RXO, Inc.RXO
RXO, Inc. Income Taxes Disclosure
Income Taxes
Income before taxes related to our U.S. and foreign operations is as follows:
Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| U.S. | $ | (107) | $ | (307) | $ | (2) | ||||||||||||||
| Foreign | (8) | 3 | 6 | |||||||||||||||||
| Income (loss) before income taxes | $ | (115) | $ | (304) | $ | 4 | ||||||||||||||
The components of the income tax provision (benefit) consist of the following:
Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| U.S. Federal | $ | — | $ | (2) | $ | 4 | ||||||||||||||
| State | 3 | 2 | 3 | |||||||||||||||||
| Foreign | 3 | 5 | 1 | |||||||||||||||||
| Total current income tax provision | 6 | 5 | 8 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| U.S. Federal | (20) | (14) | (8) | |||||||||||||||||
| State | — | (3) | (1) | |||||||||||||||||
| Foreign | (1) | (2) | 1 | |||||||||||||||||
| Total deferred income tax benefit | (21) | (19) | (8) | |||||||||||||||||
| Total income tax provision (benefit) | $ | (15) | $ | (14) | $ | — | ||||||||||||||
The table below provides the updated requirements of ASU 2023-09 for 2025. See Note 2 — Basis of Presentation and Significant Accounting Policies for additional details on the adoption of ASU 2023-09.
The reconciliation of the statutory federal income tax rate to the effective income tax rate for the year ended December 31, 2025, consists of the following:
| Year Ended December 31, 2025 | ||||||||||||||
| (Dollars in millions) | $ | % | ||||||||||||
| Provision for income taxes at U.S. federal statutory rate | $ | (24) | 21.0 | % | ||||||||||
State and local income taxes, net of federal benefit (1) | 3 | (2.6) | ||||||||||||
| Foreign tax effects: | ||||||||||||||
| Mexico | ||||||||||||||
| Return to provision | (4) | 3.5 | ||||||||||||
| Valuation allowance | 5 | (4.3) | ||||||||||||
| Other foreign jurisdictions | 1 | (0.9) | ||||||||||||
| Tax credits: | ||||||||||||||
| Research and development tax credits | (2) | 1.7 | ||||||||||||
| Non-taxable or non-deductible items: | ||||||||||||||
| Meals and entertainment | 1 | (0.9) | ||||||||||||
| Non-deductible compensation | 2 | (1.7) | ||||||||||||
| Goodwill impairment | 2 | (1.7) | ||||||||||||
| Other adjustments | 1 | (0.8) | ||||||||||||
| Total income tax benefit and effective tax rate | $ | (15) | 13.3 | % | ||||||||||
(1) State taxes in California, Georgia, Pennsylvania and Texas made up the majority (greater than 50%) of the tax effect in this category.
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the reconciliation of the statutory federal income tax rate to the effective income tax rate consists of the following:
Years Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| U.S. federal statutory tax rate | 21.0 | % | 21.0 | % | ||||||||||
| State taxes, net of U.S. federal benefit | 0.5 | 42.4 | ||||||||||||
| Non-deductible expenses | (1.2) | 81.6 | ||||||||||||
| Foreign rate differential | (0.1) | 17.1 | ||||||||||||
Foreign operations (1) | (0.8) | 32.2 | ||||||||||||
| Provision to return and deferred tax adjustments | (0.4) | 4.5 | ||||||||||||
| Changes in uncertain tax positions | — | (55.5) | ||||||||||||
| Non-deductible deemed non-pro rata distribution | (14.9) | — | ||||||||||||
| Other | 0.5 | (156.3) | ||||||||||||
| Effective tax rate | 4.6 | % | (13.0) | % | ||||||||||
(1) Foreign operations include the net impact of changes to valuation allowances, the cost of inclusion of foreign income in the U.S. net of foreign taxes, and permanent items related to foreign operations.
Components of the Net Deferred Tax Asset or Liability
The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows:
| December 31, | ||||||||||||||
| (In millions) | 2025 | 2024 | ||||||||||||
| Deferred tax asset | ||||||||||||||
| Net operating loss and other tax attribute carryforwards | $ | 42 | $ | 8 | ||||||||||
| Accrued expenses | 39 | 33 | ||||||||||||
| Property and equipment | — | 6 | ||||||||||||
| Other | 23 | 26 | ||||||||||||
| Total deferred tax asset | 104 | 73 | ||||||||||||
| Valuation allowance | (13) | (4) | ||||||||||||
| Total deferred tax asset, net | 91 | 69 | ||||||||||||
| Deferred tax liability | ||||||||||||||
| Intangible assets | (128) | (138) | ||||||||||||
| Property and equipment | (4) | — | ||||||||||||
| Other | (4) | (15) | ||||||||||||
| Total deferred tax liability | (136) | (153) | ||||||||||||
| Net deferred tax liability | $ | (45) | $ | (84) | ||||||||||
The deferred tax asset and deferred tax liability above are reflected on our Consolidated Balance Sheets as follows:
| December 31, | ||||||||||||||
| (In millions) | 2025 | 2024 | ||||||||||||
| Other long-term assets | $ | 6 | $ | 4 | ||||||||||
| Deferred tax liabilities | (51) | (88) | ||||||||||||
| Net deferred tax liability | $ | (45) | $ | (84) | ||||||||||
Operating Loss and Tax Credit Carryforwards
Our operating loss and tax credit carryforwards are as follows:
| December 31, | ||||||||||||||||||||
| (In millions) | Expiration Date | 2025 | 2024 | |||||||||||||||||
| Federal net operating losses for all U.S. operations | Indefinite | $ | 113 | $ | 3 | |||||||||||||||
| Tax effect (before federal benefit) of state net operating losses | Various times starting in 2028 (1) | 3 | 3 | |||||||||||||||||
| Foreign net operating losses available to offset future taxable income | Various times starting in 2029 (1) | 19 | 7 | |||||||||||||||||
| Federal tax credit carryforwards | Various times starting in 2045 | 2 | 2 | |||||||||||||||||
(1) Some losses have unlimited carryforward periods.
Valuation Allowance
We established a valuation allowance for some of our deferred tax assets, as it is more likely than not that these assets will not be realized in the foreseeable future. We concluded that the remaining deferred tax assets will more likely than not be realized, though this is not assured, and as such no valuation allowance has been provided on these assets.
The balances and activity related to our valuation allowance are as follows:
| (In millions) | Beginning Balance | Additions | Reductions | Ending Balance | ||||||||||||||||||||||
Year Ended December 31, 2025 | $ | 4 | $ | 9 | $ | — | $ | 13 | ||||||||||||||||||
Year Ended December 31, 2024 | 1 | 3 | — | 4 | ||||||||||||||||||||||
Year Ended December 31, 2023 | 1 | — | — | 1 | ||||||||||||||||||||||
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Beginning balance | $ | 8 | $ | — | $ | — | ||||||||||||||
| Gross amount of increase recorded against goodwill for uncertainties arising from acquisition | — | 8 | — | |||||||||||||||||
| Reductions due to the statute of limitations | (1) | — | — | |||||||||||||||||
| Ending balance | $ | 7 | $ | 8 | $ | — | ||||||||||||||
| Interest and penalties | — | — | — | |||||||||||||||||
| Gross unrecognized tax benefits | $ | 7 | $ | 8 | $ | — | ||||||||||||||
| Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year | $ | 7 | $ | 8 | $ | — | ||||||||||||||
We are subject to taxation in the U.S. and various states and foreign jurisdictions. As of December 31, 2025, we have no tax years under examination by the IRS, states or in any foreign jurisdictions. The U.S. federal tax return after the completion of the separation from XPO, Inc. on November 1, 2022, certain state and local returns after 2017 and non-U.S. returns after 2011 are open under relevant statutes of limitations and are subject to audit.
We consider prior year earnings and current year earnings to be permanently reinvested to the extent of working capital needs in each of the Company’s foreign subsidiaries. To the extent current earnings are in excess of working capital needs, we do not assert permanent reinvestment. Additionally, circumstances may arise in which current earnings are in excess of working capital needs, but due to regulatory restrictions, the excess earnings remain in the local jurisdictions. Where necessary, taxes resulting from foreign distributions of current and accumulated earnings have been considered in our provision for income taxes. For each of the years ended December 31, 2025 and December 31, 2024, $1 million of deferred tax liability was recorded. We have not recorded incremental income taxes for outside basis differences in its investments in foreign subsidiaries as these amounts are indefinitely reinvested. Determining the amount of unrecognized deferred tax liability related to the outside basis differences in these entities is not practicable.
Cash Paid for Income Taxes
The following is a supplemental schedule of cash paid for income taxes, net of refunds, for the year ended December 31, 2025:
| (In millions) | Year Ended December 31, 2025 | |||||||
| U.S. State and local | $ | 3 | ||||||
| Foreign | 4 | |||||||
| Total cash paid for income taxes, net of refunds | $ | 7 | ||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 9, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 13, 2024 | |
| 2022 | Feb 24, 2023 | |
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.