign jurisdictions | 8 | (1.8) | |||||||||
Effect of cross-border tax laws | 3 | (0.7) | |||||||||
Tax credits | (5) | 1.1 | |||||||||
Changes in valuation allowances | (1) | 0.2 | |||||||||
Nontaxable or nondeductible items | |||||||||||
| Non-deductible Indemnification Agreement costs | 204 | (44.5) | |||||||||
| Interest expense deduction | (61) | 13.4 | |||||||||
§162(m) excess officer compensation | 6 | (1.3) | |||||||||
| Other | 4 | (0.9) | |||||||||
| Changes in unrecognized tax benefits | 8 | (1.8) | |||||||||
Total | $ | 70 | (15.3) | % | |||||||
(1) State taxes in New York, Florida, Pennsylvania and Tennessee made up the majority (greater than 50%) of the tax effect in this category.
The reconciliation of income tax computed at the U.S. federal statutory tax rate to the effective income tax rate is as follows for 2024 and 2023:
Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| Impact of foreign operations | (0.9) | (0.9) | |||||||||
| U.S. state income taxes | 4.9 | 4.4 | |||||||||
| Non-deductible Indemnification Agreement costs | 18.1 | 10.9 | |||||||||
Executive compensation over $1 million | 2.4 | 1.6 | |||||||||
| U.S. taxation of foreign earnings | 3.1 | 2.8 | |||||||||
| Tax credits | (2.3) | (0.8) | |||||||||
Change in tax basis in foreign assets (1) | (0.9) | (6.5) | |||||||||
| All other items, net | 1.8 | 0.2 | |||||||||
| Effective income tax rate | 47.2 | % | 32.7 | % | |||||||
(1) The 2024 impact represents subsequent adjustment to tax basis, net of valuation allowance, based on refinement of the step-up calculation. The 2023 impact represents the initial recognition of a step-up in the tax basis of intangible assets recorded under Switzerland tax reform, net of valuation allowance.
Deferred income taxes reflect the net impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. The tax effects of the temporary differences as of December 31, 2025 and 2024 are as follows:
| Years Ended December 31, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Pension | $ | 14 | $ | 17 | |||||||
Intangibles (1) | 29 | 27 | |||||||||
| Other asset basis differences | 43 | 44 | |||||||||
| Operating lease liabilities | 89 | 60 | |||||||||
| Employee compensation and benefits | 29 | 30 | |||||||||
| Inventory costing and related reserves | 16 | 15 | |||||||||
| Capitalized research and development | 2 | 56 | |||||||||
| Other accruals and reserves | 28 | 27 | |||||||||
| §163(j) carryforward | 63 | 13 | |||||||||
| Net operating losses, capital losses, and tax credits | 104 | 81 | |||||||||
| Other | 12 | 18 | |||||||||
| Gross deferred tax assets | 429 | 388 | |||||||||
| Valuation allowance | (93) | (86) | |||||||||
| Total deferred tax assets | $ | 336 | $ | 302 | |||||||
| Deferred tax liabilities: | |||||||||||
| Intangibles | $ | (191) | $ | (191) | |||||||
| Property, plant and equipment | (10) | (9) | |||||||||
| Operating lease assets | (84) | (56) | |||||||||
| Other | (6) | (10) | |||||||||
| Total deferred tax liabilities | $ | (291) | $ | (266) | |||||||
| Net deferred tax asset | $ | 45 | $ | 36 | |||||||
(1) A valuation allowance brings the net deferred tax effect of the allowed step-up of intangible assets recorded under Switzerland tax reform to the amount more likely than not to be realized.
Valuation allowance
In assessing the need for a valuation allowance, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing the relative impact of all the available positive and negative evidence regarding our forecasted taxable income using both historical and projected future operating results, the reversal of existing taxable temporary differences, taxable income in prior carry-back years (if permitted), and the availability of tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of certain types of future taxable income during the periods in which those temporary differences become deductible. In making this assessment, we consider the scheduled reversal of deferred tax liabilities, our ability to carry back the deferred tax asset, projected future taxable income, and tax planning strategies. A valuation allowance is recorded in each jurisdiction when it is more likely than not that the deferred income tax asset will not be realized. Changes in deferred tax asset valuation allowances typically impact income tax expense.
We maintain a valuation allowance of $93 million against a portion of deferred tax assets. Valuation allowances principally relate to foreign net operating loss carryforwards. As of December 31, 2025, we have deferred tax assets relating to foreign net operating loss carryforwards of $63 million. These tax losses can be carried forward to offset the income tax liabilities
on future income in these countries. Cumulative tax losses of $58 million can be carried forward indefinitely, while the remaining $5 million of tax losses must be used during tax years 2025 to 2045.
The rollforward of the valuation allowance on deferred taxes is as follows for the periods indicated:
| Years Ended December 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Beginning balance | $ | 86 | $ | 75 | $ | 63 | |||||||||||
| Additions / (Subtractions) | 7 | 11 | 12 | ||||||||||||||
| Ending balance | $ | 93 | $ | 86 | $ | 75 | |||||||||||
As of December 31, 2025, our total undistributed earnings of foreign affiliates were $1.6 billion, of which $1.1 billion was not considered indefinitely reinvested. While these earnings would not be subject to incremental U.S. tax, if we were to actually distribute these earnings, they could be subject to additional foreign income taxes and/or withholding taxes payable in foreign jurisdictions. Thus, we provide for foreign income taxes payable upon future distributions of the earnings not considered indefinitely reinvested annually. For the year ended December 31, 2025, the tax charge related to earnings that are not considered indefinitely reinvested is not material. Determination of the unrecognized deferred foreign income tax liability related to these undistributed earnings is not practicable due to the complexities associated with this hypothetical calculation.
Uncertain tax positions
The table below sets forth the changes to our gross unrecognized tax benefit as a result of uncertain tax positions, excluding interest and penalties for the years ended December 31, 2025, 2024, and 2023:
| Years Ended December 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Unrecognized tax benefits at beginning of year | $ | 24 | $ | 22 | $ | 22 | |||||||||||
| Decreases related to positions taken on items from prior years | — | — | (1) | ||||||||||||||
| Increases related to positions taken in the current year | 16 | 8 | 5 | ||||||||||||||
| Decreases due to expiration of statutes of limitations | (5) | (6) | (4) | ||||||||||||||
| Unrecognized tax benefits at end of year | $ | 35 | $ | 24 | $ | 22 | |||||||||||
Included in the balance of unrecognized tax benefits as of December 31, 2025 and December 31, 2024, are potential benefits of $35 million and $24 million, respectively, that if recognized would affect the effective tax rate.
We report accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the year ended December 31, 2025, we recognized no net expense for interest and penalties for unrecognized tax benefits and had net accumulated accrued interest and penalties of $2 million as of December 31, 2025. For the year ended December 31, 2024, we recognized no net expense for interest and penalties relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $2 million as of December 31, 2024.
Open tax periods
We file income tax returns in the U.S. federal jurisdiction, all states, and various local and foreign jurisdictions. Our U.S. federal tax returns are no longer subject to income tax examinations for taxable years before 2022. With limited exception, state, local, and foreign income tax returns for taxable years before 2021 are no longer subject to examination.
Income taxes paid, net of refunds
The following table presents the income taxes paid, net of refunds, disaggregated by jurisdiction for the year ended December 31, 2025:
Year Ended December 31, | |||||
| (in millions) | 2025 | ||||
| U.S. federal | $ | 20 | |||
U.S. state and local | 16 | ||||
Foreign | |||||
Canada | 7 | ||||
Mexico | 13 | ||||
Switzerland | 26 | ||||
| Other foreign jurisdictions | 11 | ||||
Total income tax payments, net of refunds | $ | 93 | |||
Income taxes paid, net of refunds was $162 million and $123 million for the years ended December 31, 2024 and 2023, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 14, 2024 | |
| 2022 | Feb 21, 2023 | |
| 2021 | Feb 15, 2022 | |
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.