RTX CorpRTX
RTX Corp Income Taxes Disclosure
NOTE 12: INCOME TAXES
Income Before Income Taxes. The sources of income before income taxes are:
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
United States (1) | $ | 5,126 | $ | 3,016 | $ | 938 | |||||||||||
| Foreign | 3,607 | 3,178 | 2,898 | ||||||||||||||
| Income before income taxes | $ | 8,733 | $ | 6,194 | $ | 3,836 | |||||||||||
(1) 2023 includes the impacts of the Powder Metal Matter.
Provision for Income Taxes. The income tax expense for the years ended December 31 are as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| United States: | |||||||||||||||||
| Federal | $ | 59 | $ | 443 | $ | 213 | |||||||||||
| State | 99 | 179 | 70 | ||||||||||||||
| Foreign | 717 | 606 | 575 | ||||||||||||||
| 875 | 1,228 | 858 | |||||||||||||||
| Future: | |||||||||||||||||
| United States: | |||||||||||||||||
| Federal | 706 | (13) | (411) | ||||||||||||||
| State | 71 | 71 | (53) | ||||||||||||||
| Foreign | 12 | (105) | 62 | ||||||||||||||
| 789 | (47) | (402) | |||||||||||||||
| Income tax expense | $ | 1,664 | $ | 1,181 | $ | 456 | |||||||||||
Prior to 2022, research and experimental expenditures were generally deductible in the period incurred. A provision enacted in the Tax Cuts and Jobs Act of 2017 (TCJA) related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022. In September and December 2023, the IRS issued interim guidance, retroactive to 2022, clarifying the capitalization requirements for certain types of research and experimental expenditures, which resulted in fewer costs being subject to capitalization. On July 4, 2025, “An Act to Provide for Reconciliation Pursuant to Title II of the H. Con. Res. 14” (the Act) was enacted. The Act allows for the immediate deductibility of research and experimental expenditures performed in the United States and certain U.S. territories. These legislative changes have impacted our federal and state current and deferred income tax provisions in the above table.
Reconciliation of Effective Income Tax Rate. The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, prospectively as of January 1, 2025. Differences between effective income tax rates and the statutory U.S. federal income tax rate are as follows:
| 2025 | ||||||||
| (dollars in millions) | Amount | Rate | ||||||
| $ | 1,834 | 21.0 | % | |||||
State and Local Income Tax, net of federal income tax effect (1) | 168 | 1.9 | ||||||
| Foreign Tax Effects | (17) | (0.2) | ||||||
| Effect of Cross-Border Tax Laws | 96 | 1.1 | ||||||
| U.S. Federal Research and development tax credit | (182) | (2.1) | ||||||
| Nontaxable or Nondeductible Items | 51 | 0.6 | ||||||
Worldwide Changes in Prior Year Unrecognized Tax Benefits(2) | (83) | (0.9) | ||||||
Other (3) | (203) | (2.3) | ||||||
| Effective income tax rate | $ | 1,664 | 19.1 | % | ||||
(1) State and local taxes include current and deferred income taxes exclusive of changes in prior year uncertain tax positions.
(2) Includes Federal, State, and Foreign income tax effects related to prior year uncertain tax positions.
(3) Includes Federal income tax benefits related to legal entity reorganizations.
| 2024 | 2023 | ||||||||||||||||
| (dollars in millions) | Amount | Rate | Amount | Rate | |||||||||||||
| Statutory U.S. federal income tax rate | $ | 1,301 | 21.0 | % | $ | 805 | 21.0 | % | |||||||||
| Tax on international activities | 6 | 0.1 | (27) | (0.7) | |||||||||||||
| Disposals of businesses | 126 | 2.0 | — | — | |||||||||||||
| U.S. research and development credit | (188) | (3.0) | (168) | (4.4) | |||||||||||||
| U.S. federal audit settlements and statute lapse | (277) | (4.5) | (59) | (1.5) | |||||||||||||
| State income tax, net | 187 | 3.0 | 17 | 0.4 | |||||||||||||
| Foreign Derived Intangible Income | (126) | (2.0) | (142) | (3.7) | |||||||||||||
Non-deductible legal charges (1) | 148 | 2.4 | 5 | 0.1 | |||||||||||||
| Other | 4 | 0.1 | 25 | 0.7 | |||||||||||||
| Effective income tax rate | $ | 1,181 | 19.1 | % | $ | 456 | 11.9 | % | |||||||||
(1) 2024 includes the impact of certain non-deductible legal charges related to the Resolution of Certain Legal Matters. See “Note 17: Commitments and Contingencies” for additional information.
Although the 2025 and 2024 effective tax rates are the same, the 2025 effective rate reflects a lower U.S. tax benefit associated with Foreign Derived Intangible Income resulting from the Act. Both periods include tax benefits associated with certain legal entity reorganizations and the tax effects of dispositions.
The 2024 effective tax rate includes tax benefits of $0.3 billion resulting from the conclusion of the examination phases of the U.S. federal income tax audits for RTX 2017 and 2018 tax years and Rockwell Collins 2016, 2017, and 2018 tax years. Also included in the 2024 effective tax rate is a $0.2 billion tax charge related to U.S. federal income taxes owed by the Company resulting from a favorable non-U.S. tax ruling Otis received in 2024. The ruling Otis received reduces U.S. foreign tax credits previously claimed by the Company in pre-separation tax years. This item is subject to a tax matters agreement entered into with Carrier and Otis in connection with the separations of those businesses in 2020. Accordingly, the Company recorded a pre-tax benefit of $0.2 billion for a portion of the indemnity owed by Otis to the Company for the reduction in foreign taxes in the pre-separation years. Additionally, the Company is indemnified by Otis for the associated interest related to the Otis non-US ruling.
The 2023 effective tax rate includes a deferred tax benefit of $0.7 billion associated with the $2.9 billion Powder Metal Matter pre-tax charge.
Income Taxes Paid. We made net income tax payments of $1.6 billion in 2025, further disaggregated as follows:
| (dollars in millions) | 2025 | ||||
Federal (1) | $ | 856 | |||
| State | 102 | ||||
Foreign (2) | 649 | ||||
| Total income taxes paid (net of refunds) | $ | 1,607 | |||
(1) Includes Internal Revenue Code Section 965 installment payments
(2) Foreign payments are spread across various jurisdictions, none of which are individually significant
Deferred Tax Assets and Liabilities. The tax effects of temporary differences and tax carryforwards which gave rise to future income tax benefits and payables at December 31, 2025 and 2024 are as follows:
| (dollars in millions) | 2025 | 2024 | |||||||||
| Future income tax benefits: | |||||||||||
| Insurance and employee benefits | $ | 865 | $ | 897 | |||||||
| Warranty provisions | 226 | 221 | |||||||||
| Capitalization of research and experimental expenditures | 1,839 | 2,208 | |||||||||
| Other basis differences | 982 | 1,060 | |||||||||
| Powder Metal Matter | 226 | 455 | |||||||||
| Tax loss and other carryforwards | 1,094 | 1,055 | |||||||||
| Tax credit carryforwards | 963 | 800 | |||||||||
| Valuation allowances | (1,431) | (1,439) | |||||||||
| Total future income tax benefits | $ | 4,764 | $ | 5,257 | |||||||
| Future income taxes payable: | |||||||||||
| Goodwill and Intangible assets | $ | 5,399 | $ | 5,675 | |||||||
| Fixed assets | 1,712 | 1,614 | |||||||||
| Inventory and contract balances | 572 | 193 | |||||||||
| Other basis differences | 629 | 627 | |||||||||
| Total future income tax payable | $ | 8,312 | $ | 8,109 | |||||||
Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards, and certain temporary differences to reduce the future income tax benefits to expected realizable amounts.
Changes to valuation allowances consisted of the following:
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at January 1 | $ | 1,439 | $ | 1,465 | $ | 842 | |||||||||||
| Additions charged to income tax expense | 68 | 228 | 170 | ||||||||||||||
| Reductions credited to income tax expense | (67) | (239) | (58) | ||||||||||||||
Other adjustments (1) | (9) | (15) | 511 | ||||||||||||||
| Balance at December 31 | $ | 1,431 | $ | 1,439 | $ | 1,465 | |||||||||||
(1) 2023 includes the addition of the indefinite-lived tax loss carryforwards now disclosed in connection with Organisation for Economic Co-operation and Development (OECD) Pillar Two.
Tax Credit, Loss and Other Carryforwards. At December 31, 2025, tax credit carryforwards, principally state and foreign, and tax loss carryforwards, principally state and foreign, were as follows:
| (dollars in millions) | Tax Credit Carryforwards | Tax Loss and Other Carryforwards | |||||||||
| Expiration period: | |||||||||||
| 2026-2030 | $ | 56 | $ | 295 | |||||||
| 2031-2035 | 52 | 90 | |||||||||
| 2036-2045 | 156 | 1,714 | |||||||||
| Indefinite | 699 | 3,773 | |||||||||
| Total | $ | 963 | $ | 5,872 | |||||||
The Company intends to repatriate certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, we recorded the taxes associated with the future remittance of these earnings. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts.
Unrecognized Tax Benefits. In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. At December 31, 2025, we had gross tax-effected unrecognized tax benefits of $1,227 million, of which $1,218 million, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023 is as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at January 1 | $ | 1,263 | $ | 1,442 | $ | 1,515 | |||||||||||
| Additions for tax positions related to the current year | 125 | 84 | 89 | ||||||||||||||
| Additions for tax positions of prior years | 19 | 164 | 5 | ||||||||||||||
| Reductions for tax positions of prior years | (47) | (13) | (141) | ||||||||||||||
| Settlements | (133) | (414) | (26) | ||||||||||||||
| Balance at December 31 | $ | 1,227 | $ | 1,263 | $ | 1,442 | |||||||||||
| Gross interest expense related to unrecognized tax benefits | $ | 68 | $ | 127 | $ | 62 | |||||||||||
| Total accrued interest balance at December 31 | 256 | 255 | 233 | ||||||||||||||
We conduct business globally and, as a result, RTX or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, India, Poland, Saudi Arabia, Singapore, Switzerland, the United Kingdom, and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2014.
In connection with certain Internal Revenue Service (IRS) audits, the Company has previously filed protests with respect to certain IRS proposed adjustments for RTX (formerly United Technologies Corporation) tax years 2017 and 2018, pre-acquisition Rockwell Collins tax years 2016, 2017, and 2018, and pre-merger Raytheon Company tax years 2017, 2018, and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015, and 2016 filed prior to the Raytheon merger. The Company is in the process of disputing these adjustments at the Appeals Division of the IRS. The Company expects resolution at the Appeals Division for the RTX and Rockwell tax years within the next twelve months. The timing of any resolution at the Appeals Division for the Raytheon Company tax years is uncertain.
During the quarter ended March 31, 2025, the Company received an unfavorable decision from the Appeals Committee of the Kingdom of Saudi Arabia (KSA) General Secretariat of the Tax Committees (GSTC) assessing taxes and delay fines. The Company appealed this decision and on December 2, 2025, the GSTC issued a final decision with respect to income tax and withholding tax assessments substantially reversing its prior assessment.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 6, 2026 | Showing above |
| 2024 | Feb 3, 2025 | |
| 2023 | Feb 5, 2024 | |
| 2022 | Feb 7, 2023 | |
| 2021 | Feb 11, 2022 | |
| 2020 | Feb 8, 2021 | |
| 2019 | Feb 6, 2020 | |
| 2017 | Feb 9, 2018 | |
| 2015 | Feb 11, 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.